Nov 17 - 23, 2008

Pervaiz Saeed Director Islamic Banking Department State Bank of Pakistan said that Islamic banking is banking in real sense, while the conventional banking is simply money lending.

In his keynote presentation during Islamic Finance news Forum Road show 2008 (Karachi leg), he said in conventional business equity funds are profit-and-loss-based while the debt portion is essentially subject to a fixed return. According to him, both of these items should be profit-and-loss-based and that is what Islamic Finance is all about. He was of the view that we are more focused on rules, regulations and structure rather than principles and concepts.

The venue is Grand Ball Room of Sheraton, Karachi where the lead sponsors CIMB Islamic in league with the co-sponsors FWU, Path Solutions, Thomson Reuters and media partners Al-Huda, Islamic Finance Asia, Islamic Finance news and The Financial Daily have organized the road show.

Similar Road shows have already been organized in Singapore, Hong Kong, Jakarta, Cairo, New York and London. CIMB (Commerce International Merchant Bankers Berhad) is represented by Mohd Willieuddin Lim, Director, international business and wealth management. The program is divided into various sessions punctuated with keynote addresses by the Islamic Finance experts and renowned panelists of the upcoming and burgeoning industry of Islamic products. Every session entails a question answer period when the panelists and moderators try to satisfy the audience inquisitiveness regarding the not-so-well-founded and vaguely explained basics of Islamic Finance. During each session, the panelists are assisted by talented moderators. While the immaculate moderation of the veteran Shabbir Kazimi of The Financial Daily leaves an impression on the audience, the younger lot too shows immense wealth of promise through its understanding of the complex issues of this nascent yet potential industry.

The addresses and discussions mostly centered around the growth and future of Islamic Finance Industry and the operational mechanics of Islamic products like Modaraba, Morabaha, Ijara, Musharika, Sukuk etc. It was unanimously agreed that Pakistan, despite having played the pioneer role, has lagged far behind as compared to Malaysia, Bahrain, Sudan, UK and other countries simply because of a painstakingly slow process of legislation and framing of rules and regulations.

The situation, according to one of the panelists, arose due to our failure to timely engage full-time Shariah advisors. Hassan Bilgrami, CEO, BankIslami Pakistan was of the view that specific Modarabas are the future. While distinguishing between ethical and conventional banking, Ahmed Shuja Kidwai of Albaraka Islamic Bank said that Islamic banking was very much akin to ethical banking. On the subject of Takaful, Hassan Bilgrami aptly remarked that in our country a large section of population is not provided access to financial capital.

The positioning of the product in the large Islamic market holds great promise for the global success of the concept. The predominantly Muslim population of Pakistan can give the required boost to the new born Islamic insurance sector. Attractive pricing, serious promotional efforts and easy access to distributional network can change the mindset of a nation not so insurance friendly. The suggestion, made by a panelist, to set a deadline for the Islamization of the entire banking and insurance industry does not go well with the ground realities. The two systems have to exist unobtrusively for an unlimited period of time. After some considerable time, may be 20 or 25 years or even more, we may like to take stock of the situation and decide on our future strategy.

One of the panelists, while differentiating between Sukuk and TFC, told the audience that TFC holders enjoy the ownership of a loan and draw their income from interest (or mark up) on that loan whereas the Sukuk holders enjoy an undivided ownership of asset(s) and draw their profits from the income generated by the asset(s). In essence, Sukuks are like shares. Taxation issues, however, inhibit their listing on stock exchanges.

According to the panelists, the inadequacy of trained Islamic workforce is one of the stumbling blocks of the industry. Moreover, the delayed finalization of Islamic Finance Accounting Standards is raising numerous taxation issues.

To sum up, the seminar was similar to a number of such events taking place these days to create user awareness regarding different established and emerging Islamic finance products. It is more about showcasing of the products than outlining any worthwhile effort by the so-called Shariah experts towards constructing a reliable and competitive Islamic economic framework that is able to generate alternate financial systems. True, the centuries old interest-based financial and economic systems are losing their credibility, but economics and finance cannot exist in vacuum as we have no alternate system to replace the existing one. The interest-based financial and economic systems were not developed with the help of a few products. Rather it was a firmly footed economic system that gave birth to innumerable financial products starting from a compound-interest loan to a number of highly sophisticated modern day financial derivatives. What we have done during the last 1400 years? Where is the Islamic Economics that could replace the western economics? Those who say that Islam has given a complete economic system simply try to deceive the uneducated masses. Islam has set economic parameters. A comprehensive system based on these parameters is to be developed by Islamic economists. But where are they? It is the miracle of Quraan that the destructive powers of Riba are beginning to unleash and the western world is silently thinking in terms of an alternate interest-free economic system. Sorry westerners, we are not prepared for it; continue with your inhuman system. We have an array of experts in terrorism but no Karl Marx, Adam Smith, Jeremy Benthum, Jean Baptiste, Thomus Malthus, David Ricardo, John Stuart Mill, John Maynard Keynes, Joseph Schumpeter, Paul Samuelson, Kenneth Arrow, Ronald Coase, Milton Friedman, Amartya Sen, Joseph Stiglitz, Paul Krugman or anyone else.