Behavioral aspects of the market for Islamic finance Awards

Company Y and Person Z was awarded this and that Islamic finance Award! These days we read this type of news a lot. Through Google search it is easy to estimate that there are more than 80 Awards given out every year in the area of Islamic finance. These awards are given to companies or CEOs or VIPs and except IDB Prizes none if any given to students, researchers, and teachers.

In 1983 when I started my career in IDB/IRTI - in Islamic economics and finance area, I was full of emotions and after 30 years of professional work I am still full of emotions. In 1983 the first bullet point in my job description was to develop and implement programs and activities for encouraging and promoting individual and institutional works and initiatives for developing Islamic economics and finance as scientific disciplines and for practical implementation of the related principles, ideas and guidelines. Our team implemented several programs including international prizes for Islamic economics and finance and various support programs were implemented internationally. I am mentioning this in acknowledging the need for recognizing, encouraging and promoting various efforts aimed at  contributing to the development of  transparent, inclusive, efficient and sound global financial and economic systems.  Indeed awards do contribute to such a vision.

There is a rapidly developing discipline – (behavioral economics and its sub-branch behavioral finance), which is based on emphasizing the human emotions that cause anomalies in the market place and undermine the robustness of the received economic theory and  the underlying assumption of rational individual behavior. As I confessed that I am emotional with regard to the vision that I mentioned, but I believe I am also rational in my own way and I think that is pretty much the same with every normal person – we are emotional and simultaneously we are rational in our own ways.

But if we are emotional we are potentially exposed to noises and specially could be influenced by crowd behavior.  Despite the fact that awards are good incentives for performance, I do feel some type of crowd behavior in the above pattern of the mushrooming market of the Islamic finance awards.

Why companies are engaged in giving out awards so generously?

May be one of the students shall write a thesis on it. As a testable hypothesis it can be argued that award giving companies are engaged in competition through the behavioral marketing practices of their own logos and brand names and are not necessarily concerned with the above mentioned vision. A typical news item will read like this, “so and so VIP awarded the Islamic finance award of company X to such and such company or the CEO of the company”. So in the first place the VIP’s role makes a viral impact on the news item; in the second place the company or CEO who receives the award becomes friend of the one who gives the award. If the award goes in support of promoting genuine services and proper innovation it will indeed be contributing to enhancing the vision. But if the award goes only to make the publicity of the brand name, it may in fact be only extractive and counterproductive in developing a genuine and inclusive Islamic financial services industry.

Is the giving of awards a social responsibility issue? Should the transparency of the awards be left to market discipline? How to promote market discipline which by itself requires transparency and credible information? May be, the industry associations such as AAOIFI and IFSB look into this matter to set some guidelines. Indeed there is also a need to encourage and support students, researchers and academicians through scholarships and awards.