Failure of Islamic finance in Sudan

At a recent interview with aljazeera.net, Hassan Al-Turabi admitted the failure of his Islamic experiment in Sudan. He indicated that he has come to admit that this was a human effort, and like all human efforts, it was imperfect and it has failed. He said that his was an experiment in the Sunni Islamic world, and hinted at another experiment in the Shi`i world (I assume he meant Iran), indicating that both have failed. However, he said that one should learn from those failures, rather than feel despair. Unfortunately, the bulk of the interview focused on the new constitution, the relationship with the South, etc. I wish the interviewer had asked him about economics and finance.

So, I went ahead and made my own interview with a friend who has done some significant work trying to fix the Sudanese economy over the past few years, after it was falling down the drain. His prognosis, which he says officials in the central bank, bankers, etc. would admit in private, is that "Islamic finance" has virtually destroyed the financial sector in Sudan. While the "Musharaka certificates" have been popular with Islamic banks, who hold them to maturity, that is mainly a signal of the lack of other investment vehicles or credit creation. My friend said that the list of failures was too long, but the most important effects of years of bad economics is the central bank's loss of control over the money supply, and its inability to conduct monetary policy more generally, due to lack of open market operations. The misconceived Islamic finance experiment in part contributed to de-monetization of the Sudanese economy, with estimates of money supply to GDP at a disastrously low 12%.

In economics as in politics and military action, jumping before you calculate future steps often leads to disaster. That has been the Sudanese tragedy of following the fantasies of idologues. Islamic scriptures and traditions have much to offer, and the first lesson of early Islamic history is care in making any changes, and openness to borrowing successful models from other traditions. The Prophet (p) and his companions (r) were very pragmatic people, who sought knowledge and expertise wherever they found it, to the point where the Prophet (p) told his companions "you know more about your worldly affairs, "أنتم أعلم بأمور دنياكم", and the Qur'an orders us to seek knowledge from those with expertise "فاسألوا أهل الذكر", and yet, Islamic economics has set as its aim to replace advances in economic thought, rather than to build on those advances in light of scripture. The result has been catastrophic... Have we learned that lesson, as Al-Turabi has said, or should we expect other Islamic countries to repeat the same tragic mistakes?