By Mahvesh Farooqi
Islamic banking which used to be a myth in this part of the world several years ago is not only in vogue but is gaining rapid popularity theses days. Not only a number of foreign and local banks are doing good business in Islamic banking but even the conventional banks have been tempted to open special Islamic banking counters. In fact it was Dubai Islamic Bank which took the lead as early as 1975. Thereafter, Islamic banking grew into a worldwide industry exceeding handling amounts exceeding $900 billion. In Pakistan, Meezan Bank has made rapid strides in this sector followed by Bank Islami.
Almost all the banks engaged in Islamic banking are working under the umbrella of “shariah board” or “shariah committee” consisting of a panel of renowned religious scholars who are the guiding stars. A few of these banks have a single ‘shariah consultant’ or ‘shariah advisor.’ Most of these shariah scholars or advisors are engaged against hefty remunerations for their expert-advice and guidance on Islamic finance. According to a rough estimate, the numbers of the most outstanding experts are about 12, which is very meagre as compared to their demand in the market. It is due to paucity of their numbers that they are serving on different ‘shariah boards’ and ‘shariah committees.’ Some of them are even advising their competitors. This system is working in Pakistan. In Malaysia, one such scholar cannot serve on more than one board or committee at a time. It would be in the fitness of things if this restriction is imposed in Pakistan also.
The problem with these shariah boards or shariah committees is that they may give conflicting opinions or interpretations that may result in confusion or doubt. It may be possible that one shariah board, shariah committee or shariah expert may approve a particular product while the other one may reject the same with all earnestness. Take the case of Jordan, a Muslim country where a leading Islamic scholar disapproved the penalty imposed on a defaulting modarba client by declaring it a sort of ‘riba.’ Likewise a religious scholar in Britain had rejected an Islamic mortgage on the plea that its structure bore interest in disguise. In Malaysia, Islamic financial restrictions are liberal than in the Middle East or in Pakistan. Even Islamic banking rules and regulations lack uniformity or universality. It would be better if a national shariah board is set up to sort out anomalies like in Indonesia, another Muslim country.
Malaysia has rightly proposed to set up global standards for both Islamic banking and Islamic finance. Such standards would result in a consensus instead of a confusion or conflicting scenario.
Islamic banking faces another problem in the shape of shortage of qualified and skilled professionals. Here again, the demand outstrips the supply. No doubt our business/ education institutions have taken note of this situation but it would take some more time to grow a crop of such professionals. Islamic banking institutions also have to play their role in this regard.
In Islamic finance, two things, riba and gharar are strictly prohibited in Islam. Riba, is a comprehensive term, which in the opinion of some highly reputed Islamic scholars not only includes interest but usury also. Since ‘riba’ is forbidden in Islam, capital providers have to become investors under Islamic banking. Moreover, the scope of investment is also restricted to only permissible areas of investment. For instance, you cannot invest in the construction of Cinema houses, nightclubs or even hotels where pork or alcohol would be served. Investment is not allowed in the import or export of narcotics or liquor and such other products. Difference of opinion exists among Islamic scholars on the validity of some transactions, which may have some hidden elements of ‘riba’ therein. What is still to some extent not clear is the definition of ‘interest’ as it stands today and how ‘riba’ is defined to compare the same with one another. Is today’s ‘interest’ the same as ‘riba’ defined more than a century ago, practiced under a completely different environment than that exist today. Today, money is borrowed to run businesses (make more money) or to buy luxuries to make life more comfortable – ‘dire need’ is seldom the reason for borrowing.
Presently, Islamic banking is a very small sector compared to banking world-over thus while western banks are faced with an unprecedented banking crisis, the prospects of Islamic banking looks undisturbed. As the time goes by, more and more people are inclined to Islamic banking.
The success story of Meezan Bank with Bank Islami following suit holds a promise for a brighter future of Islamic banking in Pakistan. Islamic banking is now entering the agriculture sector also, which is the backbone of our economy. The State Bank of Pakistan has very recently issued some important guidelines on Islamic mode of financing in the field of agriculture. These guidelines aim at helping the banks to develop specific Shariah compliant products to meet the dire needs of the farmer community. These guidelines have been drawn up in consultation with the stakeholders. The said guidelines broadly cover Islamic modes of financing such as Murabaha, Ijara, Musawamah, Salam, Istisna, Musharaka, Mudaraba, Muzaraa and Mugharasa etc that may be used to meet the financing requirements of farm and non farm sector activities including livestock, poultry, fisheries and even orchards. Moreover, these guidelines have also elaborated the application and procedures of Islamic mode of financing. The State Bank has advised all the banks to make use of these guidelines for developing their own Shariah compliant products for extending financing to agriculture sector.
The growing popularity of Islamic banking, mainly with Muslims and especially in Muslim countries has driven conventional banks like Citibank, HSBC, RBS, Standard Chartered, etc. to turn to open an Islamic banking unit. However, Islamic banks need to be careful in crossing their limits to attract affluent non-Muslim clients just for the sake of earning more and more profits. Lust for wealth should not blur their path. For them piety and not profit should be the key objective.