Breaking new ground: Setting misunderstandings aside, Islamic banking grows rapidly

Published: April 25, 2013
Since Islam permits trade and prohibits interest, Islamic banking focuses on trading through partnership with clients. PHOTO: FILE

Since Islam permits trade and prohibits interest, Islamic banking focuses on trading through partnership with clients. PHOTO: FILE


Despite misunderstandings about Islamic banking in different sections of the society, it is growing at a rapid pace in Pakistan and the growth will accelerate further if the central bank continues to chalk out policies.

These were the views of Executive Vice President Head of Product Development & Shariah Compliance, Meezan Bank, Ahmed Ali Siddiqui, who was speaking to a select group of journalists at a workshop on ‘Islamic Banking’ at Meezan Bank’s head office on Tuesday.

Siddiqui believes that Islamic banking will be a strong Rs1 trillion industry by 2015 and its size will be 20% of the country’s banking industry.

“Islamic banking is different from conventional banking and it is completely incorrect to say that both are same things with different names. Here your bank becomes business partner that provides you raw material for a joint business in which both profit and loss are shared among both partners,” he claimed.

Since Islam permitted trade and prohibited interest, Islamic banking focuses on trading by becoming a partner of its clients and does joint trading, he added.

“The size of Islamic banks in Pakistan is growing considerably, I believe that the time is not too far when people will start realising that this system is different and it can boost trade and economy of the country,” he stressed.

Islam encourages circulation of wealth and discourages its concentration in a few hands to narrow down the distinction between rich and poor. “The circulation of wealth is as important as blood in our body. As a blood clot paralyses the body, the concentration of wealth in a few hands paralyses the economy, which is why monopoly is prohibited in Islam,” he said.

Siddiqui said the concept of banking based on pooling of excess funds of depositors and channeling them towards those who require it for investment is not only approved but encouraged by Islam. However, he clarified that the concept of lending and borrowing on the basis of interest in not allowed in Islam.

A fixed rate of return is not permitted under Islamic Shariah. However, the fixed return does not make a transaction halal or haram such as profit on trading and rent on property, he explained.

The total size of the world’s Islamic banking industry is around $1.2 trillion whereas many leading conventional banks have Islamic windows such as Citibank, ANZ, RBS, Goldman Sachs, HSBC, Saudi American Bank, Saudi British Bank and USB AG.

Today, Pakistan has five full-fledged Islamic banks and at least 12 conventional banks are also operating Islamic banking branches.

Published in The Express Tribune, April 25th, 2013.

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Reader Comments (5)

  • S
    Apr 25, 2013 - 12:34AM

    MashAllah ……we need to focus on this and make polices and regulatory frameworks to lead the industry..InshAllah


  • Syed A. Mateen
    Apr 25, 2013 - 1:31AM

    Islam does not allow interest rate on the money borrowed or on collateral of a property either to make the first floor of the house, purchase an apartment or borrow money fir the purpose of renovation of the house.

    My question to the authorities working for Islamic banking is: if I take loan from an Islamic Bank of Rs.1,00,000/-, do I am suppose to return Rs.1,00,000/- or more?

    Or, in the event I take loan for Rs. 20,00000/- for the purpose of purchasing an apartment or renovating a house, do I have to return to the Islamic Bank Rs.20,00000/- or more?

    Any interest taken by a Islamic Bank is not permissible under any Islamic Rule.

    Can any one explain to me in the light of my above mentioned two examples.


  • Adil
    Apr 25, 2013 - 10:28PM

    @ Syed A. Mateen…
    Dear Brother
    Answer to first question is that Islamic bank would never lend you only money…. Yes they will finance you in your bussiness or car and house etc.

    Ans to second question is that if you take a loan of 2 million for purchasing a house they will charge 2 million plus service charges and profit(not interest), and than you will pay a principal amount in installments along with a monthly rent of that apartment/house, that rent is actually the earning of the Islamic Bank against their investment.


    Apr 25, 2013 - 11:35PM

    I bought my car through Askari Islamic Car ijarah 5 years back … i took approx 3.5 lacs as loan or whatever they call it in their terms and paid 7.5 lacs as monthly rent so you have to pay more than you borrowed so actually no difference !!


  • Syed A. Mateen
    Apr 26, 2013 - 12:54AM


    (1) I don’t see any difference in ‘lending’ or ‘financing’ the money.

    (2) And I also do not see any difference between ‘profit’ and ‘interest’.

    It Is just a matter of using and choosing the alternate words while ‘financing’ the money, ‘service charge’ or ‘profit’, or ‘installments in the shape of rent’.

    What will happen if the Commercial Banks will start giving ‘profit’ to their respective account holders on saving bank accounts instead of giving ‘interest’?

    Will the Commercial Banks not be giving the same services similar the Islamic Banks to their customers?

    Then what is the difference left between the Commercial Banks and Islamic Banks?


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