Malaysia hosted The World Halal Week in 2016 in Kuala Lumpur. The rapid growth of halal economy worldwide is driven by strong demand from Muslim and non-Muslim consumers. FILE PIC
Malaysia hosted The World Halal Week in 2016 in Kuala Lumpur. The rapid growth of halal economy worldwide is driven by strong demand from Muslim and non-Muslim consumers. FILE PIC

THE notion of halal economy is rooted in the development of the halal industry ecosystem. It basically refers to an economic ecosystem that is guided by Islamic values and principles.

The ecosystem consists of major categories of syariah-compliant business, such as food, tourism, lifestyle and finance.

Based on projections by KFH Research, the value of the global halal economy is expected to be US$6.4 trillion (RM26.26 trillion) this year.

This figure is slightly higher than this year’s US$5.16 trillion gross domestic product projected for Japan, which is the world’s third largest economy.

Of the US$6.4 trillion, Islamic finance and halal food sectors are expected to contribute US$3.91 trillion and US$1.6 trillion this year, (Malaysia International Finance Centre, 2014) respectively.

According to the Global Islamic Economic Indicator(GIEI), Malaysia and the United Arab Emirates are two Islamic countries among the 57 Organisation of Islamic Cooperation (OIC) countries and 16 non-OIC countries studied that have the best halal ecosystems. Singapore, the only non-OIC state listed among the top 15 GIEI countries (Thomson Reuters, 2016, 9-10), also has the best halal ecosystem.

Based on reports by the Islamic Development Bank or Thomson Reuters, the rapid growth of halal economy worldwide is driven by strong demand from Muslim and non-Muslim consumers.

This scenario is propelled by the rise of education systems and the increase in purchasing power among Muslim consumers.

What drives producers to engage in the halal economy?

Why are Italy, Spain, Thailand, Japan, China, Brazil and other non-Muslim countries keen to invest in the halal industry? They are willing to spend heavily on halal initiatives in their countries.

Why are the world’s conventional financial giants interested in the Islamic financial sector?

Similarly, what has led Brazil’s BRF, Nestle, Carrefour, Walmart, Mastercard and Marriot to engage in the provision of halal products and services through their branches around the world?

To attract consumers, producers and service providers highlight Islamic values, such as purity, integrity and caring, as replicas to the products and services they offer.

It has been widely reported that most British, French and Dutch people associate Islam with violence. It is an untenable generalisation to perceive Islam as such, but it is ironic that, at the same time, Western-owned companies are racing to dominate the world’s halal market.

It is not an exaggeration to say that profitability is the main motive that drives these companies to venture into the global halal market.

Similar observation is made in the Islamic financial system.

A study of the statistics related to the Islamic financial sector, both nationally and globally, will show us its rapid growth. For example, its total assets in 2011 were US$1.3 trillion. In 2014, it rose to US$1.8 trillion — an increase of 38.46 per cent in three years.

This figure is projected to double in the next five years (Kunt, Klapper & Randall, 2013, 2; Nazrin Shah, 2014, Hisyam, 2014).

Ironically, if we look at the rapid development in the Islamic financial sector — be it local or global — the fact remains that the rate of poverty and inequality among Muslims is unresolved or not dealt with properly.

According to 2010 World Bank estimates, 1.7 billion people worldwide lived below the poverty line. Of this total, 44 per cent, or 748 million, were in Muslim-majority countries.

In this regard, we may argue that the Islamic financial system, which is also a halal ecosystem, has failed to meet one of its original objectives of raising the standard of living of society through the concept of justice, social equality, brotherhood, welfare and cooperation.

To some extent, it has been perceived by some Islamic scholars as part of the conventional financial system operating in the capitalist economy.

In short, it is quite difficult to confirm that the halal economy supports sustainable development. This conclusion points to a contradictory reality.

While the halal economy provides a platform for stakeholders, such as entrepreneurs and consumers, to take advantage of the ecosystem, poverty, unsustainable consumption and environmental degradation persist and need to be addressed by industry players.

The focus is on efforts to strengthen the position in the marketplace and increase business profits.

The halal economy is an innovative and creative concept based on Islamic teachings. It began with a common concept known only to the Muslims.

Today, however, the concept of halal has been adopted and applied in the business world not only by Muslim entrepreneurs but also non-Muslim companies.

The concept is not limited to profits generated by business sectors, but also extends to
consumer communities, where they have more choice of products or services available in the market.

Despite these positive outcomes, it is imperative to note that anything build upon an Islamic epistemological foundation should also abide by and operate in accordance with the principles promulgated by Islam.

Therefore, if we want to achieve sustainable development through halal economy, all parties need to ensure that the Quranic guidelines and Islamic values are adopted and practised in every production, consumption and distribution activity.

MUHAMMAD HISYAM MOHAMAD

Fellow, Centre for Economics and
Social Studies, Institute of Islam
Understanding Malaysia