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Islamic finance is a real system and set to stay and flourish

Islamic finance is a real system and set to stay and flourish

Banks in Pakistan urgently need to revamp conceptual learning methodology
Interview with Mr Hamad Rasool Bhullar — an analyst

PAGE: Kindly tell me something about yourself:

Hamad Rasool Bhullar: I am currently working with a large public sector organization. With respect to Islamic finance I have been involved in research and training for over 12 years and so far conducted over 300 trainings on different aspects of Islamic finance ranging from basic concepts to Shariah-compliant risk management, investment management and corporate governance.

PAGE: What are your views on the Islamic finance in Pakistan?

Hamad Rasool Bhullar: Islamic finance has flourished quite reasonably in Pakistan since 2003 when formal Islamic banking department was established by the State Bank of Pakistan, however, the consumer groups have always been critical especially with respect to the practices and procedures adopted by the Islamic banks in Pakistan, which is mainly due to the lack of conceptual learning strength within the branches staff of these banks. They need to innovate their learning methodology beyond the procedural requirements and minimum compliance issues so that this reputational risk is effectively managed. I believe it will not only expand the market strength but also deepen the routes of Islamic banking within the communities.

PAGE: Your views on the types of investments are permissible under Islamic finance in Pakistan:

Hamad Rasool Bhullar: This is a very special area in Islamic investments mechanisms, where we have categorized the investments into three categories, firstly as strictly prohibited as either being based on interest on Gharar or based on non-Shariah Compliant business, secondly as Clearly Shariah Compliant Investments based on Halal businesses and not related with any interest or other prohibited activities. Third type is quite challenging as it has some mix (tolerable) of Shariah Non-Compliant activities, which requires cleansing and charity on the proportionate basis. This partial case is very carefully handled e.g. in a real estate investment a building has some tenants who are involved in some conventional financing business or any other non-compliant activity but a majority (over 75%) of tenants are working on Halal businesses and so on.


PAGE: How would you comment on the support by the regulator for Islamic finance?

Hamad Rasool Bhullar: Effectively, we have two main regulators within Pakistan i.e. State Bank of Pakistan and Securities and Exchange Commission of Pakistan (SECP). State Bank is primarily involved in institutional control and regulations while SECP is looking after the investment market and instruments.

The role of State Bank has been remarkable in shaping and developing the institutions from the very beginning but SECP being a late starter in it, need to enrich itself with dedicated staffing and continuous learning base, which is practically easy now having the State Bank leading already in many areas. Effective collaboration and affiliation with AAOIFI and IRTI is also helpful in developing the knowledge pool for meeting the challenges ahead.

PAGE: Kindly tell us about the products being offered and the products which must be launched:

Hamad Rasool Bhullar: SECP has lately developed its regulations. Sukuk is the Shariah Compliant investment instrument but its popularity is primarily linked with the transparent system of business practices. We have a great variety of Sukuk instruments under different transaction models, which can be effectively issued to enhance the financing horizon for large corporate entities simultaneously giving the investors new avenues for investment.

Development of the Sukuk market will bring huge capital potential and reduce the dependence on international financial institutions creating localized investment environment which can boost the economy and even bring international investors to Pakistan in line with the UK market, which even not being Muslim destination but due to their research in investment management and legal system has become the largest investment market for Shariah Compliant instruments. The scope is quite high but it simultaneously requires serious efforts from the market and the market players.

PAGE: Your views on the growth of the Islamic finance in the world:

Hamad Rasool Bhullar: The world has recognized Islamic finance as a genuine system which is to stay and flourish, that is why UK, Germany, France, USA, Singapore, South Africa even not being the Muslim majority countries but considering the positive impacts of Islamic finance, have taken it as a great opportunity to support their financing and investment markets after the huge financial crisis of 2006-07 which hit the global markets very seriously.

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