Religious Obstacles to Malay Economic Development

M. Bakri Musa

Today there is no transparent accounting of these massive zakat funds. As the Islamic establishment considers interest haram, somebody must be enjoying the benefits accruing from those idle funds. All I know is that the Islamic establishment has some of the most ornate offices, our religious functionaries have luxurious government-issued bungalows and cars, and the religious police and establishment have expanded exponentially. Meanwhile our poor have to seek help elsewhere, as at churches.


Ramadan is a month for reflection. As we reflect we cannot avoid the depressing reality that the Muslim world is overrepresented in all categories of underdevelopment. The pat and often cited reason is the inherent incompatibility of Islam to modern development. When such an explanation is offered by non-Muslims, they can barely conceal their smugness. When asserted by a Muslim, he or she would immediately be dismissed as not fully comprehending the faith, or worse, condemned as an apostate.

Such an “explanation,” its certitude not withstanding, is about as useful as someone telling you, when asked why he is in the hospital, “I am sick.” And if you are still not convinced or betray any doubts, would quickly add, “Very sick!” Not very helpful! If however, the answer were to be, “My bowels are not working,” or, “I have difficulty breathing,” we would then be that much closer to identifying the problem, and thus its remedy.

This Islam-is-the-problem explanation does not even describe the symptom, much less the disease. If indeed there is something inherently deficient with Islam, it still would not explain why the faith thrived during its first four centuries, or why its adherents are increasing and becoming more devout today. And if Islamic practices are deficient, then what and where exactly are those deficiencies so we could address them.

It is here, specifically in response to the second query, that Timur Kuran’s book, The Long Divergence: How Islamic Laws Held Back the Middle East outshines the rest. Kuran’s insights came from his studies of the Middle East and Turkey, a sub-segment and a minority one at that of the vast Muslim world; nonetheless they apply to Malays in Malaysia.

Kuran enumerated four problematic areas: institutional development; the concept of riba (interest); Islamic inheritance; and waqaf (trusts). I will add a fifth, zakat (tithe), to parallel the five tenets of our faith.

The Stark Statistics

First, the stark statistics: There are more Muslims living under authoritarian regimes today than there are people ruled by communism. As for economic development, Muslim contribution to global economic activities is less than 5 percent, disproportionately way below our share of the population. If Allah had not blessed us with oil, that figure would be negligible. As for social development, the number of books translated into Arabic during the last 1,000 years is less than those translated into Spanish in one year.

A more nuanced understanding, as expressed by James Lacey, is that it is the Arab, not Muslim civilization that is collapsing. Many miss that as most Arabs are Muslims. We would not attribute the fall of the Western Roman Empire to a crisis of Christianity; it was that of Western Europe.

There is no comparable statistics to relate the equally stark contrast between Muslims (essentially Malays) and non-Muslims in the Malaysian context. Nonetheless, stroll down Main Street, Any Town, Malaysia, and the paucity of Malay establishments is not hard to miss, while Prime Minister Mahathir once asserted that non-Malays pay most of the taxes.

Islam is an integral part of Malay life. Unfortunately when confronted with “Islam is the problem” assertion, Malays like most Muslims would simply recoil and retreat to the comfort of our familiar assumptions. The angry few, unable to rebut the statistics, would simply lash out.

To break from that set pattern we must first liberate our minds so we could critically examine those assumptions. Fear not, for if our faith is strong, such an exercise would not weaken it; on the contrary, it would strengthen it.

Obstacles to Malay Entrepreneurialism

Involvement in trade and commerce opens up one’s mind; apart from improving one’s economic and other well being. It also enhances one’s piety, as with the saying, Kemiskinan mendakati kefukuran (Poverty invites impiety). Anyone doubting that wisdom need only visit neighboring Indonesia. It also reflected Allah’s esteem of the vocation that He had chosen a trader to be His Last Messenger.

Successful traders have to understand their clients and customers, anticipate their needs and wants, and see the world from their perspective. The very act of putting ourselves in their place, or as our Native American Indians would put it, to walk in their moccasins, is a mind-liberating exercise. For example, now that we are trading with China and it is our biggest purchaser of palm oil, previously ultra FELDA Malays have a decidedly different view of the Chinese, at least the mainland variety. That is what trade, and a liberated mind, does to you.

The barriers to Malay participation in business are not the often cited “hard” ones like lack of human or financial capital, rather the less recognized “soft” obstacle imposed by our inflexible and unimaginative interpretations of our faith.

A particular problem is our treatment of interest, which we simplistically equate to riba. Credit, the flip side of interest, is the lifeline of business. Grameen Bank’s Muhammad Yunus goes further, he asserts that access to credit is a basic human rights.

Interest is premised on that rare universal truth in economics: time value of money. That is, a dollar (or dinar) at hand is worth two promised in the future. The ancient Arabs were adept at business; they must have had to come to terms with the concept of interest. They did not quantify it or termed it as such, nonetheless when a borrower returned the money or goods, he would have thrown in something extra as goodwill if for no other reason than to encourage the lender to continue lending.

Charging of interests also factors in that universal human trait; we do sometimes renege on our promises, like not repaying our loans.

I have yet to read a cogent explanation on the meaning of riba, and whether it is equivalent to the interest charges of the many innovative financial instruments that we have today. Many of them were not even thought of during the prophet’s time. It is like discussing transportation; we are still trapped in the warped time zone of the camel caravans when the world is into container ships, jumbo jets, and long-haul trucks. Yes, they are all transportation, but the commonality ends there.

We go to great length quoting various hadith on the evil of interest income. One equates 1/70th of the sin of riba to be equivalent to the sin of having sex with your mother. How offensive an imagery and metaphor! If interest is really that grave a sin, I would have expected other hadith condemning in even harsher tones those who would renege on their loans. I am yet to hear one.

Current Muslim attitude towards interest is similar to those of medieval Christians. The only difference is that they had come to terms with it (undoubtedly fed up with all the wealth from money lending going to the Jews) and with that came Western economic development. Meanwhile the words in the bible condemning usury have not changed.

If today’s Muslims have qualms about learning from or adopting Christian ways with regards to interests, then go back to the early Muslims. They thrived on trading; learn how they adapted to the concept. In many ways that is exactly what we have done today; hence “Islamic bank,” which is oxymoronic.

Just as the West did, we must continually built on and improve these new Islamic financial institutions, tweaking and innovating along the way to meet changing times and circumstances, just as western banking has evolved over the centuries and continue to do so.

This brings me to Kuran’s observation on the lack of institutional development in the Muslim world. It is not enough to rely on the admonishments of hadith and Koranic verses; there must be a workable mechanism to resolve the inevitable disputes, as when someone reneges on his loans, with or without interests. The West has bankruptcy laws and wage garnishing; Islamic institutions too should have similar mechanisms. This lack of institutional development is the most glaring and consequential deficiency of the Islamic world.

Waqaf, Inheritance Laws, and Economic Development

Muslim inheritance laws as currently interpreted may be more just (all children getting a share, albeit the son getting twice that of the daughter) than that of the Europeans (where the entire estate goes to the eldest son), but they are bad for economic growth. One consequence is the fragmentation of the estate on the death of its owner. This is not only disruptive but also prevents a business from growing beyond a generation.

That is also bad social policy even if, as some proclaimed, proscribed in the Koran. Muslims accept the Koran as a document for public and individual good; so if our interpretation results in otherwise, as with our inheritance practices, then those those differences must be only apparent, not real. Thus we must re-examine our interpretation. This does not mean disbelieving the Koran. In fact the Koran is silent on when exactly the children would get their share, nor does the Koran specify that the asset itself has to be divided. This paves the way for designing a novel vehicle of issuing shares on the family asset. Then only the shares would be inherited while the asset itself remains intact, thus satisfying the edicts of the Koran and be good economic policy at the same time. Indeed the Western concept of a corporation achieves precisely this objective.

Today we have many large successful Malay enterprises. It saddens me to read of the all-too-frequent ensuing family squabbles upon the death of their owners. The problem is compounded by our tradition of not having wills.

Inheritance practices are what stymied the development of Kampung Baru and Malay Reservations land generally. Unless addressed, those settlements will remain undeveloped no matter how much physical resources we pour into it. The one resource needed is intellectual; for us to re-read and re-interpret those ancient edicts.

Tun Razak anticipated this with his FELDA program; thus the stipulation that the owner specifies only one of his children to inherit the property. This is clearly not in accordance with Islamic inheritance laws. Yet I am yet to hear Muslim scholars challenging the stipulation; likewise the matrilineal inheritance of the Minangkabaus. Perhaps this unique tweaking of the inheritance laws explains why the Minangs are the most economically developed of the Malays.

What we desperately need today is the equivalent of the Minangkabua wisdom, adat menurun agama mendadaki (Tradition descends, Faith ascends) synthesis of modern economic insights with our religious precepts.

Landowners of yore recognized this quandary; thus they resorted to bequeathing their properties to waqaf, community trust. The primary motive was undoubtedly charity, but it was also to avoid confiscatory inheritance taxes and fragmentation of their assets.

As noble as the waqaf is, it too needs refinement. As Kuran noted, current interpretation requires that the words of the trust be observed literally. A land bequeathed for a school has to remain so, never mind that it is now in the middle of an industrial area.

For growth to occur there must be capital formation. A common assumption is that Malays have low capital formation; hence our less-than-robust economy.

Zakat is community saving mandated by the Koran. In Malaysia, this is reinforced by favorable secular laws where your zakat is considered tax credit. Annually the sums collected are in the hundreds of millions, if not billions. Yet its management remains rigidly tied to some ossified interpretations of ancient texts. Creatively managed zakat could be construed as the community’s capital formation to boost Malay economy.

Consider zakat’s disbursement; it is still with cold cash that could easily be siphoned off by less-than-trustworthy functionaries. Why not vouchers or direct deposits, as with Mexico’s Progressa program. That would be one way to introduce the poor to the banking system; it would also lead to better bookkeeping.

On a policy level, it would be better if the money were to be invested in a local enterprise that would then employ the poor, combining charity with dignity, and at the same time generating jobs and economic growth. Again we are prevented from such innovations because we have unnecessarily tied ourselves to some old rigid interpretations that have remained unchanged literally over the millennium.

Today there is no transparent accounting of these massive zakat funds. As the Islamic establishment considers interest haram, somebody must be enjoying the benefits accruing from those idle funds. All I know is that the Islamic establishment has some of the most ornate offices, our religious functionaries have luxurious government-issued bungalows and cars, and the religious police and establishment have expanded exponentially. Meanwhile our poor have to seek help elsewhere, as at churches. Bless those generous Christians!

Our trapped minds prevent us from seeing these realities. This Ramadan let us resolve to liberate our entrapped minds so we get a more accurate view of reality. Let us creatively use the provisions of the Koran not to trap us mentally or economically but to liberate us.

Adapted from my forthcoming book, Liberating The Malay Mind, to be published by ZI Publications.