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The reality and need of Islamic economics and banking system

When we talk about Islamic Banking and Finance, we must first understand the reality and need of Islamic Banking and finance in the present world. In this respect, we must understand and think about some matters that may clear our mind and eradicate confusions.

What is the reason of Islamic Banking to begin when the already conventional banking and finance is being run? What is the goal of Islamic Banking and Finance that are not being achieved by conventional banking and finance? Before the emergence of modern Islamic Banking and Finance i.e. in the mid of twentieth century, why the practice of Islamic economic transactions did not follow before this emergence? Why Muslims follow the principles of conventional economic and banking system?What is the sense of prefix of “Islamic” before banking?This article has been written to give answers these confusions and queries.

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Every system has philosophy, goals and objectives that are followed while practicing the certain system. Therefore, it is important to know about the philosophy of that system. The same is the case of conventional and Islamic economic and banking systems that have been laid on certain principles, mechanisms and objectives. When we think about in this respect, we find that the conventional banking is based upon the principles of conventional or secular economics which is based upon man-made principles and not on the revelation. On the contrary, Islamic banking is based upon the principles of Islamic economics that are based upon Shariah, the law revealed by Allah through His Messenger Muhammad (SAW). Therefore, there is a clear difference between the two theories. When we go in the difference, we know that in secular economics, the principles and mechanisms are not compatible with Islamic socio-economic principles like interest, excessive uncertainty, gambling, lotteries etc. Through this analysis, we come to the point that we cannot follow these principles and must adopt Islamic commandments because we are followers of Islam.The ultimate goal of Islamic banking is to implement Islamic socio-economic system and the objective behind this goal is to achieve a welfare society that the conventional economic and banking system has failed to achieve. The reason is that when the man makes laws without guidance from revelation, the factor of self-interest arises. The same is the case with conventional or secular economic and banking system. When the factor of self-interest arises, the welfare society cannot be established.

As it is proved that Muslims cannot follow the rules and principles of conventional economic and banking system as these are repugnant to the Islamic commandments, the next question arises why Muslims are following these rules. For the answer of this question, we have to go to history where we would know that Muslims were losing their strengths and territories at the same time when the modern economic and banking system was being established in the West. Due to continuous downfall of Muslims in that era, the Muslims became slaves of the West due to which they could not implement the Islamic economic framework and the socio-economic policies of the West and secular mind was implemented and followed in Muslims. This is not only the territorial downfall but there is social, economic and mental downfall in such respect that the effects of the downfall also exist in the present era despite of the fact that Muslims gain significant territorial power in the world.

 

During that era, we see the robust development in every field including economic system. The new mechanism, terms and definitions had been developed and the economic system had been designed and implemented in such a way that the certain system had become mandatory to survive in this world. The banking system had been established which is now considered as the important factor of economy and monetary management.

When Muslims gained territorial power and independence in the mid of twentieth century, this is a natural desire to go back to the socio-economic teachings of Islam but the goal to achieve the Islamic socio-economic system was not so easy because the global socio-economic system was based upon the strong footings of the secular and interest-based system in such a way that the escape from this system was not an easy task. To get rid of this system, the proper planning and strategy was required. In this respect, the most important task is to provide alternative to conventional banking system that is the engine of the present socio-economic system. In this scenario, the Islamic banking system has been introduced. The word “banking” refers to the particular mechanism in the present economic system and people are very much familiar with this word. When the banking system has been altered and purified according to Islamic commandments and principles, the term “Islamic banking” has been developed that denotes the banking that operates according to the economic teachings of Islam.

It is evident that Islamic banking has proved itself a viable system in front of conventional banking system and achieved a significant share after a great struggle and research. Islamic banking can pave the way for the implementation of Islamic socio-economic system as Muslims have succeeded to provide alternate in banking which is considered as an important factor of the present day economy. The blessing of this system is the awareness that has been developed among people to differentiate the conventional and Islamic economic and banking systems. Now, as awareness among people has been developed to the suitable extent, there is a need of determination and recognition of duties of individuals, government, central bank, financial institutions and educational institutions etc. When every segment would consider their duties and take part in the elimination of secular system and boosting of Islamic system in all respects, we can achieve our objective in a short span of time.

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