An Encounter with AI on Islamic Finance

My impression is that in the social sciences arena, AI represents the dominant paradigm to start with. To test this possibility, I have had a dialogue with the GPT4 about my subject area which is Islamic finance. In Islamic finance the dominant paradigm is to establish the superiority of Islamic finance over conventional finance in general. For example, compared conventional finance, Islamic finance is more climate friendly in general. That's the position of the Islamic finance paradigm. But the question arises - when SUV A is financed by Murabahah for a client instead of conventional finance, from the environmental perspective how will it be different? The AI instead of focusing on answering the question, goes on establishing the superiority of Islamic finance in general, exactly like Islamic finance academics and Shariah scholars. I had to insist repeatedly asking the AI to be specific and finally I asked it impolitely please don't go out of the scope of the question. Only then it realized what was the actual and minimal environmental difference between an Islamic finance contract and a conventional finance contract.

We need to draw this important lesson: All Islamic financial contracts need sustainability pathways explicitly embedded within the contracts.

Me: Taking an example of vehicle finance or house purchase finance or industrial financing, how Islamic finance could be compared with conventional finance regarding environmental concerns?

AI: Islamic finance and conventional finance differ in their underlying principles, and these differences can have an impact on how they approach environmental concerns in the context of financing.

One of the fundamental principles of Islamic finance is the concept of ethical investing. Islamic finance prohibits investments in industries or activities that are considered harmful to society or the environment, such as gambling, alcohol, tobacco, and weapons. This means that Islamic finance institutions are more likely to avoid financing projects that are harmful to the environment, such as coal mining, oil and gas extraction, and other environmentally damaging activities.

In addition, Islamic finance encourages social responsibility and accountability. This means that Islamic financial institutions are more likely to take into consideration the social and environmental impact of the projects they finance. For example, in the case of vehicle finance, Islamic financial institutions may encourage the purchase of hybrid or electric vehicles, which have lower carbon emissions compared to traditional vehicles.

Islamic finance also promotes the concept of sustainability, which is in line with environmental concerns. In house purchase finance, for example, Islamic finance institutions may provide financing for green and energy-efficient homes, which are designed to reduce energy consumption and minimize the environmental impact.

Overall, Islamic finance has the potential to be more environmentally conscious than conventional finance, as it is based on ethical and sustainable principles that prioritize the well-being of society and the environment. However, it is important to note that the implementation of these principles in practice can vary among different Islamic financial institutions, and there is a need for greater transparency and accountability to ensure that environmental concerns are adequately addressed.

Me: Please be specific if one must finance a legacy car purchase, how Islamic finance cares for environment more than conventional finance. Please only talk about this example of a legacy car purchase and show the climate related differences if any!

AI: In the case of financing a legacy car purchase, Islamic finance may be more environmentally conscious than conventional finance due to its ethical principles and social responsibility.

A legacy car is an older vehicle that may have a higher carbon footprint compared to newer, more fuel-efficient vehicles. In conventional finance, the focus is primarily on profit, and lenders may not consider the environmental impact of the vehicles they finance.

However, in Islamic finance, the concept of ethical investing is a fundamental principle. This means that Islamic finance institutions are more likely to avoid financing vehicles or industries that are considered harmful to society or the environment.

In the case of financing a legacy car purchase, an Islamic finance institution may take into consideration the environmental impact of the vehicle and may encourage the borrower to choose a more fuel-efficient or environmentally friendly option. For example, the Islamic finance institution may provide financing for a hybrid or electric vehicle, which has lower carbon emissions compared to a legacy car.

Furthermore, Islamic finance promotes the concept of sustainability and social responsibility. This means that Islamic finance institutions are more likely to take into consideration the social and environmental impact of the projects they finance. In the case of financing a legacy car purchase, the Islamic finance institution may encourage the borrower to adopt eco-friendly driving practices to minimize the environmental impact of the legacy car.

Overall, Islamic finance's focus on ethical investing, social responsibility, and sustainability could potentially result in a more environmentally conscious approach to financing legacy car purchases compared to conventional finance. However, it's important to note that the implementation of these principles in practice can vary among different Islamic financial institutions.

Me: Please be specific. There is car A in the market with its carbon footprint known. The buyer has an option to select Islamic finance or conventional finance to buy car A. What’s the environmental difference it will make to select Islamic vs conventional finance?

AI: The environmental difference between selecting Islamic finance or conventional finance to buy car A may depend on the specific policies and practices of the financial institutions involved.

However, in general, Islamic finance is based on ethical and sustainable principles, which could potentially lead to a more environmentally conscious approach compared to conventional finance.

For example, Islamic finance prohibits investments in industries or activities that are considered harmful to society or the environment, such as alcohol, tobacco, and weapons. This means that Islamic financial institutions are more likely to avoid financing projects that are harmful to the environment, such as coal mining, oil and gas extraction, and other environmentally damaging activities.

Additionally, Islamic finance encourages social responsibility and accountability, which could lead to greater consideration of the environmental impact of the projects they finance. This means that an Islamic finance institution may be more likely to consider the carbon footprint of a vehicle like Car A and may encourage the borrower to choose a more fuel-efficient or environmentally friendly option.

However, it's important to note that the specific policies and practices of individual financial institutions can vary, and the environmental difference between selecting Islamic finance or conventional finance to buy Car A may depend on the specific institutions involved. It's also important to note that individual consumer choices, such as selecting a more fuel-efficient or environmentally friendly car, can have a significant impact on the environmental impact of the purchase, regardless of the type of financing selected.

Me: Please stay limited to car A and show the difference if any between the two competing alternatives of financing. Please don’t go out of car A case.

AI: When it comes to the specific case of financing the purchase of Car A, the environmental difference between Islamic finance and conventional finance may be difficult to determine.

Both Islamic and conventional financial institutions may offer financing options for Car A, and the environmental impact of the purchase will depend

on the specific vehicle and the borrower's driving habits.

However, it's possible that an Islamic finance institution may be more likely to take into consideration the environmental impact of Car A and may encourage the borrower to select a more fuel-efficient or environmentally friendly option. This is because Islamic finance is based on ethical and sustainable principles that prioritize the well-being of society and the environment.

For example, an Islamic finance institution may offer financing for hybrid or electric versions of Car A, which have lower carbon emissions compared to traditional gasoline-powered versions. Alternatively, the Islamic finance institution may provide financing for eco-friendly upgrades to the vehicle, such as solar-powered air conditioning or low-emission tires, which could reduce the environmental impact of the purchase.

In contrast, a conventional finance institution may not place as much emphasis on the environmental impact of Car A and may focus primarily on the borrower's creditworthiness and ability to repay the loan.

Overall, the environmental difference between Islamic finance and conventional finance in the specific case of financing Car A may be small, and the borrower's individual choices, such as selecting a more fuel-efficient or eco-friendly version of the vehicle, may have a larger impact on the environmental outcome of the purchase.

We need to draw this important lesson: All Islamic financial contracts need sustainability pathways explicitly embedded within the contracts.