Today our guest is Almir Colan, the Director of the Australian Centre for Islamic Finance. He is a prominent figure in the Islamic finance industry and serves as an advisor to community finance and investment institutions. Furthermore, he is also the CEO of Olive, an investment firm committed to an ethical portfolio in the Australian healthcare sector. Almir was previously an Islamic and Islamic capital markets consultant lecturer at La Trobe University and is a member of a working group at The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).
This post is a part of “EthisX: The World Tomorrow ” – a series of candid interviews with industry thought-leaders to foresee a post-COVID-19 world.
Join us as Almir shares his experience with the Australian Centre of Islamic Finance, the role Islamic finance can play in the current crisis and his advice for new businesses looking to adopt Shariah principles.
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You can watch the full interview here:
Could you share with us your background, what you have been doing and your current focus?
I am involved in Islamic finance. I run a center that does consultancy and education, so we also teach at institutions. I also have a company that I share with a few friends focusing on investments in the Australian healthcare sector. We run clinics and are in the process of starting online health clinics here in Australia.
The Australian Centre for Islamic finance has been around for nine years now which, is a very long time. How has it changed in terms of objectives and activities?
In the beginning, I think like many Islamic finance professionals, we became fascinated with Islamic finance after learning about certain prohibitions or things of that nature. As you grow, you realize that Islamic finance wants to embed the spirit of entrepreneurship in the community; it wants business leaders who will step up and change things or create jobs for others. As a result, we have evolved into an organization that essentially helps people to start and run their businesses in a way that is consistent with our values and ethics.
Is it like an incubation or acceleration consultancy for businesses and startups?
Yes, it is all of that but every business is different. For example, some businesses want to know if what they are doing is Shariah-compliant while others need help with financial structuring. We mainly provide consultancy advice and training to encourage people to step into the arena of business instead of being held back by certain things. For example, they may have the misplaced belief that Islam doesn’t want us to be actively working or contributing when in fact that is exactly what Islam wants us to have: an Islamic lifestyle in all aspects of our life.
I assumed based on the name that the center was more focused on Islamic finance education but it’s great to know that it goes beyond that. The education offered is embedded in the business advice and activities that these companies undertake with your guidance and support right?
That’s right. Business education can only go so far — it’s like teaching somebody to swim without putting them in the swimming pool. How much can education do and what sort of education is that? For it to be effective, people need to put what they’ve learned into action and learn from their experiences. This is why I run other businesses as well because it wouldn’t be appropriate for me to not follow the advice I give others. It’s all about doing things because when you do or try something, there is always a lesson to be learned regardless of the outcome.
Moving on, can you share your perspective on the COVID-19 situation? Is it something that is meant to wake humanity up? Is it something that we should look at with hope or despair?
Our Prophet Muhammad (PBUH) said every situation is a blessing for the believer. Thus, it is not about the situation but rather your response to it that matters more. For example, when things are going great in your life, you need to be grateful and likewise, if things are not going as well as you’d like, you need to be patient and appreciate what you have.
As there is a very deadly virus going around, the economies of the world are focusing on stopping the spread of the virus so there is a major slow down. This crisis is very different from any other financial crisis we have had. If you recall, 10 years ago when we had the global financial crisis (GFC) it affected the demand side of the economy. People lost jobs and simply could not buy what was available to them.
The current crisis is different because while the economy is on pause, it is mainly due to the supply side so it is much more difficult or expensive to produce things. The response of most governments is to try to stimulate the demand side by giving people handouts and writing checks because this is the side that is usually stimulated in a crisis. However, there is very little that governments or anyone else can do to stimulate the supply side of the economy. As we move forward, what is critical is dealing with the underlying conditions preventing businesses from producing things. I think what is important for us to do now is to invest in human resources, in people’s capabilities and the relationships that businesses have with their workers. This will help facilitate a quicker return to normalcy once the underlying issues are dealt with otherwise, the current situation that produces massive levels of debt and unemployment doesn’t make sense.
I think that is a very sharp perspective and honestly trying to stimulate demand and consumption seems to be a very blunt tool. Although the handouts may be needed for survival, survival alone is not going to get us out of this right?
Look, I think that handouts are necessary and extremely important. There are a lot of people who are suffering and all of us — as a society or individuals — must exercise the maximum level of generosity. However, don’t forget that the governments’ actions will lead to more debt which, will have an effect later on. Thus, it is important to deal with the core underlying reasons for this crisis.
You mentioned earlier how your institution talks to and supports businesses. Can you share with us some of the current advice you are giving them?
Just like how things are on pause and we are fasting in Ramadan, the economy is doing the same. During this time, businesses should reflect on what they’re doing and consider things from a strategic point of view. For example, look into your production, your supply chains and how you can be more self-sufficient? Do not forget that your number one asset is your people. A lot of people are now investing in different kinds of training and upskilling.
Also, the usage of technology will increase. We have started to look into the ways in which technology can be better utilized for our organization. For example, how do we integrate zoom or other kinds of video conferencing with the technology in health clinics to benefit our clients? I think businesses need to have a more strategic view and understand that these new realities might become part of the norm in the future. We need to think about what we have to do to manage that transition into the new realities of this world.
You raised the point on staff being a company’s number one asset but, it can be a challenge sometimes for companies with low or no cash flow to keep their people. How do companies keep their people?
You know, sometimes we wonder how we are going to have this conversation with our staff but I think we just need to be honest, they will understand if you need to cut the hours, for example. I believe that as long as there is a discussion and decisions are taken in the spirit of togetherness, they will be quite understanding if the company cannot afford certain things as long as we always keep our relationship with them in mind.
Besides embracing technology, what else would you advise businesses to do to be better prepared for this crisis and the future?
I think one thing that businesses need to worry about right now is cash flow because that’s the oxygen that can kill them. You might have the most profitable business but if you make commitments that are illogical, your cash flow issue can strangle your business. I know of some businesses that make several commitments and end up over-committing. For example, they lease a lot of equipment, buy expensive real estate or hire a lot of staff. Businesses must monitor their growth and cash flow because if they overcommit or start to expand aggressively, it will be detrimental to their business. Remember even if you have the greatest business, if it runs out of cash, that would be comparable to the world’s greatest athlete running out of oxygen. Therefore, be mindful of your company’s expenses, monitor them and don’t go on buying sprees even if things are on sale.
Some of my friends were buying some businesses, so we were analyzing the numbers. I noticed that the assumptions made were based on the last 3 years of performance but they should look at what has happened in the past 3 months or the past month instead. This is because every business will need at least 1-2 years to recover from this and get back into the full swing of things. It will take — at least in my estimate — 2 years for businesses to get back to their normal pre-COVID levels.
What about Islamic finance? What role do you see it playing currently and what role should it or can it be playing in this new economy today?
Well, it has been clear to me for some time that Islamic finance must focus on producing things and solving real-life problems, so this is where the essence and the focus must be. For example, with COVID, what can Islamic finance do or how can it help? Well, if we were truly prepared, we would have an established healthcare centre researching vaccines and a factory that can change production easily to produce items needed during this crisis like masks or ventilators.
We must understand that Islamic finance is connected to the Islamic economy as it is the engine of growth for the economy. The said economy must be producing things and employing people. If we want to solve things using Islamic finance as a tool, I think we need to have at least 5% to 10% of our people starting businesses and then these businesses should employ the others. In addition, if we want to see something out of Islamic finance, we should start to invest in our schools. There are 1.8 billion Muslims and almost 500 to 600 million of us are youths. We should orient ourselves, our education system and our business system in such a way that everyone is taught how to start a business regardless of their job or career. This way we could, for example, potentially have a situation where 5 out of 100 doctors start clinics and consequently, these clinics will provide employment for other community members. I think this is the reason why riba is prohibited but trade is allowed. Please note that trade here refers to the production and sale of items which is entrepreneurship to me. This is also what most of our countries have to focus on. An example of a country could be Australia and how it should look into producing things that are of higher value rather than just simple things. There should be more complex manufacturing and value added services, so it’s not just exporting the bare minimum and having basic manufacturing jobs.
How does Islamic finance fit in with the goals of getting more people to start businesses and increasing employment in these new businesses?
When we started our fund (for investments), we set targets and allocated parts of the funds. For example, a portion will go to low-risk investments while another portion goes to high-risk investments. I often ask Islamic banks, financial and investment institutions how much of their funding goes to startups, high-risk activities, research and so forth. I think most of people are extremely risk-averse when managing money and I believe this fear can sometimes paralyze entrepreneurs. We have to change our way of looking at business ventures, it has to be seen as an adventure. It’s just like going hunting, for example, where you have all your tools with you and you’re going on an adventure so you don’t feel scared. That’s how we need to look at our businesses because once we get rid of that fear, we will chase after the excitement of doing things.
We have to create something similar to Silicon Valley but it should include different areas. Having this will allow people to learn from real entrepreneurs and start businesses under their guidance so the community can slowly start to grow. It has to be very practical and connected to where the money is circulating which is an Islamic economy principle. Let the money circulate, go to different hands and find genuine ideas by selecting those who have the right and best ideas. If we start doing this, eventually people will come up with excellent ideas which will be extremely beneficial for us since the economy feeds off these ideas in the long run.
Islamic venture capital, angel investment, microfinance and helping small businesses are very underserved areas in Islamic finance. Sometimes large institutions will allocate a considerable amount of funds for charitable purposes whether it’s CSR or other forms of charity. What if instead of this, 10 banks allocate a yearly amount of $300,000 each to a program that supports startups or micro SMEs through equity funding or zero-interest loans? Things would be structured in such a way that some or most of the money comes back to the pool before going back out again. Do you think this would be a better approach for getting these large institutions to invest because usually there are many hurdles?
I think it is important to get these institutions along with everyone else involved because these issues affect everybody. When I think of the Islamic economy in general, I see that several points of the economy are distinct. For example, when it comes to making money, there are certain prohibitions in Islam — Muslims are not allowed to make money from interest but are allowed to do so from selling things. This tells me that Islam separates humanitarian or charitable types of work from other kinds of work and does not want us to make a profit from these areas. Therefore, the areas where we can compete and make a profit are very distinct from those where we are prohibited from doing so. In the charity/humanitarian sector, people are in need of help and they can’t help themselves, so it is an exercise in generosity. Meanwhile, in the commercial/profit-making sector, it’s about rewarding those who have the best ideas/solutions and the help given depends on entrepreneurs’ business needs. Thus, I would keep these two areas separate and distinct from each other. I would say that the allocation of help in the latter sector needs to happen on a purely commercial basis because the last thing you’d want to do is create a mismatch between sadaqah and the commercial area. In entrepreneurship, ideas and businesses must be chosen because they are the best. People should not invest in a company purely based on their friendship with the founders, for example, so we have to also be brutally honest when it comes to these kinds of things.
Some countries like Bosnia and Turkey have realized that countries need to be producing different things themselves, so I think if we look at these successful ideas and push ourselves in those directions, we will end up with solutions that greatly benefit our economy.
Is there anything else that you’d like to share with our audience?
It is very important to take this time to think about yourself and the things that you can do to help. Try to connect with your community, be close to your parents/the elderly in your community, learn new things and be patient. We are counting on you, the young people because you are our future. Try to learn things before you are put in a position where you need to lead others and find yourself a great mentor. Also, be productive and engage in meaningful work. InshaAllah, the future is bright and we are counting on you.