A while back I was invited to a dinner party at one of my friend’s place in Karachi. That was one of my cheerful days as my whole gang, my buddies were there at that lunch-cum-dinner party. Whenever we all are together , “one” has to be the centre of attention but mind it being such centre of attention means quite a game of nerves and patience because all of us just pull leg of that centre of attention one way or other . I was that lucky centre of attention that day because of my very recent inclination and interest on Islamic banking.
All my friends present at dining table were one way or other linked with financial sector and I’m quite proud of their competencies, professional excellence and rationality. Though I knew that all of them were not convinced with Islamic banking, however their discussion /criticism that day was surprising and an eye opener for me. Questions like Islamic Banking is just a new way of these Mulanas to mix religion with everything to have their mass popularity, that Islamic Banking is a new way of exploitation by Mulas and that Islamic Banking doesn’t even fulfill the definition of banking. I realized that if people educated, exposed and reasonably faith sensitive (most of them) were criticizing IB then how masses would perceive this new banking system?
I tried to clarify queries of my friends with my limited knowledge that like other economic and financial system, Islamic Economics/banking is a system that has got its unique characteristic and can be considerably different from all other prevailing systems. So even definition of banking can vary among different economic systems. I agreed then and still admit now that there are many problems and issues in practical implementation of this new financial system, but one would easily agree and accept the practicality, soundness and stability of the system if one thinks rationally and logically.
I sometimes fail to understand that why people forget the usual process of evolution and transformation to better systems when the older ones faced problems resulting into severe negative consequences. Even for economic systems, the world has seen various systems over different time periods, while improvements were made in each one of them following a crisis, the inherent weaknesses of these structures made them vulnerable during adverse economic conditions. Capitalism and Socialism have remained the two most prominent economic systems; we have seen them being implemented with various modifications however they have not been able to address basic economic evils resulting in often occurring financial crisis
The significant variation in basic features of Islamic finance from its conventional counterparts depicts it as more sound and viable. Prohibition of Riba, Risk sharing, Asset Backing and Avoidance of Speculation of Islamic financial system ensure the positive impact of Islamic economic system. To make it more explicit I would like to mention some key distinguishing features between Islamic banking and Conventional banking
- Conventional banking prices money while Islamic banking prices goods and services implying that Islamic banking supports real economic activity leading to overall economic well-being of the society by redistribution of wealth
- Conventional banking is based on fixed returns while profit sharing is an essential element of Islamic banking for both asset and liability side of balance sheet
- Conventional banking works on the principle of risk transferring as it does not involve itself in trade and business while all participants of Islamic banking participate in trade and business and therefore all share the risk.
- More stringent requirement of disclosure in Islamic banking as compared to Conventional banking make them less prone to financial fraud and crime.
However, still, Islamic Economic System is not as appealing as it should be even after multiple crisis of conventional system. One bitter realization that I had over that lunch discussion regarding the low acceptability of Islamic banking among masses is its “name”. A big majority including my “religiously” enlightened friends would have accepted this system wholeheartedly if there would have been a name other than Islamic banking. Replacement of this name of Islamic banking by any other name could have earned much greater acknowledgment and acceptability for the system.
So, It’s not only about Non-Muslim world, it’s a MINDSET which is not ready to accept this system. That mind set is the biggest challenge, a great impediment towards the growth of this industry.
I am absolutely not a religious person; rather my friends make fun of me indicating the conflict between my appearance and my inclination towards Islamic banking. My faith sensitivity has not driven me towards this system; I accidently got the opportunity to work for Islamic banking. Trust me the more I read and the more I get the comprehension of the subject I get more convinced with the sustainability of this system.
My growing interest in this new banking system and my recent debate on these issues have made me initiate this blog which will have discussion and explanations on Islamic banking and for some time I will be posting about different aspects of Islamic banking. However, my blog is not just about changing the mindset with regards to Islamic banking but will encompass my personal experiences related to any area worth sharing.