Creatures of different sizes often need to evolve radically different solutions to basic problems of survival. Case in point: Insects use springs to jump because they are way below the critical mass threshold for their muscles to be of significant use in explosive movements like jumping (Too Small for Big Muscles, Tiny Animals Use Springs).
Can sharia profit sharing scheme evolve radically different solution to compensate for their inability to use debt-based instruments? It must be possible. Necessity is the mother of innovation.
I recalled papers that I read when I was working on my final undergraduate thesis. My thesis was about how to make better optimization in choosing drilling location. I encountered something called Tabu search which is a mechanism that prevent an optimization algorithm to double down on spending processing power in over-exploring a certain region in the search space and instead search the other regions to check whether a superior output is possible. This solves the problem of getting stuck in local optima.
We know that zhulm, riba, and gharar is the forbidden in Islam. Can Tabu search by deliberately avoiding those forbidden aspects let us to make the leap into the less-explored regions of equity and profit sharing? In Interest Rate and Capital Flight I argued that the use of debt, bond, or loan has enable people to be lazy and too risk-averse. Why should they put in more work to achieve greater return when the yield from interest already enough? This stifles innovation as well.
Of course this is no easy feat. Much work have to be done in financial product structuring and studying the mercantile economy in the past to really understand how this kind of economic venture have been done in the past for reference. It is also need to make adaptation to the complexity of the modern economics without sacrificing its principles.
Just as US quickly snatches UK’s military bases after WWII and solidify their military presence worldwide and enable them to effectively project their power globally, can Sharia financial institution snatches key economic institution and business sector in the next financial meltdown? In order to do that, we have to make sure of several things:
- The sector is big enough to have any meaningful impact. It would be laughable if we do not have enough ammunition to execute the land grab on the humongous conventional financial industry. So building up scale is very important while waiting for the crisis.
- The sector has minimum exposure to the conventional financial sector. Given than modern finance is very interdependent, something that happen in a sector can propagate to another sector relatively quickly. Although Sharia financial institution might not be directly influenced, indirect effect can be significant. For example, in terms of monetary policy, currency availability, mutual ownership in a particular company, sharing the same customer base, impacted by similar regulations, etc. So we might want to reduce such exposure if possible. However, this might retard growth because we are behaving too carefully for an apocalypse which is not certain in its arrival timing (if at all!), so a careful analysis of the trade-off involved should be done.
- The sector has enough regulatory backing so there would be no obstacle in doing all the things it needs to do the land grab. This might involve the availability of well-financed lobbyist and the support of the electorate that can pressure politicians to pass the required reforms.
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