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วันจันทร์ที่ 18 มิถุนายน พ.ศ. 2550

The China Connection

By AUSTIN RAMZY
Jun. 7, 2007


GREEN MACHINE: Workers in Nanhai, Guangdong, assemble dolls for Jeffrey Lam's Hong Kong?based toy company. Its mainland staff has grown from 50 workers in 1979 to a seasonal high of 20,000 today


Photograph for TIME by Ariana Lindquist
Article ToolsPrintEmail Thirteen years before Chinese leader Deng Xiaoping made his famous Southern Tour, Jeffrey Lam made one of his own. Just five years out of college, Lam traveled to the city of Dongguan in Guangdong province to set up a small factory to produce parts for his family's Hong Kong toy company. The year was 1979, and China had just begun to open up its economy. Unlike Deng's 1992 trip, which revitalized a wavering reform program, Lam's voyage won't make it into the history books. But his efforts, and those of thousands of other Hong Kong businessmen like him, helped turn neighboring Guangdong—and hence China itself—into an economic giant. "If it hadn't been for Hong Kong," says Guan Zhisheng, an economist at Sun Yat-sen University in Guangzhou, "then there wouldn't have been any reform and opening up in Guangdong."

As Hong Kong marks the 10th anniversary of the end of British rule, there has been no shortage of debate over the question of China's influence over its reclaimed territory. What about the opposite? When Deng put the mainland on the path that led to the end of its self-imposed isolation, Hong Kong became the example China followed as it groped for a way forward in the transition from communism to capitalism. And Hong Kong quickly established itself as a conduit for foreign technology, culture, business know-how and investment. Now, as the mainland grows richer, what's striking is the degree to which the flow of ideas, influence and investment has started to reverse. "China has learned from Hong Kong," says Michael DeGolyer, a political-science professor at Hong Kong Baptist University. "China has learned how to compete. Now it's competing with Hong Kong and forcing Hong Kong to improve."

Three decades ago, it was Guangdong province that needed a jump-start. Although it was a backward region in a backward country, Guangdong did have several advantages. Its people were eager to work hard. Its politics were removed from the power centers of Beijing and Shanghai, so Deng considered it a safe place to begin reforms. In 1980 three of China's first four special economic zones (SEZs) were set up in the Guangdong cities of Shenzhen, Zhuhai and Shantou. These experiments in capitalism attracted foreign capital through liberalized regulations and tax exemptions.

As the SEZs' market-oriented policies spread across Guangdong, the possibilities became obvious to Hong Kong businessmen. After years of remarkable growth, the city's economy in the late 1970s was in danger of stalling. Land and labor prices were climbing, making light manufacturing increasingly unaffordable. Guangdong, meanwhile, had millions of able-bodied citizens who shared language, culture and often family ties. Hong Kong entrepreneurs "just thought about bringing factories here because the production costs were lower and they could be more competitive," says economist Guan. "They didn't know they would influence Guangdong. They didn't know they would influence China."

At its crudest, this influence took the form of cash, bucketloads of it. Since 1978, Hong Kong has contributed more than $273 billion in foreign direct investment to China, nearly as much as the total from all countries combined; southern China got the lion's share. The Pearl River Delta, the part of Guangdong province closest to Hong Kong, is now home to 57,500 factories established by or producing for Hong Kong enterprises. But investment did not just mean building factories. When Lam first visited Dongguan, the trip required two ferry rides and took up to four hours. Today his factory is a two-hour drive from Hong Kong. Travel time has been vastly reduced in part because of the infrastructure investments of Hong Kong companies. Hong Kong tycoon Sir Gordon Wu's Hopewell Group built the mainland's first expressway, the 120-km Guangzhou-Shenzhen Superhighway, and more than 160 km of other key roads in Guangdong. Hong Kong companies like Hutchison Port Holdings and Swire Pacific helped develop critical Guangdong ports.

Projects like these turned the region into a manufacturing force on a global scale. From 1980 to 2002 the Pearl River Delta was, according to the book Regional Powerhouse, "the fastest-growing portion of the fastest-growing province in the fastest-growing large economy in the world." Hong Kong didn't just bankroll this party. It also supplied management expertise and knowledge of foreign markets. In the mainland's planned economy, meeting customer expectations wasn't a priority. For Hong Kong's entrepreneurs it was a matter of survival. "These small businesses were exporters of course," says Joseph Cheng, a professor at City University of Hong Kong. "They all knew that Christmas delivery was a matter of life and death. They had to deliver for a particular ship, 14 weeks before Christmas. If they couldn't make it, it was bankruptcy." At Lam's first operation in Dongguan—25 sewing machines and some paint sprayers set up in a converted municipal building—lessons were sometimes as painful for the teachers as they were for the students. Once, when the shop ran short of black paint needed to complete a run of pieces for a toy mirror set, local employees bought an extra can at a market and finished the job. The only problem was the paint was toxic, and unsuitable for use in a toy. The unsafe parts had been mixed in with the safe, so Lam had to scrap thousands of pieces. "They had no clue in making anything," Lam says of his Dongguan employees.

But they learned. Just ask F.C. Lo, once known as China's "king of cans." The Hong Kong entrepreneur shipped the first aluminum cans to the mainland in the early 1980s from a plant in Hong Kong's New Territories. In 1985 he built his first factory on the mainland in Guangzhou, an $18 million investment. With the help of foreign stakeholders, his company expanded to 20 plants, and at one time controlled about 60% of China's can market. (Lo split the company's assets with its American investors in 2001 and now runs four plants on the mainland.) In the beginning, working with mainlanders was "one-way traffic," Lo says. "We would tell them what to do because we were so strong and they didn't know anything." Today Lo competes with homegrown manufacturers. "The local guys are so good," he says. Lam, the toy manufacturer, agrees: "They are teaching us. That's the way it should go. We should not be jealous of somebody who worked for us for $34 a month who is now making $34 million a year. If they are good, they deserve it."

Guangdong has become the workshop for the world, but that doesn't mean all it does is work. As commercial contacts with Hong Kong grew, the province also looked to its neighbor for hints on how to have fun. Nowhere is that more evident than in Shenzhen, the mainland city next to Hong Kong. The border crossing at Lowu is the world's busiest, with 252,000 trips daily. Hong Kongers cross to shop, sing karaoke in a nightclub or partake in other diversions that have become favorite pastimes for mainlanders, too. Shenzhen is home to Mission Hills, the world's largest golf complex, with a dozen 18-hole courses. When Hong Kong paper-and-packaging tycoon David Chu founded the club in 1994, 90% of its members were from Hong Kong. Today 60% of the members are from the mainland.

The SAR's cultural sway has extended far beyond Shenzhen and the fairways of Mission Hills. Hong Kong's music, movies and fashion dominated pop culture in Guangdong when China first opened up. "In the '80s and '90s, I definitely only listened to Hong Kong artists like Alan Tam, Jacky Cheung and Anita Mui," says Kent Li, 37, who hosts a pop-music show for state-owned Guangzhou Radio. Hong Kong also set the pace for fashion. Before a look is big in Guangzhou, Guangdong's capital, it is vetted in Hong Kong, says He Ying, a 28-year-old video editor and former owner of a clothing shop. "Hong Kong is like a filter," says He. "If people there don't embrace certain trends, then Guangzhou will never embrace them."

The trends are transmitted to the mainland through Hong Kong media, which is widely available in Guangdong despite the fact that most newspapers and TV channels are restricted. Hong Kong-style teahouses, found throughout southern China, always have copies of day-old Hong Kong newspapers; some are distributed legally while others are smuggled across the border. Likewise, hotels and residence compounds for foreigners have access to two dozen overseas satellite channels and eight from the SAR. A huge gray market in illegal satellite dishes means Hong Kong programs are widely available. Indeed, Hong Kong's media spurred the development of Guangdong's own press, which is known for testing the limits of mainland censors. Fledgling mainland journalists looked next door for instruction on everything from story development to production, says Chang Ping, deputy editor of the Guangzhou-based Southern Metropolis Weekly. "Hong Kong media helped establish the foundation for Guangdong's media," he says. but familiarity sometimes breeds discontent. Mainland Chinese nowadays no longer take all their cues from their cousins—and the spread of the Internet in China means they no longer have to, because the whole world is in reach. "Now, there's more of a global culture in Guangzhou," says Alex So of the youth-lifestyle magazine Coldtea. Relaxed travel restrictions mean mainlanders can easily visit the SAR. "Before, when it was harder to go to Hong Kong, I thought it was such a cool, mysterious place," says He. "It's not the same anymore."

Guangdong's industries, too, are more independent of Hong Kong than they once were. "In the 1980s, the shop was in front and the factory was in back," Yvonne Choi, Hong Kong's Secretary for Commerce, Industry and Technology, told a business forum in April. "This has changed and Hong Kong is no longer playing the leading role." Instead, the SAR is increasingly dependent upon China for its economic vitality. Last year, Hong Kong's stock market launched initial public offerings worth more than any other market except London—a bravura performance that was largely due to the $25 billion raised through the IPOs of Bank of China and the Industrial and Commercial Bank of China. In 2001, mainland China became Hong Kong's largest investor, and by the end of 2005, it had poured $162 billion into the territory. The capital influx is expected to expand since Beijing announced in May that it would begin to allow mainland institutions to invest in foreign stock markets, beginning with Hong Kong.

The hope is that the mainland's investors will provide the same economic boost that its tourists have. Beginning in 2003, when Hong Kong was suffering a severe economic slump due to the SARS outbreak, the central government began allowing greater numbers of mainlanders to visit the territory. They played a key role in reviving the economy, says Allan Zeman, a Hong Kong developer who operates Ocean Park, a marine-and-amusement park, and owns property, restaurants and bars in Lan Kwai Fong, a popular night spot. "China was the match that started the fire burning and got the economy going again," Zeman says. Of Hong Kong's 25 million visitors last year, 13.6 million came from the mainland, more than four times the 3.1 million who visited in 1999. Zeman says he has changed his businesses to meet the needs of mainland tourists. Fluent Mandarin speakers have been hired, menus have been altered and renminbi, the mainland currency, is now accepted. "Over the last several years there's been a tremendous impact on all business," he says. "I think everyone in Hong Kong is starting to cater ... to the mainland market."

That has created some unexpected opportunities for entrepreneurs like Apichar Sirichantakul, a Thai businessman who calls himself the "father of the ladyboys." The transvestite stage shows he runs in Bangkok are so popular among Chinese tour groups that he decided to bring them to Hong Kong. As many as 3,000 customers a day, most of them mainlanders, pay $20 each to see three dozen Thai transsexuals and transvestites give a 45-minute dance-and-lip-synch performance in an old movie theater on Hong Kong island. "Chinese travelers come here, go shopping in the day and see some sights, but at night there's nothing to do," Apichar says. "We give them something to see."

From lowbrow entertainment to high finance, it's certain Hong Kong will increasingly be catering to China in coming years. Lam, for one, reckons the partnership between the SAR and the rest of China is just as dynamic as it was when he ventured to Guangdong to set up a toy factory 28 years ago. "Hong Kong will continue to impact the mainland," he says. Just not as much as the mainland impacts Hong Kong.

from :www.time.com

Thaksin Ups the Ante for Thailand's Generals

Thursday, Jun. 14, 2007
By HANNAH BEECH/BANGKOK


Enlarge Photo
SHOW OF FORCE: An anti-junta rally in Bangkok on June 11
Hoang Dinh Nam / AFP / Getty Images


Having dubbed itself the land of Smiles, Thailand tends to go out of its way to avoid confrontation. The capital's infamous traffic jams, for instance, rarely lead to the kind of road rage that strikes other cities. Yet this past week, the Southeast Asian kingdom showed the world a rather less peaceful visage. Protests against Thailand's ruling junta spilled onto Bangkok streets last weekend, with an estimated 13,000 demonstrators calling for the resignation of the generals who masterminded a bloodless coup against Prime Minister Thaksin Shinawatra last September. The marches, which sometimes erupted in clashes with the police, were the largest show of dissatisfaction to date against the military government led by the coup's architect, General Sonthi Boonyaratglin.

Thaksin, who has lived in exile since his ouster, quickly upped the confrontational ante. On June 11, a government-appointed investigative committee announced it had ordered the freezing of $1.6 billion in domestic bank deposits belonging to the former tycoon and his family, alleging corruption in several government projects overseen by Thaksin. The exiled leader, who has denied any wrongdoing, suggested the following day that he may return to Thailand to fight the charges—and perhaps re-enter politics. The prospective homecoming of Thaksin is likely to inflame tensions between civilian protestors and the military government, further damaging the country's international image and its hopes for stability. "[Thaksin's] return will raise the likelihood of violence," says Sunai Phasuk, the Thailand representative for New York-based Human Rights Watch. "We are heading for political upheaval."

Most of last weekend's demonstrators were from Thaksin's fan base, which draws largely from the rural poor. Many expressed anger at a tribunal, handpicked by the junta, which had dissolved Thaksin's Thai Rak Thai (TRT) party for committing electoral fraud in last year's polls. In their defense, the ruling generals have promised to hold elections by the end of this year, and they point out that their putsch was met with almost no public outcry. That's true: Thaksin's popularity had nosedived by the end of his tenure, in part because of his autocratic style, and street protests against him last year still dwarf the current rallies against the junta.

On Sunday, the junta blamed the TRT party leadership for the protests, later hinting that cash handouts had lured many poor citizens to the demonstrations. But the anti-junta rallies span a wider spectrum than just Thaksin's supporters. Democracy advocates took to the streets to decry the September coup. Anti-poverty campaigners who claim the junta has not adequately addressed the plight of Thailand's rural poor raised their voices, as did employees of community-radio stations banned from the airwaves by the interim government. Legal activists condemned what they believe is deteriorating judicial freedom under the military leadership. And Buddhists, who are upset their faith was not designated as the national religion in the draft of the postcoup constitution, also marched en masse. "The anti-junta coalition has gathered critical mass," says Thitinan Pongsudhirak, a political scientist at Chulalongkorn University in Bangkok. "This is a pent-up situation, and it's going to get worse."

The anti-junta coalition has vowed no letup in their dissent. On Monday, 5,000 Buddhists thronged in front of the Thai parliament, some participating in a hunger strike to draw attention to their call for a state faith. It's unlikely, however, that the generals will bend to such wishes—or relinquish their own power so easily. On Wednesday, General Sonthi struck a defiant note, predicting that Thaksin would not dare return to Thailand because he could be killed by one of the many groups of people who oppose him.

If Thaksin does return, the junta may have to redouble efforts to keep the peace between increasingly irate demonstrators and army troops. "To be fair to the military, they have been disciplined and patient so far, but for how long?" asks political scientist Thitinan. "They are trained to respond by force. If it turns more violent, it will be bad for Thailand economically—and for how it is viewed by the world."

with reporting by Robert Horn/Bangkok

from :www.time.com

วันเสาร์ที่ 16 มิถุนายน พ.ศ. 2550

The Philosophy of Sufficiency Economy

Medhi Krongkaew


The economic crisis of 1997 affected everyone in Thailand, even His Majesty the King. Seeing many of his subjects suffering, he advised the Thai people to change their economic philosophy in order to cope with present economic adversity and withstand future economic insecurity. His Majesty’s words have become known as the Philosophy of Sufficiency Economy and have been used as the guiding principle in drafting the current 9th National Economic and Social Development Plan.


The philosophy can be summed up in one paragraph, as translated from the Thai:


“Sufficiency Economy is a philosophy that guides the livelihood and behavior of people at all levels, from the family to the community to the country, on matters concerning national development and administration. It calls for a ‘middle way’ to be observed, especially in pursuing economic development in keeping with the world of globalization. Sufficiency means moderation and reasonableness, including the need to build a reasonable immune system against shocks from the outside or from the inside. Intelligence, attentiveness, and extreme care should be used to ensure that all plans and every step of their implementation are based on knowledge. At the same time we must build up the spiritual foundation of all people in the nation, especially state officials, scholars, and business people at all levels, so they are conscious of moral integrity and honesty and they strive for the appropriate wisdom to live life with forbearance, diligence, self-awareness, intelligence, and attentiveness. In this way we can hope to maintain balance and be ready to cope with rapid physical, social, environmental, and cultural changes from the outside world.”


This philosophical statement has lent itself to interpretation by diverse groups of people. First, we can dismiss outright the extreme interpretation that the Sufficiency Economy means complete self-reliance or autarky. In an autarchic system, a country or unit thereof relies upon itself and its people to produce all its needs with no dependence on others. It may do this voluntarily (cutting off contacts with the outside world) or by necessity (because it is incapable of generating those contacts). But His Majesty the King explicitly rejected this interpretation: “This self-sufficiency does not mean that every family must grow food for themselves, to make clothes for themselves; that is too much. But in a village or sub-district there should be a reasonable amount of sufficiency. If they grow or produce something more than they need they can sell them. But they do not need to sell them very far; they can sell them in nearby places without having to pay high transport costs.”


Some people have attempted to link this economic philosophy with the so-called “Gandhian Economy.” Along the lines proposed by Mahatma Gandhi, this is an economy based on family-level or village-level small-scale enterprises and traditional methods. It may have been appropriate to India in the mid-twentieth century, when the people were poor and technology was limited. But in the present, it may be too restrictive to expect families to do everything by themselves using simple tools and machinery, such as traditional spinning wheels to make cloth. Perhaps the basic idea of Gandhian simplicity – a life less encumbered by modern needs and modern technology – could make people happier. But in the very open world of today, self-sufficiency a la Gandhi is too extreme.


We also hear people relating the Sufficiency Economy to the knowledge and applicability of Buddhism. In Buddhism, life, especially spiritual life, is enhanced by cutting out excessive wants and greed. True happiness may be attained when a person is fully satisfied with what he or she has and is at peace with the self. To strive to consume more leads to unhappiness if (or when) consumption is not satisfied or falls short of expectations. A sufficiency economy in this context would be an economy fundamentally conditioned by basic need, not greed, and restrained by a conscious effort to cut consumption. This is probably acceptable insofar as it does not reject gains in welfare and well-being due to greater consumption.


Looking back, it can be seen that His Majesty has talked about the sufficiency idea since 1974. In his customary birthday speech of that year, he wished everyone in Thailand “sufficient to live and to eat” (Por You Por Kin). This was indeed a precursor to the sufficiency economy. His Majesty also said: “The development of a country must be by steps. It must start with basic sufficiency in food and adequate living, using techniques and instruments which are economical but technically sound. When this foundation is secured, then higher economic status and progress can be established.” (See Apichai Puntasen, “The King’s Sufficiency Economy and Its Interpretation by Economists,” prepared for the 1999 Year-End Conference of the Thailand Development Research Institute (TDRI), Pattaya, 18-19 December 1999.)


This is very clear: it shows that His Majesty did not deny economic progress and globalization, as some people have interpreted. Indeed the word “globalization” (โลกาภิวัตน์ , lokapiwat) is used in the statement on Sufficiency Economy that His Majesty has endorsed. The notion that Sufficiency Economy is anti-globalization should be put to rest forever.


Still, there are attempts by various segments of the Thai population to dissociate this new economy from the realm of mainstream economics that stresses economic rationality and efficiency in resource allocation. It is obvious that His Majesty’s Sufficiency Economy is not the type found in a mainstream economics textbook, but it would be inaccurate to interpret it as the antithesis of mainstream economics in every respect. On the contrary, I think we can understand Sufficiency Economy within the framework of economic rationality and efficiency in allocative choices. The difference is not in type, but in degree or magnitude of economic behavior. His Majesty used the phrase “middle path” or “middle way” to describe the pattern of life every Thai should lead – a life dictated by moderation, reasonableness, and the ability to withstand shock. Can we find something in mainstream economics that captures the spirit of this philosophy?


I propose to use my own understanding of economic optimization. It is possible to see the Sufficiency Economy as consisting of two frameworks. One is the inevitability of facing the globalized world in which economic efficiency and competition are the rules of the game; the other is the need for economic security and the capacity to protect oneself from external shock and instability. Thinking within the first framework – the basic tenet of mainstream economics – we must realise the opportunity costs involved in every decision we make. We gain from specialization and division of labor because the opportunity costs of doing everything by ourselves is much higher. The laws of comparative advantage and gains from trade are at work in today’s world. But it would be foolish to pursue all-out specialization without basic security, especially in food, shelter, and clothing. This is where the framework of the new Sufficiency Economy comes in. This concerns the basic capacity of the people of a country to look after themselves. The optimization principle applies when we seek to answer the question: How much of our time and energy should be devoted to the first and second frameworks, respectively? In other words, how much resources should be allocated to producing for trade based on comparative advantage principle, and how much for basic security? The best mix between the two allocations would represent the optimal state of affairs, both in mainstream and Sufficiency Economics.


The author is professor of economics at the School of Development Economics, National Institute of Development Administration (NIDA).

from :Kyoto Review

The "Bombay 5-6": Last Resource Informal Financiers for Philippine Micro-Enterprises

Mari Kondo


As a developing country, the Philippines has a large informal sector comprised of micro-enterprises. Many of these are severely resource-constrained small vendors operating in public markets, whose survival in business relies heavily on access to financing. This usually comes from the informal sector sector as well in the form of informal financiers called “5-6.” Two types of 5-6 financiers are found in Philippine public markets, each with a distinctive lending mechanism, Filipinos and Indians.


This paper considers the implications of having different financiers contribute to the development of micro-enterprises. I discuss Filipinos, but give central attention to Indian financiers for several reasons. First, regarded as last resource lenders, this group is crucial to the most marginalized micro-entrepreneurs. Second, a part of their lending money flows in from India through informal channels, quite an interesting phenomenon in this part of the world.


And third, despite their importance to Philippine micro-enterprises, little has been written about their financing practices. In the late 1980s and 1990s, extensive studies on micro-financing were conducted by the Philippine Institute of Development Studies, the Social Weather Stations, and other organizations (see Ghate 1992). Since their purpose was to grasp the concept of both formal and informal micro-financing institutions for the purpose of macro policy formulation, differences across institutions by ethnicity were not highlighted. As a result, although Indian financiers are widely known among Filipinos, studies regarding their business practices are virtually non-existent.


In addition to the usual review of literature, this study is based on economic anthropological field studies conducted in a public market in the town of Santa Rosa, Laguna province, and in Binondo (Chinatown), Manila. The public market in Santa Rosa depicts the workings of several micro-enterprises in a typical town in the Philippines. Binondo is considered the center of Chinese commerce through which “informal money” is coursed in and out of the Philippines. The field study was carried out with Ms. Marie Aquino, a researcher and a resident of the town of Santa Rosa with a background in anthropology, who conducted extensive interviews from 2000 to 2003.


The Role of Micro-Enterprises in the Philippines


The Philippines has lagged behind neighboring countries in economic growth; one major reason is that the country has been slow to develop a strong industrial sector (Yoshihara 1994). The contribution of manufacturing to employment has remained at about 10 percent for more than three decades (National Statistics Office 2003). Dramatic population increase and the deterioration of public education have created a pool of unskilled workers who now account for 29.3 percent of the total labor force (National Statistics Office 2003; World Bank Group 2001; Amante et al. 1999). Rural poverty, aggravated by population growth, has pushed rural folk to migrate to cities. But the failure of the stagnant industrial sector to absorb them has caused many workers to remain unemployed (defined as lacking a job or business and not looking for work because of a belief that no work is available, temporary illness/disability, bad weather, or pending job application/interview) or underemployed (working less than 40 hours during the reference period and wanting additional hours of work). Around 30 percent of the labor force in the Philippines has been consistently un- or underemployed (National Statistics Office 2003). Most of the underemployed are found in the informal sector within the service sector, running the micro-enterprises discussed below. The sound development of micro-enterprises is therefore a serious undertaking that needs to be addressed.


The Santa Rosa Public Market and Its Players


Although the business of micro-enterprises in the Philippines varies, this paper focuses on vendors and the informal financiers catering to them in the half-hectare public market in the center of Santa Rosa town. There are formal financing institutions on hand as well – cooperatives, lending investors, and rural banks – but these are not generally used by micro-entrepreneurs. There are also several pawnshops in the market whose usual customers are workers or residents of the town. For operational capital, though, the Santa Rosa vendors rely on funds raised through their own businesses and on informal financiers.


The Vendors. Of the 450 market vendors in the Santa Rosa public market, 75 percent are women. Ranging from poor to middle class, these vendors fall into four categories determined by size, location, and type of enterprise: ambulant vendors, rolling store vendors, stall vendors, and multiple stall vendors/private storeowners.


Ambulant vendors account for more than 50 percent of the total and include the poorest vendors in the Santa Rosa public market. Numbering about 230, some 90 percent have completed elementary education or less. Ambulant vendors sell smoked fish, vegetables, fish balls, and the like. Unable to buy or rent a stall, they market their goods along the sidewalks, in front of the larger stalls, or at the back of the market near the fish and meat vendors. Many are wives of fishermen living along the coast or of small farmers who sell their own harvest supplemented with fish bought from other, cheaper markets. The ambulant vendors are those most in need of informal financing. If they cannot sell enough one day, they need capital in order to buy goods to sell in the market the next day.


Rolling store vendors sell food, dresses, or shoes in customized vehicles, eliminating the need to rent a stall. They occupy spaces at the back of the public market together with other vendors. In August 2000, the number of rolling store vendors at the Santa Rosa public market reached forty, or 9 percent of the total. Most were residents of Santa Rosa or nearby towns, former salaried workers who had decided to start their own business. Their educational attainment was the highest among the four groups. They are also the most independent vendors because of their mobility, often moving from one public market to another in search of bigger profits. Some did not drive their own rolling store, but had assistants run their business in the field.


Stall vendors, totaling 150 in August 2000, made up 34 percent of the total. Their number has risen in past last two years since the Santa Rosa public market underwent expansion. Stall vendors are required to be residents of Santa Rosa and pay PHP 15,000 per stall annually. Although the regulations of the public market do not allow it, some stalls were sublet to non-residents and other vendors who had been unable to rent directly from the municipal hall. For this privilege, they paid PHP 20,000 annually to the stall owner and were responsible for keeping the area well-maintained.


The twenty-five multiple stall vendors and private storeowners comprised 6 percent of the population of public market vendors. They are residents of Santa Rosa and/or offspring of vendors in the old public market. Multiple stall vendors pay the local government PHP 19,100 annually for two stalls. They may rent a maximum of three stalls if their goods or line of business require a bigger area. The private storeowners – of drugstores, grocery stores, imported goods shops, and rice stores – are considered the “local rich” or old families of Santa Rosa. Unlike stall vendors, private storeowners paid only PHP 12,000 per annum because they completed the construction and furnishing of their stores.


Five-Six Moneylenders. So-called because of the manner in which they lend, five-six (5-6) moneylenders charge a nominal interest rate of 20 percent over an agreed period of time. A person who borrows 5 pesos from a 5-6 moneylender over a period of one week repays 6 pesos, including 1 peso interest. Neither Filipino nor Indian 5-6 moneylenders require collateral or documents from their borrowers. The success of a borrower’s business and loan repayment history provide a gauge of the borrower’s credibility.


At the Santa Rosa public market, 5-6 moneylenders undertake daily collection of payments in the morning, afternoon, or both. A client’s daily payment is determined by the sum of the principal borrowed plus its 20 percent nominal interest divided by the credit term. The loan arrangement is flexible; if the client fails to pay one day, it is understood that he or she will pay for the day missed the next time around.


Renewal of loans depends on the moneylender’s policy. Some 5-6 moneylenders will renew clients’ loans only after the previous loan is paid in full. More accommodating lenders will renew a client’s loan earlier, subtracting the outstanding balance of the old loan from the new loan and issuing the client the remainder.


Filipino and Indian 5-6 lenders play different roles among the vendors at the Santa Rosa market, although the essence of the 5-6 business is the same. The significant difference lays in the fact that Filipino 5-6s are resident “insiders” in the Santa Rosa community, while the Indians, as immigrants, are clearly identified as “outsiders.”


Filipino 5-6s: Community Insiders


Of the twenty to twenty-five Filipino 5-6 moneylenders operating in the Santa Rosa public market during the period of our survey, about 75 percent were women. Many are middle-class, long-time residents of Santa Rosa. The “big-time” lenders had other businesses, such as selling jewelry on installment. Many of the “small-timers” entered the 5-6 business to invest income generated by returning overseas contract workers (OCWs), either themselves or relatives.


Client Development and Location. The favored clients of informal moneylenders are proprietors of small businesses (such as vendors) and small service providers (owners of groceries, eateries, tailor shops, and hair salons). Since the lenders’ standard collection schedule is daily, businesses that generate cash on a daily basis are sought. Food-related businesses are ideal because of the perishable nature of food, their daily need for working capital in the form of cash, and their daily generation of profits.


A key success factor for 5-6 businesses is the development of a large, good-quality client base which continually borrows and repays without default. However, as micro-entrepreneurs of tiny businesses, the clients of 5-6 financiers are vulnerable to any shocks – external, such as economic downturn, and internal, such as family sickness. In short, regardless of their willingness, micro-entrepreneurs’ ability to repay tends to be unreliable. Therefore, an existing “good” customer for a 5-6 business can easily become a “bad” customer. Thus, simply to maintain the current size of a 5-6 business, the lender needs to look for new clients constantly.


For Filipino 5-6s, developing new clients is rather easy. First, people are more inclined to borrow from them as fellow Filipinos. They speak local languages freely, giving them a superior capacity to collect information – including rumors – about their borrowers’ credibility. Many Filipino 5-6s are women, and their preferred clients are also women, who aid in information collection and are easier to pressure for repayment. Because of their heavy reliance on information networks, Filipino 5-6s seek clients in wet markets and other sites where vendors congregate.


Credibility Check. Filipino 5-6s frequently use the mutual help scheme paluwagan to generate funds for their 5-6 business and at the same time check the credibility of their clients. The paluwagan is a kind of rotating savings and credit association: a group of people contribute the same amount of money toward a common fund and take turns collecting the total, often called the “salary,” over a fixed period (e.g., every seven days, every thirty days). The paluwagan is a common mechanism for saving money among Filipinos who do not enjoy access to banks.


A paluwagan scheme at the Santa Rosa public market typically involves five or ten stall vendors contributing over a period of months – five months if five members, ten months if ten members. Some paluwagan are much shorter – four members contributing for one month – so that the collected money is received weekly. The Filipino 5-6 moneylender usually serves as “manager” of the funds, collecting paluwagan contributions daily together with 5-6-loan payments. To compensate for the extra service involved in collecting the paluwagan money, managers “pocket” the payment of the last day of the month (1/30 or 3.3 percent of the amount collected). Members draw lots to decide who will receive the salary first, with earlier payment more advantageous. In some cases, the manager reserves the right to withdraw the salary first and uses the money to support her 5-6 business. In both cases, paluwagan members pay extra (or negative interest) to gain access to a savings mechanism provided by the Filipino 5-6 moneylender.


In the Santa Rosa market and more generally, members of the paluwagan are also lending clients of the manager. Vendors must have a good 5-6 payment history to be invited into a paluwagan because it will test one’s capacity to save money while repaying a 5-6 loan. The cost of joining a paluwagan could also be considered a premium payment for membership in an informal social “insurance” system, because in time of need, the Filipino 5-6s try to provide financing to paluwagan members first and on favorable terms.


As an informal savings system involving no legalities, the paluwagan is vulnerable to members running away with the money and to delayed or missed payments. The paluwagan system therefore operates among people who know each other – who work in the same office, live in the same neighborhood, or can otherwise keep a check on each other. The paluwagan organizer has to be particularly trusted by the members, making this a client development mechanism available to Filipino but not Indian 5-6 moneylenders.


Collection. Filipino 5-6s collect payments daily, talking to their clients and other vendors in a cheerful manner. This style is important as it allows updates on the creditworthiness of borrowers. A customer who does not want to pay may try to hide, but this tactic is not very helpful for clients of Filipino 5-6s, who, as residents of the town, can simply visit the borrower’s house. It is also dishonorable to default, so considerable community pressure will be felt to pay back the moneylender.


Still, in times of crisis, if a borrower asks a Filipino moneylender to wait for repayment, he or she will do so. As a good member of the community, the moneylender cannot refuse such requests. Filipino moneylenders are expected to show compassion to people experiencing difficulty. Eventually, however, this practice will increase the non-performing loans in their portfolio. This, along with community pressure to lend to non-creditworthy people, is a downside to being an insider.


Indian Financiers: The Unwelcome People


Indian financiers are called “Bombay 5-6s.” Mostly men, they number between fifteen and twenty in the Santa Rosa public market. Filipinos in general have a strongly unfavorable image of Indian 5-6 moneylenders.


“If you do not behave, I will give you away to a Bombay 5-6,” goes a warning issued by Catholic Filipino parents in an effort to discipline their children. History has it that the mother of Jose Rizal, the Philippine national hero, used this expression to discipline him in the 1860s. The warning remains in use today. (In 1999, all 80 Catholic Filipino students enrolled in the Asian Institute of Management, aged between 22 and 30, and coming from various parts of the Philippines, including the Visayas and Mindanao, recalled having heard this from their parents or nannies. Approximately thirty mothers working at the AIM also confirmed that they know and sometimes use the phrase.)


Who are these Indian 5-6 moneylenders who strike a certain amount of fear in Filipinos? The people called “Bombays” are overseas Indians and people of South Asian descent. Filipinos usually refer to people with South Asian features, regardless of actual nationality or origin, as “Bombay.” Because micro-credit financiers charge high interest rates, the term “5-6” can also invoke the image of a loan shark.


In the Philippines, there are two Indian communities – Sikh and Sindhi. In reality, many so-called “Bombay 5-6s” belong to the Sikh community. (It is said that Sikhs copied the money lending activities conducted by the Sindhis.) Not knowing the difference between the communities, Filipinos often believe that many Indians in the Philippines are in the 5-6 business, and the words “5-6” and “Bombay” are frequently used interchangeably to point out people of South Asian origin. Both words have negative implications.


Client Development. The preferred clients of Indian 5-6s are the same as those of their Filipino counterparts. However, Filipinos enjoy access to relatively bigger and more established businesses than Indians, who are generally seen as lenders of last resort. It is rare for a micro-entrepreneur in need of financing to approach an Indian; he or she instead seeks referral to a Filipino from an existing client. Filipinos say they are afraid of these foreigners who look “scary” and extend loans at usurious rates and that Indians are known to resort to violence if they have difficulty collecting payments. This renders it difficult for Indian 5-6 moneylenders to attract many “good clients,” and they have adopted certain techniques to meet this challenge.


Seeing a thriving business, an Indian 5-6 moneylender will often approach its owner. Almost all those interviewed acknowledged that Indian 5-6 moneylenders take the initiative. But lacking inside information, Indian lenders conduct careful observation in order to pre-screen the profitability of their prospects by the following criteria:


Size and location of the store – Bigger stores are deemed more creditworthy. Stores located inside the wet market have a lower chance of repayment default compared to ambulant vendors who can easily disappear.
Inventory – A large inventory indicates good credit standing with suppliers and a profitable business.
Volume of customers – The busier the store, the better the business.
Presence of other 5-6s – Some clients borrow from multiple moneylenders and this can indicate creditworthiness. One Indian 5-6 explained, “I know one of my clients borrows from six Indian moneylenders. Do I give loans to her? Most likely, yes. If many moneylenders have transactions with her, then her business must be good and she must be a good payer.” This can also be checked directly through other Indians who have had business with the client.

Indian moneylenders also prefer female customers and told us they seldom have male clients. If a store is run by a couple, Indians prefer the husband to be absent when they make their initial approach. They cited the following reasons:


Easier to begin a relationship – Women are responsible for purchasing small household items. One Indian 5-6 said, “Women are easier to convince because they tend to show off. They throw parties and celebrate even if they do not have enough money to spend. Then, after, they notice that their business capital is not enough, they start borrowing.”
Security concerns – Since the initial acceptance of business is rare, an Indian 5-6 moneylender needs to stay in the store to build rapport. Women are less violent than men and will not kick him out.
Confidentiality – Some women prefer to borrow without consulting their husbands and are afraid to go to Filipino 5-6s, since the information may leak out and reach their husband, other relatives, or friends. In this case, a stranger with little connection to the community is more likely to maintain confidentiality.
Prevalence of women in business – Unlike in South Asian countries, women traders, storeowners, and service providers are common in the Philippines.
Better chance of repayment – Though it was not explicitly stated by Indian moneylenders, a study on micro-credit shows that women borrowers have higher repayment rates than men.

Initial Approach and Credibility Check. Although many Filipinos speak English, for daily communication they use their local language, either Tagalog (Filipino) or a regional language in non-Tagalog regions. Indian 5-6 moneylenders can also speak some English, but many are more fluent in the local languages in which they conduct almost all their business.


The first transaction with a new client is considered by the Indian 5-6 to be an investment. Though his business is moneylending, he initially offers not money but goods to be paid back on installment, an arrangement called hulugan. (Earlier, some Indian moneylenders had engaged in door-to-door peddling and some eventually ran shops still known for their hulugan business.) The standard items offered in the initial transaction are umbrellas, towels, bedsheets, and small electrical appliances. There is nothing special about these goods except that they are needed by everyone. The moneylenders purchase them in Manila wholesale markets such as the Divisoria or in Chinatown, where they are sold at very low prices. The lender then goes to the store of a prospective client with these goods and simply asks her to purchase on an installment basis.


Selling goods on installment to prospective money-lending clients has various advantages. First, it provides tangible proof that the new client will obtain financing. Second, the mark-up is high: “We can sell goods in cash [not installment] if the price quoted by a client is 50 percent higher than our cost. However, the margin we can get is small compared to installment sales. We prefer to sell on installment, unless we feel that the collection from this client will be too difficult.”


A towel purchased for 200 pesos can be sold for 300 pesos cash (a 50 percent markup), but for 500 pesos on installment at 5 pesos per day for 100 days (a 150 percent markup). The difference in spread between the hulugan markup and the 5-6 nominal interest rate of 20 percent within a given time period can be considered a high-risk premium given to a client with no track record.


Today, most sales are on installment. Indian 5-6 moneylenders achieve “economies of scope” and use their collection time wisely by conducting their hulugan business simultaneously with their 5-6 business. In addition, proceeds from the hulugan business are an important component of funding for the 5-6 business.


A Humble But Persistent Approach. The Indian 5-6 moneylenders admit that it is difficult to convince potential customers to do business with them. The key to penetrating the market is to be humble but persistent. One described his approach – “Ma’am, would you like to buy something from me?” – while he started to show his goods. The usual reaction of Filipinos is to decline instantly, saying “No, I am not interested,” because they prefer not to associate with a strange “Bombay.” But the Indian is persistent. Another moneylender showed us his customer development techniques. Suddenly, he raised the pitch of his voice so that it became gentler. He also changed his posture, almost kneeling so the prospective client could physically look down at him, as though begging that she buy his goods.


Of course, potential clients do not quickly agree to purchase. However, this behavior can be understood by the Indian 5-6 as proof of a person’s prudence. Thinking the customer potentially a good payer, he does not give up, but woos the client once, twice, or even more times, showing his products one by one. He pleads, “Ma’am, please, please. You try it. This is good. You try,” or “Please, please, just try – even just one.” His persistent begging continues so that eventually, the initial fear and embarrassment of talking to the “Bombay” gradually dissipates and the Filipino woman feels some pity for him. She eventually says, “OK, OK, show me the items,” and then “I don’t like this, I don’t like this – but I like this towel.” She asks the lender the price of the towel, he quotes her the price and explains that he would collect payment daily. “It’s five pesos per day for 100 days.” He stresses how small the daily payment is – “It’s only five pesos” – and the customer considers the daily payment reasonable and agrees to the sale.


Client Location and Business Mix for Risk Diversification. The time required to effect daily collections constrains the number of clients a moneylender can have and therefore profits. In order to increase collection and monitoring efficiency, geographically concentrated clients are better. Thus, wet markets, where hundreds of small stalls operate, are preferred by anyone in the 5-6 business.


However, Indian 5-6 moneylenders avoid too much geographical concentration of clients. As foreigners, they fear bad treatment if their Filipino borrowers unite. For example, a group of clients in a market could complain to the police about the “Bombay” and have moneylender harassed. If, as a result, the moneylender cannot come to the market, the borrowers do not have to repay. If a lender’s clients are concentrated in just one market, this would mean the end of his business. (Theoretically, the same could happen to Filipinos, but as they are more likely to penetrate the social network of the borrowers, they can take counter-measures quickly.) Therefore, Indian 5-6s geographically disperse their clients at the expense of efficiency.


Indian 5-6s also try to develop a client base operating in varying businesses, preferring that their clients not know each other. One Indian “old-timer” explained: “If we lend to one meat vendor and do not lend to other meat vendors, the others would insist that we also lend them money. You see, Filipinos are fond of gossip. For example, if I lend to Mr. Juan, he will tell others in his business or in the market how much I lent him, the terms of payment, etc. If other vendors see that he was able to get a loan from me easily, they will want to get loans from me also. The trouble is, if Mr. Juan decided not to pay back to me for one reason or another, then the rest of the people in his business or in the market will do similarly. Who will suffer then? I will. So, we choose our clients and the location of their business. We prefer our clients who have the same business to be far apart. In that way, they will not know each other and will not gossip about us and the business terms we have with them.”


Terms of the Transaction. Perhaps as a reflection of the difference in risk involved, Indian 5-6s offer shorter credit terms than their Filipino counterparts. The renewal of credit before completion of repayment is also more difficult with Indian than Filipino moneylenders.


In 5-6 transactions, while legal documents are not signed, lenders get their customers’ signatures in notebooks, calendars, or even on a piece of paper. Some lenders maintain these books at home, some keep the book with the customer and make an entry every day, and some do both. They make entries in their own handwriting so the customer cannot tamper with the record. We encountered one case, however, where an Indian 5-6 used a signed promissory note for a big loan. The contract was not notarized, however, and was therefore not legally binding. It was simply an IOU to psychologically bind the borrower to the lender.


Collection from New Clients. The time spent on daily collection visits provides the lender an opportunity to assess the whether the client will pay daily without delay and in what manner. Upon receipt of goods, some clients insult, malign, or shout at the “Bombay” 5-6 when he comes to collect. When this happens, especially with a first-time client, the Indian lender is often quiet and tolerant. He tells the client that he will come back the next day.


A customer who does not want to pay the Indian 5-6 usually hides. She asks her storekeepers or neighbors to “Tell the ‘Bombay’ we are not here,” and when he comes back the next day, they say the same thing. Though the moneylender may be aware that the borrower is at the back of the store, he cannot do anything but return the next day. If the borrower’s store is located along his regular route, the lender tries to visit every day for one or two months. If the borrower still does not appear, the lender gives up. According to one: “We are becoming beggars. Before giving money, we are good to them. Once we lend the money, we are bad to them. We have to have patience in collecting.”


From the moneylender’s perspective, it is important for the first-timer to make full payment peacefully, since he or she is unfamiliar with the behavior and connections of a new client. The moneylender may discover that the client is connected to gangs in town, in which case he or she will stop dealing with the borrower as soon as the latter repays in full. Even if the customer seems interested in borrowing money or buying more goods, the transaction cost for the 5-6 in such cases is much too high. One informant’s way of declining further business was to say: “According to our company policy, my boss would not allow me to lend to you any more.”


Customers who pay the amount agreed upon on time without harassing the lender are considered good prospective clients. When payment is completed, the Indian 5-6 offers other goods and also capital for the customer’s business. Sometimes, although a customer may skip a payment, he or she finishes paying within the agreed period and is still deemed a good client. Since the 5-6 business requires rolling funds, Indian lenders prefer customers who pay as little as five pesos daily to customers whose payment patterns are not constant.


But the default rate of Indian 5-6 clients, especially new ones, is quite high. One Indian lender told us that only 20 percent of new customers are good enough for them to continue to cultivate. The other 80 percent are dropped from the customer list as soon as they finish repayment.


Daily Collections and the Motorbike. Daily collection of payments is key to the success of 5-6 businesses. If clients of Indian moneylenders are located in the wet market, collection is usually conducted in the morning while they are selling their commodities. The wet markets open as early as 4:00 a.m., and by 8:00 a.m. vendors will have accumulated the day’s profit. Many Indian 5-6 moneylenders start their collections around this time or earlier in the case of a difficult client who has not paid for some days so that he or she is the borrower’s first collector of the day. Wet market vendors are busy until around 10:00 a.m., so many moneylenders finish collecting there by 11:00 a.m. For those clients whose stores are not in the market, the 5-6 collects later in the morning or in the early afternoon.


Usually, the moneylender collects payments himself. If his business expands, family members or friends may help out. In very successful cases, non-family members, even Filipinos, are hired on a salary or commission basis to serve as collectors.


Unlike Filipino 5-6s, Indian lenders ride motorbikes when collecting payments. (In an exceptional case, we encountered one who uses a car, but he is an established lender with helper collectors.) Motorbikes are essential because they enable the 5-6 lenders to cover the wide areas in which their clients are dispersed. They are cheaper than cars, pass easily through the narrow streets where their clients do business, are seldom caught in traffic jams, are less likely to be “carnapped,” and facilitate quick escape if the lender is attacked.


Special Security Risks for the Indian 5-6


For various reasons, Indian 5-6 moneylenders are prime and easy targets of hold-ups while on their collection routes. First, they are easily identified because of their appearance, often including a turban and beard as proof of being Sikh, and they are always on a motorbike. Second, their chance of having cash are high. “We are like a walking cash dispenser,” said one. Third, their everyday route is fixed and reliable so that borrowers can have payments ready. This predictability makes it easy to plan a hold-up once a “Bombay” 5-6 is targeted.


Fourth, it is uncommon for Indian hold-up victims to report the incident to the police. Many are illegal immigrants without the required papers to conduct business in the country. Even if the hold-up is reported, the police may not be sympathetic to someone considered a violent foreign loan shark exploiting good Filipino citizens. Finally, the social penalty imposed by Filipino communities upon a person who robs an Indian 5-6 is likely to be less than if a Filipino 5-6 were held up.


The professional syndicates that kidnap wealthy Chinese businessmen leave the Indian 5-6 moneylenders alone, considering them too petty. It is the goons of the markets and neighborhood gangs who find the Indians attractive targets. They also target utility collectors for water, telephone, and electricity companies, but since utility payments have been shifting to banks and collection centers, the number of collectors walking around with cash has decreased markedly. To compensate for this opportunity loss, gangs have increasingly held up Indian moneylenders. When the MERALCO electric company put up collection centers and eliminated collectors, Indian 5-6 moneylenders reportedly experienced a substantial increase in hold-ups.


All Indian moneylenders interviewed had either experienced a hold-up himself or had a close friend or family member who had been robbed, and death was not an unlikely outcome. One lender in business two years told us he had been held up twice thus far. Another successful Indian 5-6 moneylender, in business for seventeen years, was shot five times during his stay in the Philippines. On one occasion, he was paralyzed and hospitalized for one year. A big-timer, he does not use a motorbike but owns one van and one car. He hires two Filipino drivers who also serve as his bodyguards. When he moves around to collect money or to develop new customers, he always carries a cellular phone for security reasons.


This big-time Indian 5-6 has a good relationship with the police. Once he was seen parking his car in front of the public market when no parking space was available. The traffic policeman merely stood by, giving him a smile instead of a ticket. We are sure that this big-time moneylender pays the policemen a certain amount, but how much is unknown. In one case, the policeman was also the moneylender’s client.


In another case, a policeman in the public market actually handled the 5-6 business among the vendors, with the big-time “Bombay” serving as his financier. This moneylender also enjoys good relations with the goons in the area. Every two to three weeks, he tells the small neighborhood general store owner, also a client, to provide a crate or two of beer to the goons, charged to him, saying, “You can tell them that it is my birthday today.” He told us he allocates around PHP 1,000 per month for relationship-building with the neighborhood gangsters. We do not know how much he actually pays.


In spite of the common belief that Indian 5-6 moneylenders resort to violence to collect from delinquent borrowers, because they are vulnerable to Filipino retaliation, it is actually difficult for them to be aggressive or violent toward people who default. And if an Indian lender does become violent, his bad reputation will spread rapidly and make it difficult for him to acquire new accounts. One lender recounted: “I had a fight with a client who was drunk. He refused to pay and threatened me with a knife. I could not do anything, so I left the place quietly.”


Funds from India


The availability of cheap and abundant funds is crucial for a financing business and shapes the ability of any moneylender to expand his business. The same holds true for 5-6 lenders. One distinctive characteristic of Indian moneylenders is their ability to source funds from India. Coming to the Philippines to break free of poverty, many Indians still have families and relatives at home who send money through the sale of land and other assets. This arrangement indicates that some marginalized Filipino businesses are financed by the Indian poor.


These funds are channeled through banks and through an informal mechanism called hawala, which is historically prevalent in India, the Middle East, and other parts of Asia. Through hawala, money is transferred from one part of the world to another outside formal banking channels. Brokers procure foreign exchange abroad and arrange payment in the destination country through associates or paid employees. Payment may be in US dollars or in local currency, using the exchange rate in effect when the money was procured abroad. A code or password is often conveyed from sender to recipient allowing money to be collected anywhere in the world. The sender need not reveal his name. Transactions carried out between countries may, over time, be adjusted for accounting purposes. As a result, the physical movement of cash is minimal. If a balance does build up, settlement can be made through the transfer of cash, gold, or trade invoices.


The Binondo district of Manila, historically the heart of Chinese-Filipino business, is said to be one of the centers for hawala transactions in the Philippines. In the 1970s, the black market there, referred to as “Binondo Central Bank,” dictated exchange rates in the Philippines by channeling money via hawala. Binondo is also known as a hub of drug trafficking, kidnapping, and arms smuggling, the proceeds of which are often transferred out of the country through hawala transactions free from bureaucratic inquiry or paper trail.


Hawala transactions similar to those in Binondo are employed by many Indian 5-6 moneylenders to channel funds to and from India. The system allows them to apply the preferred exchange rate in a transaction process that is simpler and quicker than that done through banks.


Impact of the Financial Crisis on Vendors and Moneylenders


The Asian financial crisis of 1997 devalued the peso by more than 100 percent, causing inflation and a high rate of unemployment and forcing many Filipinos to spend less on food. Instead of the preferred beef and pork, people shifted to fish and vegetables and made less frequent trips to the market. This adjustment had a differential effect on vendors. Ambulant vendors who sold fish and vegetables benefited from the financial crisis, and during this period their number increased by 15 percent and their average profits by 40 percent. Other market vendors suffered decreasing sales and profits.


Ambulant Vendors. Before the financial crisis, ambulant vendors’ preference for borrowing from Filipinos was evident at the Santa Rosa public market. Sixty percent of their funds came from Filipino lenders, while a mere 10 percent was borrowed from Indians. After the crisis, however, the Filipino proportion decreased to 40 percent while that of Indians increased to 20 percent. Ambulant vendors earned higher prices than before, but the price of the goods they sold also rose, increasing their need for credit. At the same time, the crisis affected the availability of funds of Filipino 5-6s so that they hesitated to lend to such clients, leaving the ambulant vendors with no choice but to increase their reliance on Indians.


Both Filipino and Indian moneylenders were forced to provide larger funding to their clients. Filipinos did this by nearly doubling the repayment period, leaving daily collections the same or less. Before the crisis, the typical loan was PHP 10,000 for 80 days, with a daily payment of 150 pesos. This changed to PHP 15,000 for 150 days with a daily payment of 120 pesos. The effective interest rate, or internal rate of return (IRR), was reduced since the money did not roll in as quickly as it used to. In this way, Filipino 5-6 moneylenders helped their good clients survive the crisis. The effective interest rates of Indian 5-6s also decreased, although the adjustment was usually made in the nominal interest rate, not by extending the term, probably because their clients tended to be the most marginal. Indian 5-6s gave reliable clients lower interest rates (12 percent) at the same term (80 days); vendors without good credit standing got a smaller discount (18 percent) and a shorter term (48 days).


Rolling Store Vendors. The sales of all rolling stores were hurt by the crisis as people stopped buying snacks and variety goods. Daily sales ranging from PHP 5,000 to 6,000 decreased to between PHP 4,000 and 5,000, although profit margins varied depending on the products sold (interview with 21 rolling store vendors, August 2000). Four out of the forty rolling stores were forced to close, but were soon replaced by newcomers, often relatives, because many retrenched employees received substantial separation compensation. As a result, the number of rolling stores remained the same.


Before the crisis, Filipino 5-6s were the rolling store vendors’ sole source of operational funds. The most highly educated group, these vendors were afraid of the supposedly violent Indian 5-6s. After the crisis, however, just as their lenders of choice experienced a lack of funds, rolling store vendors, the group hardest hit by the crisis, saw their credit-worthiness deteriorate. Filipino 5-6s thus reduced the average amount lent to rolling store vendors from PHP 20,000 to 15,000. For reliable clients, Filipino lenders doubled the repayment period, decreasing the effective interest rate. But rolling store vendors who were no longer extended favorable terms by Filipinos had to tap the Indian 5-6s who extended loans of up to PHP 20,000 on the same terms as for ambulant vendors.


Stall Vendors. Stall vendors were unevenly affected by the crisis, with beef and pork vendors hurt the most. Daily sales of beef vendors decreased from PHP 15,000-20,000 to PHP 13,000-16,000. Sales of pork vendors declined from PHP 10,000-15,000 to PHP 8,000-12,000 per day. Dry goods vendors saw a decline in sales from PHP 4,000-5,000 daily to PHP 3,000-4,000. The gainers were fish stall vendors, whose daily sales rose from PHP 3,000-4,000 to PHP 5,000.


This group of vendors enjoys significantly higher credibility than ambulant or rolling store vendors because they have a fixed place of business. The ability to pay the cost of a stall signifies a successful business; further, their fixed site means they can not easily hide from creditors. Before the crisis, stall vendors financed their businesses from various sources, the largest of which was personal funds (30 percent). Filipino 5-6s, Indian 5-6s, rural banks, and lending investors made up the difference. Their reliability made them favorite clients of the Indian lenders, who cultivated their business by selling goods on hulugan and financed 25 percent of their business needs. Although Filipino 5-6s were more favored by the stall vendors themselves, the fact that they required more funds than ambulant or rolling store vendors meant that Filipino lenders alone could not finance their business, supplying only 15 percent.


After the crisis, stall vendors’ personal funds available for business decreased from 30 to 15 percent of the amount needed. Indian and Filipino 5-6s increased their financing to 85 percent, with 50 percent coming from Indian and 35 percent from Filipino lenders. As in the case of ambulant vendors, 5-6 lenders increased the amount loaned and reduced the effective interest rate, Filipinos by increasing the credit period and Indians by decreasing the nominal interest rate.


Multiple Stall Vendors and Private Store Owners. Although multiple stall vendors and private storeowners occupy the best location in the market, they had to raise prices and saw sales decline by 18-22 percent. From PHP 20,000-25,000, the daily sales of drugstores and rice stores decreased to PHP 15,000-20,000. The daily sales of imported goods and grocery stores decreased from PHP 10,000-12,000 to PHP 8,000-10,000.


Before the crisis, multiple stall vendors were supported mainly by personal funds (45 percent) and rural bank loans (20 percent). Rural banks find multiple stall vendors more credit-worthy than single stall vendors; these children of old market vendors tend to have more solid collateral bases. Being established in Santa Rosa town, these vendors are also socially close to the Filipino 5-6s and turn to them before Indians. Filipino lenders prefer to lend to this financially prudent group as well.


After the crisis, the multiple stall vendors’ contribution of personal funds decreased to 30 percent. The contribution of rural banks did not change because multiple stall businesses require larger capital at lower interest rates. (It should be noted that a credit crunch did not occur in the Philippines after the Asian financial crisis. Commercial interest rates stayed level, or even decreased due to the sluggish economy. The rural banks in Sta. Rosa did not change their lending rates.) However, the share of financing from Filipino 5-6s increased from 15 to 30 percent. Again, the lending conditions of 5-6s changed in ways outlined above.


Private storeowners belong to the “rich families” of Santa Rosa town. They do not need to borrow much and sometimes even finance Filipino 5-6 businesses. Naturally, if they are short on cash when a supplier makes a delivery, they ask a Filipino 5-6 to finance the gap and are offered the easiest credit terms. They do not borrow from Indians. Before the crisis, private storeowners personally financed 80 percent of their businesses’ operating funds and borrowed 20 percent from Filipino lenders. After the crisis, personal funds decreased to 70 percent, and Filipino 5-6s increased their lending to make up the remaining 30 percent.


The Role of Indian 5-6 Moneylenders


In short, market vendors in all categories needed to borrow more money during the crisis. Filipino and Indian 5-6s both increased the amounts lent, but because of larger loans per client, slower repayment, and higher default rates, Filipino 5-6s could not serve all their clients. They prioritized based on client credibility and created a gap that was filled by Indian 5-6s.


Both Filipino and Indian lenders decreased effective interest rates to help their customers survive the crisis. Filipino 5-6s’ “insider” status helped them identify reliable vendors for whom they extended repayment periods and issued more funds while maintaining the level of daily payments. As “outsiders,” Indian lenders were not comfortable extending the duration of the repayment period. Their way of helping clients was to drastically reduce effective interest rates.


Small Filipino 5-6 moneylenders were badly affected by the high number of bad debts. Bigger lenders had other, stable sources of funds, such as the Filipinos’ paluwagan and the Indians’ hulugan, and were able to recover from the crisis, while small-time lenders, more dependent on daily collections, become indebted to their own financiers. Many went bankrupt and as they left the market, neophytes took their place.


The Indian 5-6 moneylenders remained confident about their business even when bad debts became prevalent. And although they suffered from defaults and delayed payments, none went out of business. These lenders were able to survive by tapping funds from India, where the Indian rupee was little affected by the Asian financial crisis. They in turn financed the most marginalized and least credit-worthy Filipino businesses during and after the crisis.


It is notable that Indian moneylenders are considered socially undesirable people in the Philippines. However, this study found that hosting Indian 5-6s with their different risk diversification strategies can be an asset for Filipino society, especially during economic downturns. The owners of micro-enterprises in a developing country are particularly vulnerable to the external shocks of globalization, and informal financing mechanisms with global funding sources, such as that of the Indian 5-6 lenders, may assist in alleviating such volatility.


Mari Kondo is associate professor at the Asian Institute of Management. She can be reached at mari@aim.edu.ph.


References


Agabin, M. H. 1988. A Review of Policies Impinging on the Informal Credit Markets in the Philippines. Makati City: Philippine Institute for Development Studies.


Amante, M.S.V. 1999. “Social Security and Labor Insecurities under Globalization.” In Social Security and Labor Insecurities under Globalization, ed. R.E. Ofreneo and M.R. Serrano. Quezon City: University of the Philippines.


Asian Development Bank. 2000. Key Indicators of Developing Asian and Pacific Countries. Hong Kong: Oxford University Press (China) Ltd.


Casuga, M.S., D.C.E. Erfe, and M.B. Lamberte. 1999. Credit Programs for the Poor: A Tale of Two Studies. Makati City: Philippine Institute for Development Studies.


Ching, F., L. Y. C. Lim, and B.M. Villegas. 1999. The Asian Economic Crisis: Policy Choices, Social Consequences, and the Philippine Case. New York: Asia Society.


Constantino, E.A. 1998. Current Topics in the Philippine Linguistics. Quezon City: University of the Philippines Press.


Ghate, P. 1992. Informal Finance: Some Findings from Asia. Manila: Asian Development Bank.


Guzman, G.G., R.G. Manasan, A.C. Orbeta, and C.M. Reyes. 1999. The Social Impact of the Financial Crisis in the Philippines. Manila: Asian Development Bank.


Jocano, F.L. 1998. Filipino Social Organization: Traditional Kinship and Family Organization. Quezon City: Punlad Research House.


Lamberte, M.B. 1999. A Second Look at the Credit Crunch: The Philippine Case. Manila: Asian Development Bank.


Lamberte, M.B. 1988. The Urban Informal Credit Markets: An Integrative Report. Manila: Asian Development Bank.


Mangahas, M. 2001. “Brief History of Poverty Monitoring.” Press Release. Quezon City: Social Weather Stations.


Mangahas, M. 2001. “The SWS Crime Victimization Statistics.” Press Release. Quezon City: Social Weather Stations.


Mitchell, M. 2001. “This Land Is Your Land: Land Rights in the Philippines.” Far Eastern Economic Review, March 29, 2001.


National Statistics Office. 2000. Annual Population Growth. Quezon City.


Paralkar, R. 2000. The World Bank’s Role in the Fight Against Poverty in the Philippines. Washington, D.C.: World Bank.


Scott, J.C. 1976. The Moral Economy of the Peasant: Rebellion and Subsistence in Southeast Asia. New Haven and London: Yale University Press.


World Bank. 2001. Education in the Philippines, Social Policy and Governance. Washington, D.C.: World Bank.


Yoshihara Kunio. 1994. The Nation and Economic Growth: The Philippines and Thailand. Kuala Lumpur: Oxford University Press.

from :Kyoto Review

Mapping the Terrain: Politics and Cultures of Islamization of Knowledge in Malaysia

Alexander Horstmann

Georg Stauth
Politics and Cultures of Islamization in Southeast Asia: Indonesia and Malaysia in the Nineteen-nineties
Bielefeld / Transcript Verlag / 2002

Mona Abaza
Debates on Islam and Knowledge in Malaysia and Egypt: Shifting Worlds
London / Routledge Curzon / 2002

Syed Hussein Alatas
Ke Mana dengan Islam
Kuala Lumpur / Utusan Publications & Distributors / 2002

Farish A. Noor
Terrorising the Truth: The Shaping of Contemporary Images of Islam and Muslims in Media, Politics and Culture
Kuala Lumpur / JUST / 1995

Farish A. Noor
“The Localisation of Islamist Discourse in the Tafsir of Tuan Guru Nik Aziz Nik Mat, Murshid’ul Am of PAS”
In Malaysia: Islam, Society and Politics, ed. Virginia Hooker and Norani Othman
Singapore / ISEAS / 2003

Farish A. Noor
The Other Malaysia: Writings on Malaysia’s Subaltern History
Kuala Lumpur / Silverfishbooks / 2002

Chandra Muzaffar
Muslims, Dialogue, Terror
Kuala Lumpur / JUST / 2003




Islam in Southeast Asia has always had the complex of the “late-comer.” Yet Islam has been deeply felt in Malaysia and Indonesia since at least the sixteenth century, and there has been a steady transfer of ideas and networks between the Islamic heartland in the Middle East and Southeast Asia. Georg Stauth, in Politics and Cultures of Islamization, argues that scholars such as Clifford Geertz and Snouck Hurgronye have underplayed the deep influences of heartland Islam on local adat (custom) and have thus contributed to the dichotomization of adat and text-based, Shariah-orientated Islam. The author also criticizes the idea of a one-way distribution of ideas from the center to the periphery. Instead, he says, Islam has been appropriated and transformed in the local context. Far from simply absorbing Islamic concepts from the heartland, the peripheries of Islam are engaged in a process that uses and even instrumentalizes Islamic ideas for secular modernization. He notes that it is time to reconsider the universalistic cultural projects of Islamic fundamentalism or mysticism in relation to the diversity of local applications.


Stauth is concerned with the multiple and ambiguous effects of Islamization on institution building and on the rationalization and restructuring of Southeast Asian societies. He sets out to formulate a political sociology of Islam in Minangkabau, Java, Malaysia, and Singapore in comparative perspective. The association of Islam and the Asian Renaissance inspired him, as it has given new impetus to a non-western, non-European take-off to a successful modernity in Malaysia and in Singapore.


Yet tensions persist. One of them concerns the legitimating of Islam in an increasingly stratified and unequal society. Islam and the ulama stand for a just and good society, in which the Malay majority follows the precepts of Islam. The institutionalization of Islam in the nation-states of Malaysia and Indonesia has given rise to cultural projects of Islamic reconstruction. This tension and the accompanying cultural competition between centralizing nation-states and Muslim reformers escalated in the nineteen-nineties.


To understand this crucial process, Stauth analyses with brilliant clarity the manipulation of Islamization from above, the employment of intellectuals in the master plan, and the intellectual reconstruction of local Islamic traditions in the new Islamic think tanks. He also finds a fruitful solution to the Herculean task of tracing the making of Islamic localities by focusing on the ideas and agency of Muslim intellectuals who – according to Stauth – have mistakenly been termed “fundamentalists.” His long interviews with central Islamic actors are especially illuminating. The life histories and oeuvres of selected intellectuals show that Muslim intellectuals in Southeast Asia have found their own style and tradition.


Think Tanks and Platforms of State Islam


Prestigious institutions of Islamic education that form the core of the Islamization project were engineered by former prime minister Mahathir Mohamad to underline his ambition to make Malaysia a center of Islamic civilization, as well as to symbolize UMNO’s Islamic commitment. The think tank policy had the double effect of job creation and representation. Great figures of modernist Islamic thought were brought to Malaysia, forums were organized, and books published. Stauth notes that all these activities had formerly been organized on a smaller scale by ABIM (Angkatan Belia Islam Malaysia, or Malay Youth Movement), founded by Anwar Ibrahim. UMNO appropriated this representation from the grassroots movements, the final coup being the successful cooptation of Anwar into the project.


Mahathir also sponsored the reinforcement of clerical, orthodox traditions. The government needed support to outflank the opposition Islamist party PAS (Parti Islam Semalaysia) on the interpretation of the Shariah and the application of hudud (criminal) laws. The Pusat Islam (Islamic Center) therefore hosted ulama who proposed measures of responding to the Shariah. These state-sponsored ulama acted as government counselors in social and legal matters.


The government aimed to propagate its notion of an Islamic center with the help of the internationalization of Islamic discourse. The networking of ideas took shape in a highly staged support of Islamic intellectuals and Orientalists. Academic exchange with the Middle East proliferated via schemes with Cairo’s al-Azhar University. The 1970s and 1980s saw the overwhelming influence of the American scholar, Ismail Faruqui, and of the writings of Fazlur Rahman. Students of Rahman and Leonard Binder became prominent figures in Malaysian Islam.


In March 1982, Mahathir announced the decision to establish an International Islamic University (IIU). Later, the Organization of Islamic Conference agreed to sponsor the university. Stauth argues that ideological sectarianism and political influence could be felt when a group of young Muslim scholars from abroad joined the university (p. 235). Many of these appointees were from the Middle East and South Asia.


The exclusive Institute of Islamic Thought and Civilization (ISTAC) was founded in 1987 as a post-graduate institute by Syed Naguib al-Attas, the former Dean of the Arts Faculty at the University of Malaya. Anwar Ibrahim, a former student and long-standing friend of al-Attas, was behind its financing and remained its sponsor until 1998.


Among the leading Islamic intellectuals in Malaysia, Syed Naguib al-Attas began his career as an army officer fighting communists. He then studied at the University of Malaya and McGill University in Montreal, Canada, and earned a PhD from the School of Oriental and African Studies (SOAS), University of London, as a philologist and specialist in Malay literature. It is interesting that al-Attas’ teachers were eminent Orientalists such as Martin Lings, Hamilton Gibb, Fazlur Rahman, Tashihiko Isuzu, A. J. Arberry, Sir Mortimer Wheeler, and Sir Richard Winstedt. Stauth calls him a proponent of an anti-western revaluation of Islamic values in relation to the reconstruction of Malay spirituality. Mona Abaza, in Debates on Islam and Knowledge in Malaysia and Egypt, understands the project of ISTAC to be de-westernizing indigenous knowledge and countering traditional Orientalism (p. 90).[1]


Originally planned as part of the International Islamic University, ISTAC became a think tank on its own, strongly identified with its director (Stauth: 228, Abaza: 89-90). Al-Attas insists that he has nothing to do with the IIU and its Islamization of knowledge project. Nevertheless, the degrees awarded by ISTAC carry the seal of both the IIU and ISTAC. In 1996, the academic staff of ISTAC consisted of nineteen members, including Iranian and Turkish academics who had studied at McGill and Chicago University under the supervision of Fazlur Rahman (Abaza: 92) and Sudanese nationals who held PhDs from the universities of Wisconsin-Madison, Leicester, Istanbul, and Temple. The students numbered sixty; the Institute accepts only a limited number of students (it is for the khasah, the few).


The Reconstruction of Islam in Malaysian Discourse


The incorporation of Islamic symbols and legal divides is an essential element in the state project of modernization and bumiputra emancipation. In this state-led project, Islamic intellectuals were placed in strategic positions and provided generous resources in the framework of the state machine. Established university professors like S. N. al-Attas became influential in stimulating revivalist discourses and creating closed student circles.


The militant Islamization campaign began after the post-election race riots of 1969. Anwar Ibrahim was at that time a charismatic student leader at the University of Malaya and a loyal student of al-Attas. His cooptation into UMNO was crucial in bringing about the convergence of Islamization and the state and in controlling the Islamic grassroots movements, especially the dahwa (missionary) movements that were heavily influenced by dahwa in Egypt, Pakistan, and America.


Anwar was born in 1947 in Penang. On August 6, 1971, he established ABIM. In 1974, he was arrested (along with many others) under the Internal Security Act (ISA), following student demonstrations protesting rural poverty. In 1982, he was co-opted as junior Minister in the Prime Minister’s office and, under Mahathir’s protection, became president of the UMNO youth movement of Malaysia. He was warned not to go to Kuala Lumpur by his closest friends, especially ABIM core members and PAS ulamas. From 1986, he was Minister of Education and the confidential partner of Mahathir. Before being purged from office, he was deputy president of UMNO and president of the International Islamic University. Anwar’s rise ended in prison as his model of an Islamized state challenged the institutional power base of the elites.


Islamization between Malaysia and Europe


S. N. al-Attas was educated in England and was deeply influenced by European Orientalists. As Abaza notes, al-Attas’ works, with their strong philological inclination, reflect traditional Orientalism. He retains great respect for Bertold Spuler (1911-1990). Yet Al-Attas, who is a product of Orientalism, maintains an anti-western discourse. In Abaza’s words, he has become an anti-Orientalist Orientalist. Al-Attas has accused some Dutch scholars from the Leiden school of magnifying Buddhism and Hinduism at the expense of Islam.


A variety of Middle Eastern sources of local Islamic reconstruction have been recognized.[2] Yet the influences on local diversity from the West have received much less attention. Stauth argues that the western “Kulturkritik” and western critics of modernity like Nietzsche, Bergson, Heidegger, and Karl Jaspers have had great influence upon intellectuals of the non-western world. Stauth writes: “The anti-Westernness of the Islamic ‘inner-worldliness’ often takes its stand within the legacy of Western ‘Kulturkritik.’ Muhammad Iqbal, Mawlana Mawdudi, Sayid Qutb and Malik Bennabi might be named as most influential thinkers in this respect.” Kulturkritik is indeed very relevant to the stand of S. N. al-Attas, as well as to the Islamic reconstruction of ideas in Malaysia. Stauth continues: “Basically, then, local foundations of Islamic reconstruction engage in a cross-civilizational discourse with the West… It is this paradox which is most striking. Al-Attas’ Islamic Kulturkritik stands for the development of Western philosophy and thought from within an Islamic perspective.”


S. N. al-Attas’ writings about Sufism became very significant in ABIM Islamic circles. Abaza argues that his endeavor provided Malay Sufism with a modern reading and Malay students with a tool of self-assertiveness. Al-Attas, in contrast to al-Faruqui, emphasizes the importance of Sufism in explaining the Islamization of the archipelago. His is a modern and conservative reading of Sufism that could be harmonized with modernist interpretations of Islam.


S. N. al-Attas took a leadership role in the etatist project of reconstructing Islam in the Asian Renaissance. He was in the forefront of organizing student circles at his home and in stimulating them to read modernist literature. After re-asserting Malaysian Islam against the Dutch Orientalists, al-Attas has turned in his latest writing to processes of modernization and secularization, again contrasting Malaysia to the West. ISTAC is the product of an al-Attas-Anwar teacher-student relationship and enjoyed political protection from Anwar Ibrahim. His is a highly institutionalized, etat-ized project of reconstructing Islam.


Islam and Secularism


Al-Attas’ Islam and Secularism makes extensive use of the western Kulturkritik to criticize western development and to present his case against the secular.[3] Al-Attas draws on Christian philosophers who were alarmed by the crisis represented by the decline of Christianity and the Christian way of life in the western world. Secularization for Al-Attas is synonymous with de-Islamization and has to do with “the infusion of alien concepts into the minds of Muslims.”


He quotes Max Weber on the disenchantment of the world as well as Nietzsche’s Death of God. Van Nieuwenhuijze argues that al-Attas is in fact a follower of Nasr: “He envisages a revivified knowledge out of illumination. In so doing he assigns the rescuing role in the present quandary to what he calls existentialist mysticism rather than to the two hitherto dominant aspects of Islam, namely essentialist theology and philosophy.” Following Abaza, what is at stake is “a fight with the West over the sacred.” Nasr says: “Today modern man has lost the sense of wonder, which results from his loss of the sense of the sacred; to such a degree that he is hardly aware how miraculous is the mystery of intelligence, of human subjectivity as well as the power of objectivity and the possibility of knowing objectivity.”


Al-Attas’ reading of Malay mysticism revitalizes and rationalizes Islamic discourse. As Abaza notes, Al-Attas’ project of Islamizing Malay culture is certainly different from that of the founding father of the Islamization project, al-Faruqui, who was Shariah oriented, orthodox, dogmatic. Al-Attas is discoursing in a strictly Malaysian context, embedding his project in the de-westernizing of Malaysian politics. As Stauth argues, the project of S. N. Al-Attas lies in the historical reconstruction and reassertion of Islamization in the Malay peninsula.


In her important book, Debates on Islam and Knowledge in Malaysia and Egypt, Mona Abaza explores intellectual traditions and intellectual cultures in two key countries of the contemporary Islamic world – Malaysia and Egypt – and more particularly two centers and capitals of Islamic coffee-house culture – Kuala Lumpur and Cairo. Abaza places the Islamization of knowledge venture in the context of the post-colonial debate, the questioning of western domination of knowledge, and Ismail Faruqui’s call for Muslim scholars and ulama to take up the task of reconstructing the sciences in terms that are Islamic, culturally authentic, and relevant to the needs of Muslims the world over (pp. 9, 23-24).


Working on Foucauldian premises of deconstructing intellectual discourse, Debates on Islam and Knowledge reads – as reviewer Farish Noor notes – as an archaeology of a vast intellectual program which itself was an archeology of sorts. In the face of the painful realities of western domination and military hegemony, the politics and cultures of Islamization are rooted in the Muslim psyche of crisis and dependency that has also motivated former Third-Worldist movements, including subaltern studies in the Indian subcontinent.


Although sympathetic to the subversion of Eurocentric and Orientalist scholarship, Abaza realizes that the project of Islamizing knowledge had been hijacked by political leaders who see it as a convenient vehicle to serve their own interests and regain lost territory in Islamic legitimation. The Malaysian government’s patronage of Syed Naguib al-Atas and ISTAC was, in her view, a case of “the refeudalization and institutionalisation of an Islam of power” that served the interests of the ruling elite (pp. 92-95).


Abaza, according to Farish Noor, looks more to the structures of power, control, and domination – as well as mechanisms for the construction and production of knowledge – than to the contents of the discourse itself. This is a path-breaking study, as Abaza explores the genealogy of the ideology, the Islamic networks, and the counter-secular responses. Her study maps the difficult and ambiguous terrain of the program and shows how it unfolds along the South-South axis.


Both works are concerned with the positioning of Muslim intellectuals in the unfolding power of a discourse. This discourse is intimately tied to the West and the western critique of culture. Stauth as well as Abaza show that the most influential thinkers spent much of their education in the West and engaged themselves with western literature. This is no contradiction. Through the fascinating insights of Muslim intellectuals, visions of the re-organization of Muslim society against the West and against the secular become clear. The main protagonists use the West to reject it.


Islam and Politics


Against the background of modernization in Muslim societies, much of the discourse of the Islamists appears as utopian thinking. Three local scholars have contributed to a sustained critique of the political instrumentalization of Islam in contemporary Malaysia – Syed Hussein Alatas, the founder of Malaysian sociology; Farish A. Noor, the enfant terrible of Malaysia; and Chandra Muzaffar, the political activist.


S. N. Al-Attas’ older brother, Syed Hussein Alatas is a liberal academic known as a founder of sociological investigation in Southeast Asia. In his youth, H. Alatas was influenced by the ideology of the Egyptian Muslim Brothers and seems to have pursued a similar purpose of undermining the ideology of imperialism and Orientalism. He imagined an Islamic state as a philosophical base whose organization could be western, and used the journal Progressive Islam to develop Malaysian notions of the social sciences that would differ from the West. He distanced himself from the Weber thesis and developed his own concept of the development of capitalism in the Malay peninsula. Later, he criticized the Islamizers for Islamizing sociology in Malaysia and clashed with his brother and his brother’s connections with Anwar Ibrahim and government circles. This intervention cost him the vice chancellorship of the University of Malaya.


According to Abaza, Alatas’ early writing also reflected the concerns of young Indonesians who wanted to merge Islam with nationalism and who took Islam as a model of a just society that would provide welfare for the masses. Alatas told Abaza that he meant a form of Islamic philosophy would underlie a just government, rather than the political instrumentalization of the Islamic Shariah.


In The Myth of the Lazy Native, Alatas tackled the question of western biases in studying Asian societies before Edward Said’s Orientalism was published. In this landmark study, Alatas revealed how biased racial views equally affected Malay indigenous perceptions. Abaza notes that this work also challenged the views of Mahathir’s Social Darwinism, which obviously linked backwardness with race (p. 129). In his critique of the writings of UMNO (Revolusi Mental), Alatas reveals how the Malays reproduce in themselves stereotyped ideas about the backwardness of the Malays.[4]


In his new book, Ke Mana dengan Islam, Alatas argues forcefully that Islam has been taken hostage for political purposes. He criticizes the bureaucratization and rationalization of Islam in UMNO’s institutions. Alatas was also the mentor of Chandra Muzaffar, who developed his own perspective on Islamic civilization, Islamic ethics, and Islamic concepts of justice. Both Alatas and Muzaffar are very skeptical about the Islamization of knowledge project, believing that the Islamizers stand for a totalitarian regime that suppresses any form of political freedom.


Farish Noor argues that the government has opened the bottle, released the jin, and is now competing in an Islamization race with PAS. The pressure to introduce Shariah and police the everyday life and sexual relations of Malaysian Muslims is rising. The Islamization project as outlined by Stauth and Abaza thus provides a convenient tool for interpreting Malaysia and the promotion of Islamist ideologies.


In The Other Malaysia: Writings on Malaysia’s Subaltern History, Farish Noor opens the window to forgotten or suppressed Malaysian history that was rewritten to serve political interests. With Stauth, who argues that Syed Naguib Al-Attas reconstructs the early Islamization of Southeast Asia, and Abaza, who discusses Al-Attas’ role as a proponent of the Islamization project and his critical engagement with the secular West, Noor gives key importance to Al-Attas’ endeavor to manage a radical break with the past and his role as mentor to a generation of Islamic students and 1990s Malaysian elites.


The aim of ISTAC was to spearhead al-Attas’ own project of the Islamization of knowledge, which in turn is linked to his political project of creating a new class of Islamic leaders who conform to adab (ethics). Noor argues that al-Attas’ writings frame Islam in terms of a culturally specific, nostalgic past that is threatened by western secularization and the contamination of a pre-Islamic, Hindu-Buddhist past. In his second master narrative, Preliminary Statement on a General Theory of the Islamization of the Malay-Indonesian Archipelago,[5] al-Attas attempts to diminish the existence of a pre-Islamic history altogether. He sees the arrival of Islam as the final stage in the fulfillment of incomplete, imperfect Malay society and states that Hindu- and Buddhist-Malay culture “has not produced any philosopher of note.” Thus, Malay history only begins with the arrival of Islam.


According to S. N. al-Attas, western-directed secularization and the infiltration of Islamic culture by a pre-Islamic past has brought about a state of moral and epistemological confusion. For the agents of the Islamization project, Islam possesses a mission of salvation and is the sole religion with universalistic claims. As Noor notes, the ideas of al-Attas had enormous appeal for a whole generation of Malaysian students who were returning from their studies in the West disillusioned with the broken promises of Europe and uncomfortable in their own history.


The authors reviewed in this essay all map the terrain of the vast Islamization of knowledge project that has transformed Malaysian society and culture, the way history is conceived, and the relocation of Islam in that history. With Malaysians wondering if they will have to live in a full-blown Islamic state in the near future, the Islamization of knowledge project continues to shape the debate on Islam in Malaysia today.



Alexander Horstmann is Research Fellow in the Study Group 2003-2005: “Islam and Civilisation in Modern Society: The Positioning of Islam in the Perspective of Comparative Interaction,” directed by Georg Stauth, at the Institute of Advanced Studies in the Humanities (KWI), Essen. He had the honor of discussing questions of political Islam with S. H. Alatas, Farish A. Noor, and Chandra Muzaffar in the summer of 2003.



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[1] Al-Attas’ best known books are Some Aspects of Sufism as Understood and Practised among the Malays (Singapore: Malaysian Sociological Research Institute, 1963); The Oldest Known Malay Manuscript: A 16th Century Translation of the Aqai’d of al-Nasafi (Kuala Lumpur: University of Malaya Press, 1988); and The Mysticism of Hamzah al Fansuri, A Commentary on Hujjat al-Siddiq of Nur al-Din al-Raniri (Kuala Lumpur: University of Malaya Press, 1970). As Abaza states, al-Attas’ early philological works on Fansuri and Raniri became crucial landmarks for Malay Sufism and Islam.

[2] William R. Roff, The Origins of Malay Nationalism (Yale: 1970); Fred R. von der Mehden, Two Worlds of Islam: Interaction between Southeast Asia and the Middle East (University of Florida Press, 1993).

[3] Kuala Lumpur: ABIM Publishers, 1978.

[4] See The Myth of the Lazy Native (London: Cass, 1977), Chapter 10, “Mental Revolution and Indolence of the Malays.”

[5] Kuala Lumpur: Dewan Bahasa dan Pustaka, 1969.

from :Kyoto Review