-Zohaib Bin Akbar
The recent global financial crisis has
opened a debate over the loopholes in conventional banking system. Many
scholars and finance experts are of the view that Islamic banking industry is
an alternative to the conventional banking system, which is foolproof enough to
restrict any other financial crisis in the future.
Although the Islamic banking industry
has been operating from the past 30 years in the Middle Eastern countries, yet
it has gained popularity and curiosity around the globe after the financial
crisis of 2008. The main objective of Islamic finance is to create a society of
investors, unlike the conventional banking system, which has made and created
the society of borrowers and lenders from the past 800 years.
Islamic banking activities are to
promote public interest, prevent malpractices, contribute towards the development
of socio-economic justice and create investment society not a debt-ridden
society. They focus on the real sector of the economy.
All financing under Islamic banking is
asset backed, i.e. every financial activity should have an under lying asset.
There is a concept of IWADH in Islam, which is one of the pillars of Islamic
banking. It states that every economic activity undertaken should involve
certain amount of ‘risk’, there should be ‘hard work’ or ‘effort’ put in it and
there should be a ‘liability’ involved.
The three main things, which are not
allowed under the purview of Islamic banking, are Al-riba (interest or usuary),
gharar (extreme uncertainty), mysir (gambling). Anything in excess for which no
effort or hardship has been put in is considered as riba. Thus, Interest is one
form of riba and therefore, it is not allowed in Islam. Gharar refers to the
extreme uncertainty or it may be referred as what we have today is speculation.
Mysir refers to the game of chance. For example, gambling or betting, which is
not allowed as it leads to a zero some game. In gambling the future outcome of
an event is predicted without proper collection of facts, analysis and
interpretation.
Every product that Islamic bank offers
is based on contracts like Mudaraba (partnership), Musharaka (joint venture), Murabaha
(cost-plus), Ijara (leasing), and some hybrids combining two contracts
(Musharaka Mutanaqisa) etc. Islamic bank involves itself in real time trading
or investment activities by doing partnership with its customer through the
above-mentioned contract of Mudaraba, or may be by the contract of joint
venture (Musharaka) and therefore earns profit. The other sources of revenue
for the bank are the service charge that they earn for providing facilities of
letter of guarantee or letter of credit to its customers, either corporate or
individual.
Today, Islamic banks around the world
have a bigger non-Muslim customer base than Muslim counterparts. Many
conventional banks like HSBC, Citi, Standard Chartered, RBS, etc have started
Islamic banking windows.
It regards the public interest above all
other motives or objective. Moreover, the creditor and debtor relationship in
the conventional banking system have widened the gap between the rich and the
poor (i.e., the rich are getting richer and vice-versa), and have become a real
cause of many financial crises over the years and around the world.
Many countries around the world have
already made necessary regulatory changes to pave way for Islamic banking. Today;
Islamic banking is not only in the Muslim world but also in many non-Muslim
countries. Malaysia is the hub for Islamic finance in Asia and it is competing
very closely with UK to become the hub for Islamic finance in the world. Even
countries like France have recently made necessary changes in order to attract
Islamic finance investments. Soon Indonesia, which has the largest Muslim
population in the world, is going to kick start the Islamic banking in the
country.
India,
which has the second largest Muslim population in the world, with a sound and
strong economic fundamentals and being the second fastest growing economy,
should also fasten up the desired regulatory changes and work towards the
implementation of Islamic banking in the country.
No comments:
Post a Comment