Islamic Economics Moving Forward: Integrated Approach of Halal Industry & Islamic Finance

Nurhastuty k. Wardhani, Lecturer at Trisakti University

The Halal industry became a trend in the last ten years while the Islamic Finance industry was initiated four decades ago. Despite the lack of integration and collaboration betweenHalal industry and Islamic Finance, these industries represent the reality of current Islamic economics worldwide. However, the strategy of Islamic economics moving forward in many Muslim countries is still unexplored since the Halal industry and Islamic Finance are moving separately. Lack of collaboration and integrated approach between the Halal industry and Islamic Finance has consequences in that the ultimate objective of Islamic economics becomes unattainable.

The blueprint of Islamic Economics

It is rare to see any Muslim countries state that they have provided a blueprint of Islamic economics. The discussion of Islamic economics in the level of government in Muslim countries is implicit, not explicitly stated. However, some Islamic economists have proposed the definition of Islamic economics. According to Zubair Hasan (2015), “Islamic economics is the subject that studies human behaviour in relation to the multiplicity of wants and scarcity of resources with alternative uses so as to maximize Falah that is the well-being both in the present world and in the hereafter.” In addition to the definition, it is emphasised by Umer Chapra (2008) that Islamic economics promote a balance between individual and social interest and support the Maqasid al-Shariah with two important elements, which are socio-economic justice and the well-being of all God’s creatures. However, the concept of Islamic economics is not translated into the government policy and lack of integration between Halal Industry and Islamic Finance. As a result, there is a significant gap between the practice of Islamic Finance and halal industry with the Maqasid Shariah (Objectives of the Shariah).

The deficit of trust in mainstream economics and crisis cycles

Is it naïve if we expect Islamic Finance to be the cure for mainstream economics? Probably not if Islamic finance holds firmly to its identity and avoids being as greedy as its conventional counterparts. Islamic Finance has the potential to show the beauty of Shariah principles as mainstream economics is having a serious problem. For instance, mainstream economics is unable to address equity issues by showing the significant gap not only between poor and rich in many countries but also the huge gap of salary between top management and blue-collar more than 8 times. Mainstream economics is also unable to address externalities issues like climate changes that affect our current reality by causing more natural disasters and loss of biodiversity. Perhaps, the biggest failure of mainstream economics is creating a deficit of trust and unavoidable crisis cycles every ten years or so.

However, expectations from the Islamic Finance industry have to be diminished. Islamic Finance seems to play defensively in the Global world. On one hand, Islamic financial industry showed that it could survive during the Asian financial crisis 1997/1998 and Global financial crisis 2008 due to lack of exposure to toxic assets while on the other, top management are not too different from conventional counterparts in focusing on credit creation particularly in the consumerist sector. Clearly, the Islamic financial industry is still midway in tackling important issues such as financial inclusion and contributing to real sectors. Islamic Finance player still mimics conventional finance and produces financial innovations that may not meet the Maqasid Shariah. As a result, some stakeholders are not satisfied with the Islamic financial industry and creating new terms such as Islamic social finance to achieve socio-economic justice via zakat, sadaqah and waqf. At this point, the Islamic finance industry even does not seem to acknowledge the potential its strategic partner which is the Halal industry has.

Why the Halal industry Matters

The Halal industry is gaining positive momentum. The halal brand has become a positive brand in both Muslim and non-Muslim countries covering many sectors such as food and beverage, tourism, pharmacy etc. The Halal industry is driven by the demand power of Muslim populations in the world, comprising of 1.6 billion persons.

However, the Halal industry falls short of promoting its potential benefit to the larger society. Halal needs to be defined in such a manner that it must not be limited to simply being permissible, but as a warranty of quality. For instance, Halal food should be recognized as healthy and high-quality food, instead of being permissible food. Halal tourism should be promoted as friendly to family and safety tourism for everyone, instead of being merely permissible tourism.

At the same time, the Halal industry still lacks Muslim entrepreneurs so that Muslim societies can be producers rather than just a target market. Another serious problem for the Halal industry is that many producers still finance their businesses using conventional finance.

Thus it may be validly asked: “How can we expect the blessings of Islamic economics if the Halal industry and Islamic Finance are still detached from one another?”.