Mufti Yousuf Sultan is the co-founder of IFA Consultancy, a pioneer institution in Bangladesh that provides training and consultancy on Islamic finance, aiming toward a Halal and Sustainable Economy.
In this final part of our interview with Mr. Yousuf, we discuss a wide range of topics including the halal funding framework for startups, shariah compliance framework organizations, the discontent with the current economic model, and what a Halal and sustainable economic model can offer, the Islamic financial products and services market landscape in Bangladesh, the relationship between Halal and sustainable Economy, the heart of productivity, the science of learning new things, finding contentment in life, dealing with the trials and dissatisfactions of life, why it is critical to have a mission larger than yourself, and much more.
This was a much longer interview, so we had to divide it into two parts. This is the second and final part of the interview, you can read part one here.
Ruhul Kader: Since you mentioned startup funding early in our conversation (see part one for more on this), do you have a framework for startups that they can follow to ensure that their funding is halal?
Mufti Yousuf Sultan: I can share a few broad ideas. For instance, the convertible note is a very well-known instrument. But from Shariah's point of view, it is a loan instrument. When a capital injection is a loan, the gain or profit against the capital becomes riba from Shariah's point of view. So it immediately becomes Shariah non-compliant.
The SAFE agreement which was first introduced by Y Combinator also suffers from the same limitations. Convertible notes are usually seen as a liability. With SAFE, YC introduced a new agreement version with some minor changes to get something in between debt and equity and named it “Simple agreement for future equity”. This is a popular instrument among startups across the world. But the format and framework of it are highly questionable from the shariah's point of view and in fact, we could say non-compliant. From the Adl Advisory in Malaysia, we have been working on a shariah-compliant version of this. We are almost towards the end of it. Once we are done, hopefully, we will be able to share it with you.
Another mechanism VCs use to invest is through preference shares. The problem with preference shares is that when we are giving a fixed return against preference shares and giving preference during liquidation, these two things are shariah non-compliant.
Even though it is called shares, these two issues turn it into a loan and as a consequence, the return turns into riba. As a result, the startup becomes the interest payee and the investor becomes the interest receiver. And according to the hadith, both are cursed. The Prophet (PBUH) said, “four categories of people are cursed, who takes interest, who gives interest, who witnesses riba, and the one who writes it down.”
These three instruments are highly questionable but these are the most used ones.
It leaves us with a few options. If you raise investment with ordinary shares, no basic questions from Shariah's perspective unless there is a characteristic of preference shares or fixed return issues.
If startup founders who are concerned about shariah issues keep these things in mind, they can maintain Shariah's compliance in funding.
Ruhul: Similarly, do you have a basic framework for organizational shariah compliance? I understand this is a broad question and it can vary from organization to organization but do you have an overall guideline that companies can follow such as these are six basic things you should maintain to ensure compliance, etc?
Yousuf: This is a good question. The first thing is the product you are selling has to be shariah-compliant. For that, it should suffice if we avoid the shariah non-compliant products. There are certain categories of products that are prohibited like pork, tobacco, wine and alcohol, conventional finance, gambling and betting, pornography, weapons, etc. And in a broad stroke, if your product does not fall within these categories, your product is shariah compliant.
Second, we look into the finance and capital of the business. If the source of funding is halal, then you are compliant. I have already mentioned a lot of things related to this.
Third, we will look into marketing and communication. If you give false information, give less in measurement, and give low-quality products than what you promised, then the way you are selling the product is not halal. Your product is halal, and your source finance is halal but if you sell it in a questionable manner, it will create questions about the shariah compliance of your earnings.
Fourth, there are issues of tax and bribes, which have become endemic in Bangladesh these days. People ask questions about these issues. Bribe is haram, there is no question. But it has become pervasive in our society. So, we try to understand these challenges, see the alternatives and help the businesses. When faced with such a challenge, it should be the last thing you take. Any haram means should be the last resort and only pursued if it threatens your survival. When such is the case, you can do it in a limited manner. But you have to seek the forgiveness of Allah for this.
Now, why do organizations have issues like bribes? We now have these challenges in many private organizations. This is an issue of code of conduct and culture. We have an extensive document on the code of ethics and culture issued by AAOIFI to complement the internal practices of organizations. If some organizations don't have such practices, they can adapt the recommendations.
We look into the accounts. We usually look for non-halal income. If a business is overall halal, non-halal income comes from either interest or selling products using unethical means. We then guide how to exclude that income and give it to charity.
If you ask about a framework, these are some of the things organizations can do.
Ruhul: We live in a discontent society today. Everyone these days lives with quiet desperation. More and more people are asking probing questions about the economic and social environment we live in today. One defining nature of our world today is seeking and having more. You are sad--consume more food and entertainment. Have other problems, throw more money into it, and so on. This tendency has created other existential crises such as environmental disasters. On the other hand, many people claim that capitalism has lifted the largest number of people out of poverty in the shortest possible time in entire human history. But the side effects and discontent remain. And it seems many people are disillusioned, and as you mentioned earlier, are looking for alternatives. In this context, what does the Islamic economic model have to offer? How is the Islamic economic model different from the current economic system? What are the principles of the Islamic economic system?
Yousuf: The first difference between the Islamic economic model and the current capitalistic economic model begins at the philosophical level. Islamic economy has come from Allah SWT. The source is the revelation from Allah, Sunnah of Rasulullah (PBUH) and it has defined methodology and fundamental philosophies.
For example, the idea of the ownership of wealth. We believe that all wealth belongs to Allah SWT and there are no other absolute owners, which Allah SWT has mentioned in the Quran. We are mere trustees of this wealth for a limited time. We are given permission to consume this wealth for a limited time.
Since all wealth belongs to Allah, everything must be earned and spent in manners that Allah permits. The tendency of consumerism that you mentioned in your question is a result of capitalistic ideals. But in the Islamic economy, you don't think about yourself alone. More consumption for yourself does not make you happy. You seek happiness through various methodologies that Allah has given. I will be happy when I feed the hungry people next to me and give to my family, my relatives, and my neighbors. When I do that it creates immaterial happiness in me.
As you mentioned, today's generation is far away from this and we no more discuss these issues in our schools and colleges. We have become extremely materialistic.
It is sad to accept but the Islamic economy is not practiced anywhere in today's world in the ideal sense of it. However, it does not mean that it can't be the norm ever. Before our Prophet Muhammad (PBUH) was sent, there was jahiliyyah and ignorance. After his arrival, the world changed. Change is not difficult. But you have to initiate change. Allah says in the Quran, “Innallāha lā yughayyiru mā bi-qawmin hattā yughayyirū mā bi-anfusihim” which means "Surely Allah does not change the condition of a people until they change their own condition" (Quran: 13:11). Change has to come from ourselves.
When we start with the belief that Allah is the owner of all wealth and source of earning and approach to the distribution of it must be in accordance with the guidance of Allah, we become concerned about how we earn the money on an individual level, company level, etc.
There is clear guidance on how to spend our money. We call Osman Radiallahu Ta’ala, Osman Gani because he was rich. He had immense wealth. He wore good clothing and had a good life. I'm not saying that you have to renounce all comfort and happiness. But he used to spend on charity as well. After emigrating to Madina, he saw that people did not have access to water because they did not own the water wells. The only deep well in the area was owned by a jew. He bought the well and made it a waqf (perpetual charity). Many major initiatives across the Muslim world were a result of the waqf of Muslims. The famous Al-Azhar University in Egypt was established on waqf. When we talk about Islamic finance it is not about our personal consumption, it deals with the source of finance, and it caters to social finance like zakat and waqf, charity. And there are many regulations regarding sources of our income and ways of our expenditure.
For instance, credit cards have become a norm these days. Even Islamic banks issue credit cards. Whereas what credit does is, it encourages our consumption beyond our capacity. And I came across a campaign in a non-muslim country where they were teaching people how to come out of the credit trap and why and how to stop using credit cards. Credit cards are viewed quite negatively across the western world these days. People are now talking about not using credit cards and rather spending within one's means and reducing consumption. Not wasting. And those exactly are the very principles of Islamic economics.
We believe that the Islamic economy is a principle-based economic system. It does not mean that the entire current economic system will have to turn upside down or change. But there will be a change in mindset, our way of dealing, and our perspective. With those three changes, we will see an impact on society. Like socialism, we are not saying that wealth has to be equally distributed. Islamic economy does not prescribe that.
Islamic economy recognizes the individual differences and the talent and hard work of individuals. But the unjust earnings such as monopolies, paying less wage to your employees, wealth concentration, abusing people, taking advantage of the crisis, for instance, COVID vaccine issues where people are suffering across the world and some people getting richer off of it, so these things run counter to the fundamental values of Islamic economy. And ultimately everyone will benefit.
Ruhul: How do you see the Islamic financial products and services market landscape in Bangladesh?
Yousuf: As I was saying earlier, Bangladesh and Malaysia started Islamic banking the same year coincidentally. But in terms of progress, regulatory institutions, and other areas, there is a huge gap between Bangladesh and Malaysia.
Bangladesh Bank published guidelines on Islamic banking around 2008/2009. Although I have recently learned that the guideline is in the process of being updated, it did not get any update in the past years. We don't have any stand-alone law yet for Islamic banking and finance. We have made some amendments to the existing banking act and added some provisions.
Our universities don't offer many educational opportunities in Islamic finance and related fields. Recently, we have seen some developments. Some institutions are offering diplomas and one university has announced that they will offer Masters. These are very recent developments. Before that, we did not have any formal educational degrees or programs.
Due to these two-sided limitations, we have not made the expected progress. We could have done far better than Malaysia because our population size is much larger. Malaysia is a small country in terms of population. The Muslim population is around 55-60% of the total population compared to Bangladesh where 18 crore people and 90% are Muslim. We had an opportunity to go a long way but for whatever reasons we could not move forward.
One major challenge is that there are negative perceptions toward Islamic banking and financial institutions as we discussed earlier. But how I see it is that finance is a politically neutral area. Malaysia has treated it accordingly. As a result, Malaysia has been able to gain global attention on this. On the contrary, Bangladesh is yet to be seen in international halal conferences. Recently, the Bangladesh Govt has launched several Sukuk but we could not market them well around the world.
Having said that, we now have several new Islamic banks in the country and many banks have started the Islamic banking window. Now we need to train our human resources properly and maintain strict shariah governance. The mandate should be to establish a strong shariah board that will be independent, will have capable shariah advisors and their recommendations will be binding. These are the basics. But to our knowledge, most Islamic banks in Bangladesh don't practice this. In many instances, decisions are imposed. We think that customers should also be aware of this and should demand compliance which will help the overall standard.
The other factor you mentioned is that while the deposits side has improved, the business side has not seen similar progress. Awareness has a role to play here because on the deposit side a customer does not understand the difference much. He thinks that if I keep money in a conventional bank or an Islamic bank, I get the same return. So it is easy for him to decide. But when you are dealing with business, it gets a lot more complicated. There are additional processes, documentation, and steps involved. Many businesses see working with Islamic banks as a hassle because they need to maintain a certain process whereas it is a matter of a phone call to traditional banks. Awareness is critical here. If people who run these large companies don't consider dealing with Islamic banks ideal for their companies, I think it will remain a long way for Islamic banks to work here.
Ruhul: One of the things IFAC talks about is Halal and a Sustainable Economy. We discussed the principles and values of the Islamic economic system. Sustainability is a hot topic across the world now. How is the Islamic economic model relevant here and how is it different from conventional economic philosophy in this context?
Yousuf: If you look at the narrative and mandates of the sustainability talking points such as UN SDG, and ESG, for instance, the first two goals of UN SDGs are to achieve no poverty and zero hunger. These goals, except a few, are inherent values and principles of the Islamic economy. For instance, when we discuss the objective of Shariah, scholars have mentioned five basic objectives: 1. protection of faith 2. protection of intellect, 3. protection of lineage 4. protection of wealth 5. Protection of life.
Within the objectives of protection of wealth, life, and progeny, all these financial matters such as operating within the bounds of shariah when it comes to business and transaction, ensuring that people don't live in poverty and hunger, ensuring water, healthcare, education, all these goals are being addressed. If someone incorporates values of the Islamic economy, they should automatically incorporate these values. Unfortunately, we have limited the discussion of the Islamic economy within the discussion of Islamic banking to some extent, that's why sometimes the question arises what value addition it does.
Relevant to this, about three years ago Malaysian Central Bank introduced a new framework called value-based intermediation (VBI). I was involved on the shariah side of that project on behalf of the INCEIF team. The key message of this framework is that an Islamic financial institution will do value-based intermediation. It will not only finance. That value will come through mentoring, ensuring sustainability, incorporating ESG metrics in line with the objectives of shariah, etc. This can be the next major goal for Islamic financial institutions, because when we started some 30/40 years back, just starting was the main goal. But the next level should be to benefit society.
Finally, today we are talking about sustainability, governance, and society. If you look, you will find a lot of resources in shariah on all these issues. There are a lot of discussions and opinions. If I talk about the environment, the Prophet (PBUH) prohibited cutting trees and causing pollution even during a war. There are hadith where we find these principles. That's exactly what I did along with our team with VBI where we integrated these values of shariah with the values of the UN and others and have tried to create a framework for Islamic banks.
Ruhul: You are involved in diverse things. You are building multiple enterprises, working with various global organizations, and pursuing your Ph.D. How do you navigate all these different responsibilities? How do you stay productive? What does your typical day look like?
Yousuf: I try to maintain some simple principles. I try to go to bed by 10 or 10:30 pm. Fajr is around 6 am or 6:30 am in Malaysia now. I wake up a little early and start my day after fajr. The barakah is in the morning hours, you can't find it in any other hours of the day. You probably know books like 5 am club, etc. We had a non-muslim writer invited for a talk at INCEIF, he said that he usually goes to bed between 8/9 pm and starts writing from 3 am in the morning.
Unfortunately, what I see in Bangladesh is that our young people waste their nights doing nothing, watching movies, playing games, etc. They go to bed late at night and wake up almost midday at 12 pm or so. Many don't pray Fajr. As a result, you don't experience the barakah. When we maintain time discipline, it adds immense value. Our Prophet SAW (PBUH) has prayed for the barakah of the people who start their day early in the morning. If you utilize the time, you can be very productive.
Secondly, I maintain my calendar strictly. I think most founders do this and there is nothing to mention here. I use a unified calendar tool so that I have everything lined up and well planned. I use a personal task management tool where I organize my tasks. I think it is manageable. My Ph.D. has slowed down a bit but still, I think it is manageable.
Ruhul: How do you approach learning? What is your learning process?
Yousuf: When I worked at Ethis, I experienced the ups and downs with the founders. I worked in different roles because of the needs of the organization. I took these roles voluntarily. For example, at one point I led the technology department. A long time ago, I used to do freelancing besides my teaching at Madrasa. I used to do a little bit of coding and programming and worked with clients online. These skills helped me a lot when I took the responsibility for the technology team.
What I used to do, whenever I was given responsibility for a new role, if I did not know about it, I would take a few courses, read some books, and try to refresh the basics of the responsibility.
At one point, I had to look after the legal aspects. I was a bit fearful of legal issues since I did not have any prior experience. But when I looked into it, I found many similarities between Shariah and conventional law. The logic between shariah and legal is the same. It makes sense because when you look from the compliance perspective Shariah is a law. If we see it from the outside of compliance perspective it is guidance. My knowledge of Shariah has helped me a lot.
Since I had some coding experience when I joined Ethis, they used to call me Tech Mufti. They would introduce me accordingly in different conferences and places. I had exposure to several tech developments including blockchain projects. I had the opportunity to engage with the regulators in Malaysia.
I'm a bit lazy in reading. Many founders read a lot. I don't get enough time to read. I use an app that summarizes non-fiction books. When I'm trying to learn a topic, I try to read a couple of books on the subject and try to internalize key points. On top of that, I try to listen to experts. This is mainly my learning process.
I don't know or I can't do something - can't be an excuse in today's world because we have access to the entire ocean of learning resources and that too for mostly free. One just needs focused effort days to learn anything from zero. I have seen it in my cases. Though we may not be able to become an expert in a short span of time, it is not necessary for all instances. But having an understanding of the subject you are working on is very important.
Ruhul: You come from a different background than most of our interview guests. So I want to have your thoughts on this. These days, I see general unhappiness and dissatisfaction about life among young people. People have material comfort. Have a good job, and earn good money but they are unhappy inside. It appears the prevailing education system and culture provide limited solutions to this existential crisis the majority of young people are facing today. And whatever solution the popular culture offers appears not to be working. Since you come from a different background and you have, I'm assuming, seen life on both ends, what is a good life in your opinion?
Yousuf: What I believe and try to practice in my personal life is what Allah SWT says in the Quran: “Listen, the hearts find peace only in the remembrance of Allah.” You can't find tranquility and peace outside of this. You would see many hugely successful founders suffering from depression and even taking their own lives. There are many examples of this. Emptiness and desperation in a person will remain until they establish a relationship with Allah SWT.
I have always tried to rent a house where there is a masjid nearby. For example, in the condominium I live in now in Malaysia, we have 50 plus people even in fajr prayers. The condominium is a residential area type space with a couple of buildings together. We have regular Seerah (Prophet’s SAW biography) sessions, we read hadith every day, there are Quran sessions for kids, and for women, there are also Islamic sessions.
This is a 360-degree matter. It would not work if I change alone. It has to be collective. I have to take my family and the people around me with me. When people close to me and around me will go towards a common goal, it will be a life of peace and happiness.
However, it does not mean that you would not have problems in your life at all. The problem will be there. Allah talks about it in the Quran: “And certainly, We shall test you with something of fear, hunger, loss of wealth, lives and fruits, but give glad tidings to As-Sabirun (the patient). Who, when afflicted with calamity, says: “Truly! To Allah, we belong, and truly, to Him, we shall return.”
I try to practice a principle of Taqwa borrowed from the AAOIFI’s code of ethics. They defined Taqwa beautifully in the light of the Quran and Sunnah. We know taqwa means fear of Allah but what does it mean in practice? Before starting any task, I must check the pros and cons, analyze the cost and benefits, and conduct basic due diligence. If it is something big, I will do Istikhara. Istikhara is praying to Allah that “O Allah! if this is good for me, please make it easy for me and if it is not good for me, please take me away from it, etc”. I may also consult experts or people with knowledge before deciding. And then I’d start the work and depend on the blessings of Allah SWT. And then when I'm doing the job, my intention or hope will be positive that I will achieve the goal and I will put in my optimal resources: time, energy, and money, within my limitations. After that, the outcome can be in my favor or not.
For example, sometimes one may work hard for a promotion but does not get it. In other instances, he does not try much but he gets the promotion. If the outcome is in your favor, then Alhamdulillah. If it does not come in your favor, still be happy about the decision of Allah SWT. Of course, I will have to look into whether there was a mistake and whether I deployed the resources properly, and we will check the lessons. But ultimately it is about submission to Allah’s decision. When someone realizes this, there is nothing to be unhappy about in life. There might be unfulfillments in my life but I would not dwell on them and would not be unhappy because of that. I will be happy with the decision of Allah SWT.
In my observation, the generation you are speaking about, the biggest gap is the distance with the Allah SWT. If they can remove this distance, they will enter into an immense pleasure of life. I'm not saying that they will not have any problems but they will be able to successfully deal with the problems, insha'Allah.
Ruhul: What suggestions would you give to entrepreneurs and founders who are getting started?
Yousuf: Being an entrepreneur and being a founder is a big thing and is a highly commendable thing definitely. Our Prophet (PBUH) was also an entrepreneur and he looked after the business of the mother of the believers Khadija RA as Mudarib.
As an entrepreneur, we have the capacity to transform and change our world. As we discussed earlier, we can't change the whole world. When we were starting our Ph.D., we were told that your Ph.D. is not going to change the world but it would be a small dot adding to the ocean of knowledge and every dot is contributing. As entrepreneurs, we have to keep in mind how we can solve the real problems of society. There is a trend these days where people are overly fascinated by tech and think that if they do something new such as NFT or Crypto, it is huge. But we should prioritize the real problems of people and how we can solve them.
Throughout your entrepreneurship journey, there will be a lot of ups and downs. Partnerships will not work sometimes. But if we can keep our focus on the bigger mission and the cause, we should be able to navigate the challenges. Of course, we will seek our self-interest, but it does not reduce the importance of our cause. That cause could be to achieve the satisfaction of Allah or change the society, does not matter but if we put our effort into achieving that mission and seek our success in achieving that, it will make our journey more meaningful and we will deal with challenges easily.
Our corporate mindset is that success is all about returns on investment - ROI. But the world has changed. If we even look at the non-muslim world, they are more concerned about impacts. Social impact. This impact is not defined by the financial returns alone. So why not us. Especially Muslim founders who will be reading this, why not us.
Our success should not only be defined by financial returns rather it should be measured by the impact on society. If we keep these few things in mind and align our team and effort, society will change. If we can change the society we live in, it means we are moving towards even greater change.
Ruhul: Recommend a couple of books for our readers.
Yousuf: I would not recommend many books. Rather, I would strongly recommend The Seerah of our Prophet (PBUH). Many people like The sealed nectar as the Seerah of the Prophet, which is an award-winning biography of the prophet. But I would suggest another biography written by Dr. Ali Muhammad As-Sallaabee. You can find it in English in three volumes and is also available in Bangla. The significance of this is that he has extracted lessons for individuals and nations for our time from the different events of our Prophet (PBUH).
If people read this, they will find them closer to Shariah. The life of the Prophet is the lived interpretation of the Quran. If we don't know his life, we would not be able to understand Shariah.