ISLAMIC BANKING MAKING ITS WAYS INTO INT'L FINANCIAL SYSTEM
PROF. DR. ANWER I. BURNEY
July 26 - Aug 1, 2010
Although Islamic banking has emerged as a strong contender and contestant in competition with conventional banking, it has to go a long way to influence the thinking, win the favour of customers, investors, and attract them to the point of their practical participation in all financial deals with Islamic banks.
It is the demand of the day that Islamic banking system should necessarily be equipped with essential influencing factors promoting the people and their respective enterprises to exercise their option for Islamic finance.
In the present circumstances, wherein the entire financial system has been dominated by conventional banking based on interest Muslims have to face the greatest challenge of refining their financial institutions up to the specifications of Shariah which advocates the 'interest free' transactions and binds the bankers to utilise Shariah compliant products.
Islamic law binds the Islamic finance practitioners to refrain from usury, receiving and paying interest (Riba). Islamic law also prohibits hoarding and investment in any type of unlawful illegal, immoral or Haraam dales or business.
Islamic banking has a great capacity to grow and expand globally but its progress is slow because there is lack of awareness in the public and some factors are ambiguous and require classifications to convince the principle and clear their concept about Islamic banking system.
Atif, Malik (2002) conclude in their research that Muslims exceeding a billion in populace wish to use their surplus funds by investing with Islamic bank. Hence, it is high time for Islamic banking industry to utilise all its resources for encouraging such investors and enable them to fulfill their ambitions.
Dr. Shamshad Akhter former Governor SBP in her address pointed out that by dint of the efforts of Islamic financial services board (IFSB), Islamic rules and regulations along with the accounting, auditing and governance standard will be developed which will result in facilitation of adoption of centralised, joint and unified principles to develop, operate and regulate Islamic financial services.
Since Islamic finance has the basic roots of Halal (Religiously approved) business operations the funds are necessarily utilised on profits and loss sharing contracts and all financial deals and bargains are struck in compliance with Shariah principles. The development of Islamic financial system will contribute positively to the promotion of basil parameters for conventional banking system in the interest of a joint venture targeted for progress of Islamic finance and conventional finance for common share of development.
FACTORS GOVERNED BY RELIGIOUS BENEFITS/COMMANDMENTS
It is the burning question of the day for the initiators and practitioners of Islamic banking to put up tremendous efforts and take innovative steps for bringing Islamic banking at par with conventional banking.
Islam is the religion that offers complete code of life for the believers and followers. The religious bindings of Islam purify the actions and deeds of its true practitioners. In all financial deals, they follow the Shariah compliant principles. Islam prohibits Interest or Riba and encourages circulation of wealth without its hoarding or concentration in few hands to lessen the differentiation of poor class of people from the rich group of persons.
Islamic banking system emphasises at financial activities performing multifarious financial benefits. Islamic banking system categorically and compulsorily prohibits all sorts of haram and harmful acts, bargains and involvement in immoral activities like cultivation and business of intoxicating drugs, production of alcohol, gambling and illegal deals, and bargains.
Economic factors are playing a prominent role in the progress of Islam financial system enveloping the economic activities such as Islamic insurance, Islamic investments funds Islamic Sukuk bonds and Islamic banking.
New products of Islamic banking such as Modaraba, Musharka, Ijarah, Murabaha, Istisna, and Salam have already attracted the attention of people whose active and practical participation in Islamic financial system is quite encouraging for Islamic bankers.
Many Muslim business tycoons in the Arabian Peninsula including Gulf area of influence have entered in to the financial arena by establishing Islamic banks in competition with conventional banks and have succeeded in convincing the people to prefer Islamic banking system.
The social factor covers a considerably large sphere of religious minded people who being influential in their social circle are able to guide other people to adopt Islamic banking in consonance with the Shariah compliant principles.
The author of this article has twenty years of teaching experience. He is presently working as Head Department of economics, Government National College, Karachi.