Majyd Aziz
“I shall watch with keenness the work of your
Organization in evolving banking practices compatible with Islamic ideas of
social and economic life. We must work our destiny in our own way and present
to the world an economic system based on true Islamic concept of equality of
manhood and social justice.” Quaid-e-Azam Muhammad Ali
Jinnah, at foundation stone laying ceremony of State Bank of Pakistan, July 01,
1948.
These stellar words spoken by
Pakistan's Founder are a manifestation of his vision that a real time Islamic
way of life was imperative for the nation to have an inclusive economy and
survive. The concept of Islamic Banking has picked up tempo in Pakistan and there
has been a remarkable exodus of accounts from the conventional banking system
to the Islamic mode of financing. In the past, the traditional bankers were
reluctant to venture into Islamic banking and they would emphasize and promote
what was being done within the normal banking framework. Today, a better and
clear understanding of the modes of Islamic banking and finance has provided
impetus to product users and savers to adopt these Islamic modes.
There are
different products of Islamic banking that facilitate trade related activities.
These products include Murabaha (cost-plus financing), Salam and Istisna
(forward sales), Wakalah (agency-based contract), Musawamah (bargain sale) and
Musharakah (partnership contract). A leading Islamic scholar, Justice Mufti
Muhammad Taqi Usmani, highlights Mudarabah
and Musharaka as ideal financing products since these enable the user to know
exactly what the cost would be in advance. Faisal Shaikh, Head of Shariah
Advisory and Structuring at BankIslami Pakistan, in one of his presentations,
noted that conventional banking deals in documents and not goods, while Islamic
banking deals in goods and documents. This very appropriately signifies the
difference between the two banking systems.
Justice Usmani, in his book, "An Introduction to Islamic
Finance" states that "The
basic difference between capitalist and Islamic economy is that in secular
capitalism, the profit motive or private ownership are given unbridled power to
make economic decisions. Their liberty is not controlled by any divine
injunctions. If there are some restrictions, they are imposed by human beings
and are always subject to change through democratic legislation, which accepts
no authority of any super-human power. This attitude has allowed a number of
practices which causes imbalances in the society. Interest, gambling,
speculative transactions tend to concentrate wealth in the hands of the
few." Furthermore, he writes, "Islam
has put certain divine restrictions on the economic activities. These
restrictions being imposed by Almighty Allah, Whose knowledge has no limits,
and cannot be removed by any human authority."
For the
first time in its history, State Bank of Pakistan has a Deputy Governor, Mr
Saeed Ahmed, overseeing Islamic banking. SBP has reiterated its commitment for
promotion and development of Islamic banking. Due to its persistent efforts,
the share of Islamic banking in total deposits of the banking industry has
surged to nearly 13% as of June 30, 2015 and is consistently growing with a
cumulative average growth rate of over fifty percent during the past 12 years. Mr
Saeed Ahmed disclosed that "five
full-fledged Islamic banks, one Islamic banking subsidiary, and 17 banks with
dedicated Islamic banking branches are operating with over 1,700 branches
spread all over Pakistan."
According to
EY’s Global Islamic Banking Center, "Islamic
trade finance could provide new opportunities and become the preferred choice
for emerging rapid growth markets (RGM) such as Turkey, Indonesia Malaysia,
Qatar, Saudi Arabia, and the UAE. RGMs are emerging as hot spots for global
business and they promise to permanently alter the global trade scene over the
next 10 years. Many of these markets already have strong trade links with other
'core' Islamic finance markets, which offer new opportunities for growth for
Islamic trade finance."
Trade and industry has largely
depended on self-financing or conventional banking. The desire to grow and the
yearning for enhancing operations often compel businessmen and industrialists
to seek external financial facilities. However, those who were not comfortable
with conventional banking and considered interest or markup as Riba had to compromise on their
principles or put on ice their expansion strategies. Islamic banking has
provided them a cover to achieve financing without, in a broader perspective,
taking resource to channels that disturb their religious convictions. A Karachi
industrialist once remarked, "When I
do conventional banking, I know I am doing a sin, but I can pray for
forgiveness, but when I do Islamic banking, even though I am not yet
comfortable with it, I have no recourse to seeking Allah's forgiveness." It
was his way of pointing out that banking is banking, no matter what the mode.
Although Islamic banking is
expanding and creating a solid niche in the financial arena, there are many who
are not satisfied with the terms and conditions of Islamic banking and lay
stress on certain conditionalities that, according to them, are sanitized
versions of the conventional banking lender safeguards. They focus on the
penalty clause in the agreements between the lender and the user as they are of
the opinion that this clause vitiates the very essence of Islamic banking
modes. Notwithstanding this argument, a senior banker explained that the "purpose of the penalty clause is to
ensure that the product user performs the obligation in a timely manner and
does not take the facility for granted". Ayesha Ashraf Jangda, Section
Head, Corporate Strategy and Business Planning, BankIslami Pakistan, informed that "the amount generated through
penalties is routinely used for charitable purposes and not passed on to
shareholders." Islamic banking is here to stay as it is evolutionary
and will be more vibrant as more efforts are undertaken to achieve favorable
and encouraging legal and policy frameworks for banks, users, and for
Shariah-compliant products.
"And for their taking interest even
though it was forbidden for them, and their wrongful appropriation of other
people's property, We have prepared for those among them who reject faith a
grievous punishment." Holy Qur'an, Surah Al-Nisa, verse
161.
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