Re-Thinking Sustainable Finance

We need a more shared, inclusive, embracive, solidaristic and balanced sustainable economy/finance model

MAGAZINE 16.07.2021, 02:34
Re-Thinking Sustainable Finance

The modern financial system is considered to have started in the XV century with the "double-entry system of accounting " used by Luca Pacioli, an Italian professor of mathematics and friend of Leonardo da Vinci, in his mathematics textbook Summa de arithmetica. In the XVII century, the essential foundations of the new economic system were laid with the establishment of joint-stock companies called East and West Indian Companies of the English and Dutch, together with the first examples of modern interest banks and the buying and selling of the stocks of these companies, first in the Amsterdam and then in the London stock exchanges. The most important activity of these companies was to monopolise the Asian, African and Mediterranean trade with alternative routes to the Silk and Spice Roads, where Muslim merchants were more active until then. With the arrival of Europeans in these regions, international trade quickly started to become a monopoly, leaving out many traders and business people that were initially from different races, languages, religions, and cultures taking part in a wide range of businesses on the Asian and African shores.

Business models created by Muslim businesspeople and merchants were obtained by Europeans in the exact style and incorporated into their economic life

Before the XVII. century, almost all types and models of companies, except joint-stock companies, were created by Muslim businesspeople and merchants in the Islamic world. These company models were obtained by Europeans in the same style and incorporated into their economic life. However, a joint-stock company model based on limited liability on the subscribed capital emerged in Europe, not in the Muslim region. Initially, politicians and even governments were the most important partners of these companies. This had provided a very different model for financial and economic life for companies in terms of financing compared to previous periods. In companies invented by Muslims, the founders' responsibility to not migrate from this world with the rightful share was related to all their assets. In contrast, the responsibility of the founders of the new joint-stock companies in the period when the foundations of the modern financial system and capitalism were laid was not limited to their assets but the capital they had committed. This allowed new companies to go beyond apprehension and establish a borrowing, funding and financial supply

The three most important institutions of the modern financial system emerged as joint-stock companies, banks and stock exchanges

What could be the most crucial reason why the Muslim world, which had risen to a significant position in the world economy and had been highly influential in international trade, especially on the silk and spice, land and sea routes, did not invent or, more accurately, reveal these three institutions while developing all other trade and financial institutions? There can be many factors. However, the most important reason is the priorities and the values system of Islam and Muslims' perspective in world views, economies and lives.

Unlike the Islamic world, in Europe, despite the apparent resistance of the church, a financial system was built with the efforts of economic elites, especially statesmen and governments. This financial system was an institutional framework that legitimises interest, which is a risk-free earning, speculative return based on an income, independent of the real economy, way of doing business and earning with an understanding that emphasised the institution instead of the person. Undoubtedly, the Netherlands and the UK played a leading role in this field.

Since their emergence in the historical process, there have been many financial crises where the three institutions have been at the heart of their existence. At this point, it is clear that individuals and institutionalisation with a "Homo Economicus" approach are pursuing interests and unlimited desires. Naturally, the modern economic/financial system is implementing new legal regulations according to needs. Nevertheless, despite all the measures taken, the duration, depth and impact of crises emerging are accumulating. Thus, alternatives are expected to emerge inevitably in the economy and financial models.

Despite all measures, the duration, depth and impact of the emerging crises is gradually escalating

The World Gross National Product (GDP) exceeded $80 trillion by the end of 2020 and has produced enough goods and services for practically everyone. However, the problems, wars, injustices, imbalances, and poverty experienced in the global political, economic and social fields are not diminishing. On the contrary, they are increasing. This means that something is wrong. We believe that one of the most critical areas that is going wrong in the economy is the unsustainable modern financial system, which produces crisis and unfair profits.

The idea of the modern world's dominant economic and financial paradigm is based on the limitations of resources and the infinite human needs on Earth. However, even though people's needs are limited, their desires and requirements are unlimited. People of the modern age who act with this understanding believe that they can reach pleasure, joy, and happiness as they consume. This problematic economic paradigm results in soil, water and air pollution. Lands and seas are filled with garbage and industrial waste. Every day, millions of people die of terror or hunger.

Evidently, this trend, paradigm, and process will begin to be scrutinised further with the new coronavirus (COVID-19) epidemic. From now on, we need a more shared, inclusive, embracive, solidaristic and balanced sustainable economy/finance model. This economic/financial approach is necessary, not just for human beings, but for the protection and survival of all living, non-living (lifeless) beings. In one respect, the COVID-19 process has provided everyone with the opportunity to rethink everything with the notion of improving humanity and protecting the environment (flora and fauna) within the framework of compassion, affection, justice and morality.

Alternatives are inevitably expected to emerge in the economy and financial models

Therefore, despite all the global adverse developments, there is a growing interest in the above-mentioned matters and new alternatives are emerging. Studies on economic and financial alternatives have gained momentum not only in Muslim countries in the East such as Indonesia and Malaysia, but also in all regions populated by Muslims, including in the West such as Europe and the USA.

Given the frequently crisis-generating aspect of interest-centred modern capitalism, the most critical and consistent approach to sustainable finance is undoubtedly the Islamic economy and finance models based on the interest-free system. It is evident that recently, global studies have been proliferating in this regard. Furthermore, in addition to institutional developments in the Islamic economy and finance, numerous academic and graduate programs and research centres have been opened in Turkey in the last few years. In this context, expanding in-depth studies in the academic field, opening new courses and programs at central universities ensure that we are more hopeful about the future of a sustainable financial system.

Human and social developments in the recent world economy, especially the economic, social, political and financial crises, are prompting humanity to seek new alternatives. Accordingly, the expectations and hopes of the mind, scientific knowledge, conscience, and in short, the human-centred brains and humanity have risen, from Turkey to all over the world, particularly in our close region. Recognising this, it is expected that the individuals and institutions in this country will increase their qualified work.

An economic/financial approach is necessary, not just for human beings, but for the protection and survival of all living, non-living (lifeless) beings

The recent involvement of Ziraat Participation Bank, Vakıf Participation Bank and Emlak Participation Bank in participation banking has a special meaning and importance to our tradition, history, civilisation and culture. This is because the modern interest-free financial institutions began to appear in Rumelia as an Ottoman invention nearly six hundred years before modern capitalism started to enjoy the financial institutions with interest rates in the West. During the period, Cash Waqfs, which financed and institutionalised the economy as well as education in a stable manner, spread to every corner of the empire. When considering the heritage of the Ottomans which continued until its final stages and the facts presented in the 14-volume work led by the author of these lines, we see that the most influential models of the long-term sustainable finance system belong to the geography of our civilisation. It is evident that accelerating and deepening these initiatives will contribute to a more stable and sustainable world finance system.

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