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| Malaysia in the Era of Globalization #82 Posted: 11 Sep 2011 10:07 PM PDT M. Bakri Musa My late sister had a home "mortgage" with an Islamic bank that supposedly charged no interest. But when I compare the actual "costs" of her mortgage and calculated the imputed interest rate, hers was at least two hundred basis points above that offered by conventional banks. Worse, when interest rates rose, her payments went up with them and there was no limit to the increase. Chapter 9: Islam in Malay Life Reform in Islam Educating Ulamas on Modern Economics By educating Muslims generally and the ulama in particular on such modern and useful concepts of economics, and replacing such loaded terms as interest and insurance with the morally neutral terms as rewards on savings and risk sharing, we would channel the natural propensity for Malays to save even more. This in turn would encourage other productivity-enhancing economic activities. Modern banks are by no means perfect. In times of crises, as documented by the Nobel laureate Joseph Stiglitz, banks can behave just as irrationally. Indeed the common wisdom that banks willingly lend money when you do not need it, and then quickly withdraw it when you really need the funds, is not without foundation. As an ancient Malay saying would have it, it is akin to lending someone an umbrella, but when it rains take it back! Banks are also not averse to shirking their community responsibilities. In the past it was common for bank to come to a community only to collect the deposits, and then invest the funds elsewhere. Today in America, with the Community Reinvestment Act, banks are required to invest a percentage of their deposits within the community. Banks have also been known to "redline" neighborhoods, and discriminating against poor and minority borrowers. Again with civil lawsuits and better auditing, banks are doing less of that now. The rigid rules governing loan-loss provisions and the strict definition and enforcement of non-performing loans (NPLs) that are internationally accepted may be harsh. Indeed Malaysian leaders severely criticized the IMF for insisting that Asian banks use the widely accepted "non-activity-for-three-months" rule for NPLs while Malaysia has been using the more lax (kinder?) six-month rule. When banks classify loans as "non performing," it means more than just calling in the loans and making the necessary "loan loss" provisions as mandated by law. It means that factories and companies are being shuttered and workers laid off. There are significant human and social costs associated. When Enron, the giant electricity company, was forced into bankruptcy, thousands of its workers were stranded and its hometown Houston was thrown into a tailspin. Cruel as that may seem, consider the alternative of keeping such companies alive. For one, its creditors and banks would have to continue to pour their precious depositors' money to support the ailing company. Indeed had this continued, Enron would not only have driven itself into the ground but also would have taken along other healthy companies. Thus while we may sympathize with Enron's fate, we should also be considering the fate of the depositors who put their hard-earned cash into Enron's banks. It is better that one company fails rather than a major bank. With the former only that company's shareholders, employees, and other stakeholders are affected, but when a major bank fails, the ripple would be felt throughout the economy. Had Bank Bumiputra followed international guidelines and been aggressive with its delinquent borrowers in the very beginning, it would not have folded, taking with it billions in taxpayers' precious funds and even more importantly, the people's (especially Malays') confidence in the system. Bank Bumiputra's failure did all that and then some. It did untold damage to the Malay psyche by reinforcing ugly stereotypes about our talent (or lack of it) for commerce. To reinforce my main points, yes, there are weaknesses in the present Western banking system. It is being continuously improved and strengthened. The present complex set of internationally-accepted banking rules and regulations have been fine-tuned over decades; Third World regulators ignore them only at their own peril. My biggest concern is that because of its novel business arrangements, these Islamic banks cannot be adequately scrutinized by present banking regulations. The purported advantage, if not prime selling point, is that Islamic banks are not lending out their depositors' funds, rather the customers and bank have a "profit and loss" partnership arrangement. This is ingenious if not specious at best. First, such "partnerships" are so lopsided that they cannot be fair to the customer. If a particular venture were to lose money, who is to check the bank's accounting? Second, if the bank were to fail, who has first claim on the assets? The customer, who are theoretically part owner of the asset, or the shareholders or owners of the bank? Clearly there is a potential for a serious conflict of interest that has yet to be resolved. I consider myself a sophisticated consumer of financial services yet I find it difficult to evaluate and compare the costs and risks of the various products and services offered by Islamic banks. Hence I have not used them. My late sister had a home "mortgage" with an Islamic bank that supposedly charged no interest. But when I compare the actual "costs" of her mortgage and calculated the imputed interest rate, hers was at least two hundred basis points above that offered by conventional banks. Worse, when interest rates rose, her payments went up with them and there was no limit to the increase. America has variable mortgage rates too, but those loans have caps to protect consumers. No such protections exist with Islamic banks. The end result is that Islamic banks are taking advantage of their customers. No wonder there is a headlong rush by Western banks to enter the Islamic market. They have successfully transferred all the risks to the customers while raking in all the rewards! A rip off, even if done in the name of Islam, is still a rip off. Sadly, many consumers in Malaysia and other Muslim countries are woefully uninformed in economic and business matters and are easily swayed by the Islamic label. In the final analysis credit, which is the flip side of lending, is like any other modern instrument. Used properly and it would bring untold benefits to individuals as well as society; abused and it will exact a stiff price. To a skillful surgeon, a scalpel is a lifesaving tool; to an idiot, a killing kit. To Muhamamd Yunus, the founder of Grameen Bank and who has done so much to uplift the lives of millions of Bangladeshi peasants, credit is an effective instrument to reduce poverty. To him, access to credit is basic human rights. Nations are like individuals. If they borrow millions to build palatial mansions for their leaders and fancy headquarters for their civil servants, it is the equivalent of my earlier example of borrowing money to buy a Mercedes just to show off. But if nations borrow to invest in their schools and infrastructures, then it is like my buying my own taxi. I fear that the current obsession with whether certain forms of "returns on investments" (interests) are halal or haram is counterproductive. They discourage Muslims from productively managing their idle funds. Savings and borrowings (or credit) are vital ingredients for economic development. No country can progress unless its people save (capital formation) and credit readily available to its entrepreneurs and producers. Credit made possible the spanking new North-South freeway and the new Kuala Lumpur International Airport. Credit enables Americans to have the highest standard of living and helps push Japan, Taiwan, and South Korea into the First World. At the same time, credit (or more accurately, excessive and imprudent borrowings) was the downfall of Argentina and hosts of Third World countries. Through practical experience economists and bankers have come up with useful guidelines on the prudent use of credit. The priority should be to educate the masses on these guidelines so they can become better informed and therefore safer and more prudent users of credits. Today I have more debt than I ever had but I do not feel overwhelmed or threatened. For one I have put my credit to productive use by buying appreciable and revenue-producing assets, and not to finance my vacations or daughter's wedding (the equivalent of buying taxis instead of limousines). Two, my debt payments are comfortable relative to my income and other assets. Should my income drop I would of course have to dispose some of those debts, but since I have used them to buy productive or at least appreciating assets, I do hope to come out ahead. Muslim theologians and economists should quit quibbling over what some ancient Arabic texts may or may not mean in the context of the 21st Century, but instead educate the ummah on the prudent and productive use of credit. Perhaps they can find in their study of those same ancient texts something to support the contention that there are indeed qualitative differences between productive and consumptive loans. But before they can find those theological justifications, these scholars must first understand and be convinced that there are indeed real and significant differences between the two and that they are not merely involved in semantic gymnastics. It is difficult to find or discern something if one does not know what one is looking for. Even if we do not find that theological basis, we still must train Muslims to use credit wisely. To revert to my earlier analogy of the knife, the objective is to train Muslims to use that instrument to good purpose like sculpturing and surgery, and not to use it for evil deeds like killing. Muslims must stop this endless puerile argument on whether the knife is intrinsically a halal or haram implement. Many Muslim are sincerely trying to lead a pious life and are susceptible to the Islamic cachet. They implicitly trust everything that has an Islamic label and those who proclaim their Islamic credentials and trust in Allah. Thus they readily suspend their critical faculties when evaluating Islamic products and services. We should teach our fellow Muslims not to do that. We should use President Reagan's notorious phrase to express his opinion of the Russians – trust but verify – into its comparable Muslim version. Yes, trust in Allah, but we must verify everyone else, even if they swear by the Almighty! As an aside, in content as well as sequence, this chapter should rightly be a subsection of the previous chapter on culture. But because of its length and unity of thought, I have made it into a separate chapter. After examining culture generally and of Islam in some depth, I will now examine in the next chapter the role of the other social institutions in Malaysia, primarily the judicial system and the laws. Next: Chapter 10: Freedom, Justice, and the Law
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| Toying with history again in Malaysia Posted: 11 Sep 2011 03:04 PM PDT
By Farish A Noor via The Malaysian Insider SEPT 12 — In all honesty, I really have many other things to do than waste my time commenting on what has to be one of the most inane and counter-productive debates in Malaysian politics today. Yet as the tide of silliness gains strength all around us, I feel it necessary to add my two-sen's worth to this debate before I get back to my real work which happens to be teaching and research, so here it goes... It appears that some academics in Malaysia now claim that Malaya (as it was then called) was never colonised by the British after all — or at least that the Malay kingdoms were never colonies in the fullest sense of the word, but rather protectorates. This is, literally, correct and it has to be said that the legal-political status of these states was precisely that: protectorates rather than colonies. But we need to raise some crucial questions at this point in order to flesh out the debate a little further, and try to understand how and why such an arrangement came about in the first place. Firstly, it ought to be noted that the use of the term "protectorate" rather than "colony" offered (then, in the 19th century) a fig-leaf of respectability to what can only be described as a mad scramble for power and domination by the British who were not satisfied with the acquisition of their outright colonies in Penang, Dindings, Malacca and Singapore. By the 1870s, members of the British mercantile community in the colonies were demanding more British intervention into the Malay kingdoms so that the British could have direct access to the tin ore and fertile land for rubber and palm oil production. Simply put, Penang, Malacca and Singapore were too small for their own capital investment and market concerns, and they wished to have more control over resources in the Malay kingdoms. To this end, the so-called "Forward Movement" policy was devised to facilitate British colonial intervention into the Malay lands. By the time the British — through means both fair and foul — gained control over the kingdoms of Perak, Selangor, Negri Sembilan and Pahang, they instituted new treaties that placed the Malay Rulers at a tremendous disadvantage. It has to be remembered that before this the Malay kingdoms were independent sovereign states in their own right, and each kingdom was in fact its own country with its own government, economy, courts of law, etc. All of this was eroded by the British whose mode of indirect rule meant the introduction of the office of the colonial Resident, whose role and status was that of the de facto administrator of the states; and the Malay Rulers were coerced (often at the point of a gun or cannon) to concede control to the British in matters political and economic. With the arrival of the British in Pahang and the installation of a Resident (John Pickersgill Rodger[1]) at the court in Pekan in 1888, Pahang was "opened up" to the outside world — though the only foreign capital that was henceforth welcomed in the state was British, and not other European capital. British ships began to dock at the ports of Pahang and a bi-weekly ferry service was introduced that brought with it a regular mail service as well. British commercial investments were initially focused on gold and tin mining — both of which required the mapping of the territory as well as the importation of manual labour. Coming just a year after the British had installed Sultan Idris Shah as the new British-backed Ruler of Perak (after having defeated Sultan Abdullah and sent him into exile), the turn of events in Pahang in 1888 signalled that Sultan Ahmad Shah's days as the Ruler of Pahang were effectively over. As in the Pangkor Treaty that was signed by Sultan Abdullah of Perak with the British, the 1888 treaty between Pahang and the British meant that henceforth Sultan Ahmad al-Mu'azzam Shah would be forced to accept the presence of a colonial Resident appointed to the court of Pekan, and Pahang's affairs would come under the auspices of the colonial office based in Singapore. Pahang was forced to open itself up to foreign capital and to accept the currency of the Straits Settlements as well, according to the terms of the Pahang treaty — which also stipulated that henceforth the Sultan of Pahang was not even allowed to enter into diplomatic relations with any other state without prior approval from the British government The terms of the 1888 treaty between Pahang and the British made it abundantly clear that the latter were about to gain command over the territory and economy of the former. Act 1 of the treaty bound Pahang to the other British states, compelling it to come to their defence when requested to do so. Act 2 of the treaty stated that "His Highness the Raja of Pahang undertakes if requested by the government of the Straits Settlements to co-operate in making arrangements for facilitating trade and transit communication overland through the state of Pahang with the state of Johore and other neighbouring states", while Act 3 stated that "if the government of the Straits Settlements shall at any time desire to appoint a British officer as Agent to live within the state of Pahang having functions similar to those of a Consular Officer, His Highness the Raja will be prepared to provide free of cost a suitable site within his territory whereon a residence may be erected for occupation by such officer". Act 4 stipulated that the currency of the Straits Settlements will be in use in Pahang, and that henceforth the mint of Pahang would not be allowed to produce coinage and other currency without following the limitations set by the government of the Straits Settlements, while Act 5 noted that "the Governor of the Straits Settlements will at all times to the utmost of his power take whatever steps necessary to protect the government and territory of Pahang from external hostile attacks", and in so doing demanded the same co-operation from the Ruler of Pahang. Crucially, Act 6 of the treaty made it clear that "the Raja of Pahang undertakes on his part that he will not, without the knowledge and consent of Her Majesty's government, negotiate any treaty or enter into any engagement with any foreign state", or "interfere in the politics of administration of any native state". The same Act further added that "it is further agreed that if occasion should arise for political correspondence between His Highness the Raja and any foreign state, such correspondence shall be conducted through Her Majesty's government, to whom His Highness makes over the guidance and control of his foreign relations". Act 6 thus effectively robbed Sultan Ahmad and any of the future Rulers of Pahang of the right to engage in any diplomatic relations with any other Malay or European kingdom. [Re:Treaties and Other Papers connected with the Native states of the Malay Peninsula,Government Printing House, Singapore, 1888. pp. 42-55.] The terms of the Pahang Treaty of 1888 and the Pangkor Treaty of 1874 were more or less the same, and they implied that henceforth the Malay Rulers of Pahang, Perak and the other Malay protectorates would be under the coercive "advice" of the British Resident who was in turn backed by British arms and military power. So while the Malay Rulers were allowed to keep their flags and banners, the real power — political and economic — was robbed of them by the British. Now tell me, how is this any different from outright colonialism? Or are we to give lip service to British colonial propaganda that claimed that this sort of intervention was done "for the good of the natives" and to bring development for the Malays? I am baffled by the recent turn of events in Malaysia where all sorts of characters are now claiming that this charade of colonial intervention was something less than outright colonisation. To aid them in their memory (some of them are close to retirement I think, or should have retired a long time ago.), I end with a quote from Tun Dr Mahathir's "The Malay Dilemma" (1969/1970) where Mahathir describes the reality of colonial governmentality then: "Practically all the import-export houses were British or at least European. These firms were protected by the (colonial) government without any need for legislation. The exclusive European clubs all over the country were the places where these protective laws were made and implemented ... "This protectionism was equally comprehensive on the export side. Markets in rubber and tin for example were established by these firms in their own countries, and the markets were not open to any local (Asian) firms. "... As if government protection was not enough, the British controlled the whole of the banking business, especially the portion of it that was concerned with the financing of the import-export sector. ... "... Contracts with supplies were almost exclusively through the (British) Crown agents. Local supplies, even when needed, were by contract with British firms. British officials and businessmen formed a close-knit community usually presided over by a local British Adviser or Resident." (from: Mahathir Mohamad, "The Malay Dilemma", 1970, pp. 48-49) To our esteemed dons and doyens of the ivory towers who claim that British Malaya was never truly a colonial construct, I would serious advise a trip to the library, or even a conversation with Tun Dr Mahathir to sort out some of the lingering doubts about the past of the country. Malaysia's youth may be confused enough today; the least that we — teachers — can and ought to do is to help clarify their understanding a little further; rather than muddy the already murky waters of the past with revisionist obfuscation even further. Notes: [1] John Pickersgill Rodget was the first Resident appointed to Pahang in October 1888. (Gopinath, 1996, pg. 103) * Dr Farish A. Noor is a Senior Fellow at the Nanyang Technological University, Singapore.
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