Personality Interview: Prof. Volker Nienhaus

Prof Dr Volker Nienhaus received his doctorate in economics (1979) and his post-doctorate (1985) from the University of Bochum. He was full professor of economics at the German universities of Trier (1989-1990) and Bochum (1990-2004) where he also was director of the Institute of Development Research and Development Policy and vice rector for structure, planning and finance from 2000 to 2003. He was president of the University of Marburg from 2004 to 2010. He holds an honorary professorship of the University of Bochum and an honorary doctorate of the I.M. Sechenov Moscow Medical Academy (since 2009).

He became a Visiting Professor at the ICMA Centre, Henley Business School, University of Reading (UK) in 2010. In addition, he was Visiting Scholar at the University of Malaya under the Securities Commission Malaysia Islamic Capital Market Programme (2010/11) and Visiting Professor at the Faculty of Islamic Studies of Qatar Foundation, Doha (2011). He served as a member of several academic advisory committees and boards in Germany, and he was consultant to the Islamic Financial Services Board. His current research interests are in service sector economics and Islamic economics and finance.

GBMN: Please share with our readers about your professional background?

Nienhaus: I was professor of economics with a focus on international economics and economic policy, and in the last years of my academic career I became president of a German university which was largely a management position.

GBMN: As a non-Muslim, how you involved in Islamic banking and finance field?

Nienhaus: I heard of models of an Islamic economy while travelling in the Middle East in the 1970s, and I started to search our libraries for relevant literature. In the early 1980s (after I had published a book on “Islam and the modern economy” in German) I met the charismatic Ahmed El-Naggar who was the initiator of the first experiment in Islamic banking in the 1960s in Egypt. He was a strong advocate of Islamic finance as an instrument for what we call today financial inclusion, SME financing and mobilisation of national resources for economic development. I participated in several events he and others organised where I met, over time, most academic pioneers and many early practitioners of Islamic finance. We had many serious discussions on various topics, ranging from the feasibility of comprehensive models of an Islamic economic system to public finance in Islam and very specific aspects of Islamic banking. Obviously, my Muslim discussion partners found some value in my contributions as they continued the dialogue for more than three decades.

GBMN: You are considered as one of the eminent scholars who has contributed in the development of Islamic finance through many ways. It would be great if you please elucidate some of your contributions for the readers.

Nienhaus: I feel that my main contribution was to look at theoretical models and practical applications with “critical sympathy”. I did this through numerous publications on Islamic economics and finance, work for editorial boards, seminars and conference participations, lectures for academics and the general public, visiting professorships at the University of Reading (UK), the University of Malaya, and the Qatar Faculty of Islamic Studies, membership in advisory bodies (such as the Governing Council of the International Centre for Education in Islamic Finance and the International Advisory Panel of the World Islamic Economic Forum), and consultancy work (in particular for the Islamic Financial Services Board).

GBMN: You have been seen in major events and conferences in various parts of world.? How do you manage your time to attend actively such events and fulfil your professional responsibilities effectively?

Nienhaus: Islamic economics and finance were never part of my regular lecture programme at the university, but it was accepted as a research topic. Thus, I could allocate some time particularly during semester breaks and sabbatical terms to conferences and trips abroad. During the term as president, I had to reduce these activities substantially, but since my retirement a few years ago I am free to spend again more time on Islamic economics and finance.

GBMN: A number of professionals believe that Islamic finance may help to achieve Sustainable Development Goals (SDG). What do you think?

Nienhaus: Conceptually, there are huge potentials. Just to mention a few: Islamic microfinance could contribute to decent work and economic growth, and it could reduce inequalities (SDG 8, 9), the Sharīʿah screening of stocks could be enhanced by ESG criteria and become the basis for impact investing that promotes responsible consumption and production and supports climate action (SDG 12, 13), and the genuine Islamic institutions of zakāt (levy on wealth), sadaqat (charity), qarḍ hasan (free loans) and waqf (endowment) together with micro-takāful (mutual insurance) can certainly contribute to the eradication of poverty and hunger and to well-being and sustainable communities (SDG 1, 2, 3, 11). The problem is that Islamic finance is grossly “underperforming” in all these dimensions: Islamic microfinance is hardly visible, Sharīʿah screening sticks to financial ratios without ESG relevance, and the Islamic institutions mobilise far less resources than one would expect (assuming that all Muslims contribute their due share).

GBMN: As you live in Europe, how do you see the future of Islamic Finance in Europe? Will Brexit help boost Islamic Finance and specifically Sukuk?

Nienhaus: I do not see that Islamic finance has taken off in any significant size in Europe outside the UK, and I do not expect that this will change much in the foreseeable future. In the UK, one segment of Islamic finance has received a boost related to Brexit: the “high end” real estate business. The announcement of Brexit has weakened the British Pound and made it more attractive for wealthy Arab investors to acquire luxury apartments and office space in prime locations through Islamic financing arrangements.

Regarding sukūk it has been argued that the UK government may issue sukūk to compensate for the loss of funding from the EU. I do not expect this on a larger scale, but it is possible that the UK government will issue a new sukūk as a political signal to Muslim countries with whom new trade treaties have to be negotiated after Brexit.

GBMN: In your opinion, can Islamic financial institutions leverage from FinTech? What are the different challenges which Islamic finance industry may face in near future?

Nienhaus: There are a number of fairly “Sharīʿah neutral” conventional FinTech applications that could be adopted by Islamic financial institutions, for example payment and money transfer systems. Blockchains and smart contracts that execute a Sharīʿah compliant business logic could reduce the susceptibility to formal Sharīʿah non-compliance errors and make internal Sharīʿah supervision easier. Big data technologies could be applied for a continuous and detailed Sharīʿah compliance screening of stocks and funds, and matchmaking platforms could be used to create new takāful schemes based on effective mutuality. However, a challenge is the lack of authoritative Sharīʿah opinions on crucial FinTech building blocks such as digital coins used by blockchain systems. If these coins are considered currencies, they can only be traded on spot, but if they are treated as commodities, spot and future contracts would be possible, opening new perspectives for Islamic crowdlending on FinTech platforms.

Challenges? There are many. For example, Islamic finance has to emancipate from the public sector in many Muslim countries: Only a small share of sukūk issuances originate from private non-financial corporations, many Islamic banks have shareholders from the public sector, and governments and government-related entities had deposited large amounts in Islamic banks (which melted away when public budgets plunged into the red). Another challenge is that many people see differences between Islamic and conventional finance more in the form than in the substance and the impact of contracts. They urge Islamic banks to develop new strategies for becoming socially more relevant, e.g. by providing more financial services to underbanked people and businesses (particularly SMEs).

 

GBMN: Which is your favourite book on the topic of Islamic finance that you would recommend others to read?

Nienhaus: There are several hundreds of books on Islamic finance – from general introductions to very specialised treatises. Many books of the pioneers published in the 1970s and 1980s are still worth reading. These “classics” do not capture the contemporary practice of the Islamic financial services industry, but some of the pioneers have published new books in recent years and reflect on what has been achieved and what went wrong. However, it is impossible to recommend only one book to everybody without considering the interests of the reader.

GBMN: At the end, if it is possible, please share briefly some of your upcoming projects, working papers and research contributions?

Nienhaus: I am actually working on three major topics which have several sub-topics and thematic overlaps: Islamic FinTech (technical and legal aspects), financial inclusion (including microfinance, SMEs, consumer protection), and systemic stability (sectoral interlinkages, contagion effects and macroprudential policies in dual financial system).