Interview with Dr Khusro Iqbal — an analyst
PAGE had an exclusive conversation with Dr Khusro Iqbal, who possesses a PhD degree and has got more than two decades of professional experience working in three continents, namely; Asia; Africa and Australia. The excerpts of the conversation are as follows:
In my opinion the Islamic financing system is an investment of finances in conformity with the philosophy and value structure of Islam and is directed, along with orthodox good governance and risk management rules, by the doctrine of Islamic Shariah. Interest-free banking could be considered as a tapered perception representing a number of banking instruments or processes, which escape interest. The Islamic financing is expected not only to avoid interest-based transactions but also to avoid unethical practices and participate in accomplishing the goals and objectives of a healthy and Islamic Shariah-oriented economy.
I have a perception, based on my interactions with general masses, that people in Pakistan generally lack information on Islamic banking due to lack of awareness of the concept and its limited usage in Pakistan and that is why a large number of people consider Islamic financing to be the same as conventional banking. Generally, in discussions related to Islamic financing majority of Pakistani public considers Saudi Arabia, Malaysia, UAE, Bangladesh, Iran, Bahrain and other Gulf Cooperation Council (GCC) countries prolific for Islamic financing and very less number of people indicate Pakistan as an apt country for Islamic financing; although in my opinion Pakistan has a huge potential for growth of Islamic finance as it has all the ingredients such as legal, regulatory, judiciary, tax, political, to ensure its success and sustainability to become a hub of Islamic finance.
Based on recently published many surveys in print media one can conclude that Islamic finance is growing in Pakistan and the country will emerge as an Islamic finance hub with in next decade. According to a recent survey conducted by Centre for Excellence in Islamic Finance (CEIF) and the Institute of Business Administration (IBA), Karachi, 76 percent people in Pakistan said they would prefer Islamic finance if they had a choice with only 13-14 percent preferring conventional banking.
Accordingly, I am of the opinion that to promote and let people comprehend this concept and its practicality our government and Public-Private Partnership ventures should bring together researchers, academicians, Islamic Shariah scholars and practitioners for generating innovative ideas to stimulate growth of Islamic finance while overcoming present-day industry challenges.
According to the Banking Companies Ordinance the banks could form subsidiaries for “carrying on of banking business strictly in conformity with the injunctions of Islam as laid down in the Holy Quran and Sunnah.”
The State Bank has also outlined detailed instructions on the Islamic investment strategy, namely; setting up of subsidiaries and Stand-alone branches for Islamic Banking by existing commercial banks with emphasis on complete segregation of accounts of Islamic banking subsidiaries and the parent banks doing conventional banking. The subsidiaries shall have minimum paid up capital of Rs1,000 million that is also equal to the capital requirement for full-fledged commercial banks.
Following are also referred as permissible Islamic financing arrangements:
- Profit-and-loss sharing contracts (Mudarabah)
- Partnership and joint stock ownership (Musharakah): Three such structures are most common:
- Declining-balance shared equity
- Installment (cost-plus) sale (Murabaha)
- Leasing (Ijarah/Ijar)
- Islamic forwards (Salam and Istisna)
- Fixed Investment Funds
- Cooperative (mutual) insurance where subscribers contribute to a pool of funds, which are invested in a Shariah-compliant manner. Funds are withdrawn from the pool to satisfy claims, and unclaimed profits are distributed among policy holders.
The Securities and Exchange Commission of Pakistan (SECP) has defined comprehensive requirements for companies that deem themselves to be compliant with Islamic principles. According to experts these rules represent a significant forward move in strengthening the Islamic financial services, Shariah-compliant businesses and instruments. These rules would help bring standardization and transparency in the practices of Shariah-compliant businesses.
The general financing while functioning within the framework of Shariah, can perform a crucial task of resource mobilization, their efficient allocation on the basis of both PLS (Musharaka and Mudaraba) and non-PLS (trading & leasing) based categories of modes and strengthening the payments systems to contribute significantly to economic growth and development of any country including Pakistan.