Skip to main content

Islamic Finance: The Way Ahead?

By


Growth is robust and prospects look bright for the Islamic banking industry. In the past two decades of its less than forty-year existence, remarkable development has taken the USD 150 billion peripheral industry to one surpassing the USD 1.5 trillion level. Though the challenge to validate expectations is colossal, the trend represents a paradigm shift in the form of a quiet revolution- one that is likely to persist in the near future. 
That a nascent, fringe industry should serve as a topic of debate in international media reflects its burgeoning clout. The idea of ethical banking, interwoven into the fabric of the ideal Islamic system led many to examine and even pursue it as an area of study in the wake of the global financial crisis. At least in theory, it exuded an overall sense of shared responsibility and destiny through partnership and investment in real, productive assets.
Dubbed the fastest growing sector of the international financial system, making for 80.9% of Islamic finance assets worldwide, Islamic banking is certainly a promising business. The Ernst and Young World Islamic Banking Competitiveness Report, (December2012), stated that it grew 50% faster than the banking sector in quite a few core markets. Iran (the biggest player with total reliance on the system) had a share of 42.7% in the global banking assets followed by the likes of KSA (12.2%), Malaysia (10%), UAE (8%), Kuwait (7.9%), Qatar (4%), Turkey (3.1%), Bahrain (2%) and Indonesia (1.4%) and so forth.
In Pakistan, from 2002-2011, average banking sector deposits grew at a rate of 16.1% p.a. and Islamic bank deposits grew at an average rate of 59.6% p.a. Indeed a fascinating development! The general sentiment among the customer base is that this is a safe, righteous way of conducting business. Nevertheless, the segment still has to gain a strictly loyal clientele. A study suggests that 67% of Islamic banking customers also use the services of conventional banks as the latter provides a more diversified, greater quality product portfolio. This added to the idea that it no longer sufficed for Islamic banks to grow complacent with the belief that having a board of Shariah advisers was all what was required for survival.
Furthermore, consumer tastes, preferences and problems are growing more sophisticated with the time and conventional banking services will, for long, continue to serve as a yard-stick. Despite the rigorous Islamization of the 1980’s, conventional banking has dominated the scene. Even in many OIC countries, the infrastructure is weak and macro-environmental factors e.g. legal environment do not facilitate growth. It also does not help the situation that there is a dearth of qualified professionals and Shariah scholars.
Critics of the system also make some pertinent points to ponder upon. They say that experts have been concentrating more on analyzing the causes of the global financial crisis rather than devoting their energies to blaming derivatives and extension of credit for the entire episode. They do not believe that the capitalist underpinnings of the conventional system are the culprit. Governance problems and conflict of interests could even take a toll on the morally sound Islamic system. With the industry sometimes closely mimicking product offerings of the conventional one through liberal interpretations of Shariah, the concern is well-founded. In the case of the Sukuk market, for instance, the Pakistani scholar Maulana Taqi Usmani issued a sharp critique for leaning perilously close to the conventional banking system.
Yet, the growth at home and abroad is encouraging. It is a ray of hope for Pakistan in an era of a disappointing economic situation. Experts realize the opportunity and are working to improve Islamic financing SOPs and to figure out new avenues of growth. It will, of course, still be a long road to establishing Islamic banking as a viable system and ensuring greater transparency in addition to adherence to moral standards in practice rather than just theory. As a challenge to the established, conventional banking system rooted firmly in capitalist thought, Islamic finance will have to make a strong, empirical case for its infallibility, maturity and greater threshold. The movers and shakers of the international system such as the Wall Street will not feel threatened unless it is adopted by a global powerhouse of an economy and that too in a way to enable the system to make good on its promise of justice and equitable distribution of real wealth.

Comments

Post a Comment

Popular posts from this blog

Pakistan can never be Madina E Saani

By
By Nadeem Sajjad. Pakistan is a land loved by many and lived in by millions. It has been witnessed in the past --and somewhat in the present age – that the origin of the name (word) “Pakistan” has had many different accounts of its creators/inventors. Known to be the most accurate of all accounts, is the one of the much respected Chaudhry Rehmat Ali. Others have the concept that the word “Pakistan” was given to the Muslims of India, after the success of Lahore resolution in 1940, by the Hindus of the subcontinent and was then used by Quaid e Azam Muhammad Ali Jinnah in his presidential address to the All India Muslim League annual session at Delhi on 24 April 1943. Whatever may be the origin, the Muslims got their own land to practice their religion Islam, and to maintain their traditions. The thing that should be emphasized upon is that the country was created in the name of Islam.  Knowing the origin is one thing, but naming the country or the name itself to something els...
2 comments
Read more

Waging war on ourselves

By
BY  ETHAN CASEY A couple of years ago, giving a talk at a church in Seattle, I was conveying as best I could the anger Pakistanis feel toward the US about drone attacks, when a woman raised her hand and asked, “What’s a drone attack?” I give her credit for asking, but I was astounded nonetheless. Ever since then I’ve kept that woman in my mind, and often cited her to audiences, as an example of the ignorance of ordinary Americans about things that are happening – I should say things we’re doing to other people – beyond our shores. My mentor  Clyde Edwin Pettit  used to say that we’re all ignorant, only about different things. That can be a helpful working assumption when trying to achieve common understanding, but it’s also true that some of us are closer than others to the coal face of hard experience. For example, the novelist  John Grisham recently pointed out  that support for the death penalty is “still very much the consensus among white people i...
Post a Comment
Read more

Pakistani Pilots in Arab Israel War

By
45 years after the 1967 war: How the Arabs lost Jerusalem War is normally measured by its final outcome, but many individual heroes gave up their lives for the Arab side during the 1967 Six-Day War. (Image courtesy AP)   By  ALI YOUNES   SPECIAL TO AL ARABIYA This past June marked the 45th anniversary of the Arab defeat of the 1967 war. War is normally measured by its final outcome, but many individual heroes faithfully gave up their lives for the Arab side, defending the honor of their nations. The actions of those men deserve to be highlighted and explained, especially the contributions of the Pakistani pilot Saiful Azam and the brave Jordanian soldiers of the battle of Ammunition Hill in Jerusalem. At 12:48 p.m. on June 5, four Israeli jets were descending on Jordan’s Mafraq air base to smash the country’s tiny air force, shortly after the entire Egyptian air force had been reduced to rubble.  To intercept the incoming attack, ...
2 comments
Read more