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Thoughts on Heaven’s Banker

Heaven’s Banker is almost an oxymoron. Heaven is where you will be rewarded for your good deeds. While being a banker means being an advocate of riba, on whom Allah and Rasul declared war upon. But the book explores the possibilities to live up to its title. Can Islamic “banks” actually exist and operate in a Sharia-compliant way and also ensuring adequate capital returns in harmony with ethical concerns?
The author chronicles the initiatives brought by Islamic and conventional banks alike in developing Islamic solutions for capital allocation, written in memoir style.
One of the thing that really concerns me is that most brainpower and resources are stashed within bulge-bracket investment banks, which treats Islamic money as “just another market”. As such. they have no ideological affinity for the spirit and the letter of Islamic law and will be the first to bail out and closes up their Islamic banking subsidiary when market condition begin to sour. This leaves the Islamic banking’s infrastructure never being developed.
One way to mitigate this is the existence of a very deep-pocketed patron for the global Islamic finance system. He can rally authorities, regulators, high net-worth individuals, institutional money, talents, and many others behind him. He would to that not in pursue of worldly returns, but as a provision to weight his balance on the Day of Judgement. A shadaqah.
Here’s my own reflection after reading the book:
Most anti-riba stances are the boring defensive ones. The average “sholeh” akhi refuses on auto-loan financing and home-loan financing for their needs. Which is laudable, because no convenience in the world can offset the threat of hellfire. But that’s it. Usually they don’t seek alternatives, let alone reforming the entire sector. Hence, what we need is cadres of smart, hungry, ambitious, and aggressive Muslims that will go on the offensive.
So, how exactly to be that deep-pocketed patron?
I still have a very little knowledge on how the world works, given my lack of experience. But at best I can propose hypotheses and start to investigate each path with scientific and empirical rigour. We have mainly two ways to generate insane amount of capital:
Managing Other People’s Money
  • Individual Capital :
  • Collect a little amount of money from a large number of people. This is the business of banks (deposits), insurance companies (premium payments), pension funds (regular cuts of monthly salary), and the likes of them. Success is very dependent on the whims of the demographics of our clients. If the clients only care for absolute capital return so much that they prefer it at the expense of Sharia-compliance, the economics of running such a firm is stacked against us. Arsenal of solutions need to be crafted to remain competitive, be it in the realm of marketing, product structuring, public education, etc.
  • Institutional Capital:
  • Make deals with firms that already collect individual capital. This is the scheme often used by private equities, venture capitals, and hedge funds. Establish relationships with pension fund, insurance companies, banks, endowment funds, and sovereign wealth funds. Convince them to put their money into our firm (instead to competitor’s firm), promising better return. Usually the partnership is structured such as the money managers as General Partner (GP) while the institutions who provide the capital act as Limited Partner (LP). Fiqih must be observed to define to what extent transactions with not-so-Islamic firms is permissible. Decision-making logic of our LPs will be different with the consumer-facing firms, as the boards of these institutions have different incentive from individuals because they are risking their client’s money instead of their own. So we as the GPs must handle this with care.
  • High-Net Worth Individuals and Family Offices:
  • This type of clientele is different. They have exponentially more money than the average individual, while their incentive is not the same with institutional capital provider. They have a need for wealth management services. While institutional capital provider more or less has the same temperament, this type of client really vary in term of personalities. From Indonesian “sultans” to Malaysian riches to Gulf States’ princes and sheikhs to Russian oligarchs to American tycoons to Chinese billionaires to European dynasties to African dictators and many more. Intense investment in relationship-building is imperative to reach them. This might be the first clients that need to be attracted, the early adopters. They are dictated by personal ideologies instead of company policy, so they should be eager to join us as their incentive is much more accomodative compared to their corporate counterparts.
Managing Own Money
  • Conglomerate Creation:
  • A conglomerate can allocate capital for one of their companies (internal capital market) if external capital markets aren’t offering as kind terms the company wants. In that way I can cross-subsidize my companies, allocating excess capital from prospering subsidiaries to inject capital for distressed subsidiaries or to starting up new subsidiaries, one of which should be something in Islamic finance. It will provide sufficient capital cushion until the subsidiary can get its number of customer beyond the necessary critical mass for it to operate profitably.
  • Sectoral Business:
  • Different sector have different mechanics in income generation:
    • Industries of the cronyism index (casinos; forestry; defense; real estate and construction; ports, airports, infrastructures and pipelines; oil, gas, coal, and mining; steel and other metals; utilities and telecoms)
    • Industries prone to information asymmetries (finance, health care services, law)
    • Industries prone to network externalities (IT, apparel retail, art dealing, broadcasting, motion picture and music, and sports)
    • Industries in perfect competition, where there are no market failure and offerings are near-identical across competitors, making it impossible to capture excess profit (your average cloth sellers in traditional market, similar offering with similar price, indistinguishable from each other)
        They differ in may things. Extractive industries like oil and gas, palm oil, coal, metals, are very dependent on commodity price and may experience cyclical shocks. Heavily regulated industries like banking and financial services may need get approval in many areas, which is exacerbated by Indonesia’s bureaucratic red tape. Consumer facing industries may need to have strong brand images to gain customer’s trust. Very technical industries such as technological  companies need highly skilled workers. Which is the best area to start? I still need to do some research. Management consulting will give some brief exposure to a variety of industries, but I suspect it will not very in-depth. So I will adjust my expectation accordingly.

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