Islamic Banking-Pros and Pros

Islamic Banking-Pros and Pros

Who is Islamic finance for?


Contrary to popular belief, Islamic finance or banking is not just for Muslims but for a ethical & fair financial structure that consequently affects the socio-economic system of a country. Islamic financing hence can aptly service everyone irrespective of religious beliefs, wealth status, ethnicity, caste or creed.


Yet, this stance is not even as clear as it should be in a Muslim country like ours much less to the outside world where century old conventional financing methods are deep rooted within the global economic system.


One of the reasons for this lack of awareness is that the concept of Islamic banking is its fairly recent commercialization. Banks and asset management companies in Pakistan are still struggling on how to portray their Islamic product better for the general population’s understanding in minimal ad spaces & an obvious gap between the Shariah Councils issuing the Fatwas and the managers drafting the communication.


A recent survey published in a popular monthly magazine stated that most of the respondents did not know what difference was there between the two and most thought there wasn’t any & ‘Islamic Funds’ was a marketing gimmick.


But a bigger issue that I experiences personally is the lack of awareness even at the financial advisors level. A question I recently asked a Finance Expert while deciding upon the funds in which I could make some investments was “What’s the difference between conventional funds and Islamic funds?” and disappointingly he said “Nothing”.



For a person who did their background research on the differences and is keen on not having any interest income enter their household, this Expert just lost a customer.



So what’s the difference between Islamic finance and conventional finance?’


An instant answer is “Islamic products don’t give Interest (Riba)” which is without a doubt true, but that is where the knowledge for most ends.



Where Riba/Interest is deemed haram in Islam, the reason behind it is its exploitive nature. Why exploitative? Because where the lender will have the return of his money guaranteed plus the extra, the borrower will have to work harder to return not just the principal amount borrowed but also the interest / mark-up levied.



And where does the rising level of interest ultimately stop? No where; because it’s a man made rule which treats money as a trading entity while money is the most volatile entity in fluctuating markets.



Then how does Islamic Finance work?



“The conventional / capitalist concept of financing is that the banks and financial institutions deal in money and monetary papers only” – Mufti Taqi Usmani.
Islamic Financing is asset-backed & believes that only assets with an intrinsic value maybe sold for a profit instead of exchanging money with no intrinsic value for Interest. Each unit of money has the same value as the other of the same denomination, which is simply why there can not be a profit on its exchange. Hence Islamic finance lays its foundation on real non-liquid assets, the exchange and sales of which results in a justified profit earned.



The Pakistani financial industry today offers various Islamic products, both in wealth management, asset management and banking; spread over short, medium and long term funds. All investments in such schemes are made strictly in Shariah-compliant instruments under the supervision of a Shariah Advisory Board which comprises of renowned Islamic scholars.

Iftikhar Murshid

The publisher of Criterion Quarterly.

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  • Rewza

    That is the Oodoov (Jaadoo) of real Islamic System of Financing that an alien-amerikan can never agree to ponder.

  • Anonymous

    Is there a “Shariah Advisory Board which comprises of renowned Islamic scholars” which is acceptabe to the majority?!

    That apart, don’t see how anyone can claim an ‘interest free’ Islamic system as long as there is an interfacing with paper currency – or is it one of those fudges where that particular grey element is not accounted for (like the starting hydrogen reserve of the recent ‘miracle’ car!)

    • Anonymous

      Pata hai even paper money isnt a problem if used as EQUITY. Masla ye hai that today’s money is debt, not equity. Anyone holding that money is technically paying interest via inflation. How can one possibly have an Interest free economy with a debt based currency?

  • Anonymous

    You mean just like the US economics……

  • Anonymous

    NASAH Sb,

    Pardon my ignorance in my previous response – of course the US economics is more like LUDO economics!

  • Anonymous

    Voodoo Economics would be an upgrade. Atleast voodoo requires magic to be performed. In today’s scenario, Central Bankers are acting like the “Bad Santa” – its like they are saying “we know we are fake but we just dont care!”

  • Bhai_Mian

    I recently read a very Interesting Article on Islamic banking. I learned quite a few things and hope you will be enlightened too. The excerpt and the link are given below

    It is now a USD1 trillion industry. Sure, that’s still tiny compared with orthodox finance, but it’s a substantial number, and it’s growing fast. The phenomenon is all the more impressive given that Islamic financial institutions have only been back on the scene for a few decades.Since the late 70s, however, says Hayat Khan, lecturer in finance and co-founder of the masters course in Islamic Finance at Latrobe University, it has experienced double-digit growth.”Until recently it averaged 15 to 20 per cent [growth], and now is still more than 10 per cent.
    They cite a Standard and Poor’s report of 2009, which showed that in that year, while many of the world’s financial systems were deleveraging, assets of the top 500 Islamic banks expanded by 28.6 per cent.”Given such statistics,” the authors wrote, “it is suggested that Islamic finance…can contribute to global financial stability.”

    • Anonymous

      Who runs and controls this Islamic banking sector sir?!

  • Talib Hussain

    The interpretation of Riba offered by the Islamic Scholars differs with each an other. Here are two groups ,the first is relating to Alazhar of Egypt and second is relating to other Islamic World. Although all the groups of Islamic scholars accepting that the Riba is Haram is Islamic Shariah but what is Riba in actual sense, which is prohibited in the Holly Quran.,this is a disputed matter. The honorable Supreme Court of Pakistan has not accepted the decision of the Federal Shariat Court on the same point, in their verdict of 2002.The working of the Islamic banking under the banner of the Islamic banking system is not yet termed as ” Islamic”.with so many objections and violations .