Malaysia’s global leadership role is now once again being challenged by the likes of the UAE and Qatar, where the governments are actively supporting the promotion of the IBF. According to the Islamic Finance Country Index (IFCI), published annually by Edbiz Consulting, Iran ranks number one in the global Islamic financial services industry. Malaysia and Saudi Arabia are second and third. Pakistan ranks ninth on the list. The current PML-N led government is the first democratically-elected government in the country which seems serious about promoting the IBF in Pakistan. The appointment of a dedicated deputy governor at the State Bank of Pakistan (SBP), with a focus on promotion of Islamic banking alludes to this fact. Apart from the developments at the central bank, advocacy of the IBF in Pakistan remains rather limited. The SBP has recently initiated a project to promote quality education in the IBF, by committing to invest in Pakistani universities and institutions of higher learning and develop them into centres of excellence.
In Malaysia, the prime minister himself keeps himself abreast of with new developments in the IBF. In the UAE, the ruler of Dubai is directly behind its initiative of making Dubai a centre of excellence for the global Islamic economy. In Pakistan, such a central leadership role has yet to emerge. Given the ongoing military operation in North Waziristan, political noise created by the likes of Imran Khan and Tahirul Qadri, and numerous other important engagements, the prime minister has not been able to embrace IBF fully. The finance minister also has a full plate and so has the secretary of finance. In such circumstances, there is a need that a full-time advisor be appointed to the prime minister, who should have multiple roles, including but not limited to, advocacy of IBF in Pakistan and overseas, liaison between different government departments (Ministry of Finance, Planning Commission, and SBP, etc) and international bodies like Islamic Financial Services Board and Accounting and Auditing Organisation of Islamic Financial Institutions for the promotion and development of IBF in the country, devising a national strategy on promotion of the IBF, developing a framework for enhancing the role of Pakistan as a global leader in the IBF and more specifically, preparing recommendations for the government to create a centre of excellence for the IBF in Pakistan.
It is absolutely imperative for Pakistan to work towards a leadership role in the global Islamic financial services industry to fully benefit from an industry that is fast approaching the important psychological mark of $2 trillion under management worldwide. This can be done by advocating the IBF nationally and by being involved in the decision-making of international forums related to Islamic finance. It should also look into hosting an international body related to Islamic finance. There are a number of other bodies that work for the promotion of IBF, including but not limited to the International Sharia Research Academy (ISRA) for Islamic Finance and International Islamic Liquidity Management Corporation IILM — both hosted by Malaysia. The World Islamic Economic Forum (WIEF), supported by the Malaysian government, is also very active in advocating IBF. The Dubai Centre of Excellence for Islamic Banking and Finance is another body trying to pitch Dubai as the capital of the global Islamic economy. Pakistan, on the other hand, lags behind all these countries in such endeavours, despite having contributed significantly to the amount and quality of human capital to the global Islamic financial services industry.
There are a number of reasons behind this indifference to promoting and projecting Pakistan as a global leader in the IBF. First, the ongoing war on terror, and the law and order situation in the country did not allow the authorities to focus on this strategic area of paramount importance for the national economy. Second, the previous governments (the military government led by General (retd) Pervez Musharraf and the PPP-led government) shied away from anything Islamic, primarily due to the apologetic view of the Musharraf regime, and the aversion of the PPP government to be seen as promoting or backing any Islamic phenomena. Third, the lack of talent available in Pakistan was also responsible for not giving confidence to it to vie for a global role in the IBF. Finally, in the absence of a political push, the bureaucracy in the country has never considered the IBF with sympathy.
Despite all these obstacles, the share of Islamic banking in the banking sector has exceeded 10 per cent, and its growth is almost double of what conventional banking has witnessed in the last five years. Given this, it is recommended that Pakistan should now develop an international centre of excellence for Islamic finance, similar to the Dubai International Financial Centre (DIFC) and Qatar Financial Centre (QFC). These two centres are not exclusively for Islamic finance but are certainly engaged in the promotion of the IBF. The Malaysian International Islamic Financial Centre (MIFC), on the other hand, follows a different model to the DIFC and QFC, and is a virtual body connecting Ministry of Finance, Bank Negara Malaysia (the central bank), the Securities Commission Malaysia, other bodies in the government and international organisations. Pakistan should start with this model, eventually setting up a physical centre of excellence exclusively for IBF. This centre could be hosted on the outskirts of Islamabad as a ring-fenced financial centre like DIFC and QFC. The proposed special adviser to the prime minister on IBF should be given the task of developing a framework for setting up such a centre, among other things listed above.
Published in The Express Tribune, July 29th, 2014.
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COMMENTS (25)
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@3rdRockFromTheSun: The difference is that one is Islamic and one is not. Why can't you see the logics?
Also: My advices is for Pakistan to become a centers of excellences in Islam, not just Islamics bankings. All elses will follows.
Rebuttal - ET pls publish @atanu and awa : I have nothing against the word 'Islamic'. But religion has its place, which is different from economics or science - that is my point.
Care to name the "countries that have introduced it"? Of these, name ONE country that uses ONLY the Islamic financial system in its economy and has completely done away with the traditional financial system!
The truth is that those countries use two financial systems - one Islamic and one traditional. If a country wants to be a part of global economy, it cannot afford to do away with the traditional system.
My arguments are very simple : Lets say I take a loan of Rs.1200 - and have to pay it back over 12 months. A traditional bank makes me pay Rs110 each month, so over the 12 months - I have paid an additional Rs 120 - which this bank calls 'Interest'.
An Islamic bank will ask me to pay the same Rs 110 per month, and call that additional Rs 120 'Profit'.
What is the difference?
@3rdRockFromTheSun
Do you have details to share? What are your arguments that negate this concept?
Looking to learn more. (reachable at: mushtaqawais@yahoo.com)
"Making Pakistan a centre of excellence for Islamic finance"
You mean terror financing? Pakistan is already recognized as a center of excellence in global terrorism.
@antanu: As you said, dont make adverse comments just because the word islam is added to the concept, that is the very reason for the growth of this illogical banking system. People in this country are more fanatic than sane and will go wild for anything that has the word islam attached to it. When truth be told the interest rates of regular banking are not even high enough to offset the impact of inflation in this country. And for a simple experiment, hold on to a hundred ruppee note for a year in a regular bank. Take it out with all the interest it accumulated and buy flour with it and compare the weight of it with what you could have bought for a hundred ruppees a year ago.
@antanu: What @3rdRockFromThe Sun has said is accurate and if you read @G Indian's post it confirms it. Basically what goes by the name of Islamic banking is that the term interest is replaced by profit but that does not change the basic characteriistic that the borrower gets a sum x and he returns a some x + some percentage of x to the lender.
So what goes by the label Islamic Banking is not true interest free lending wherein a borrower borrows amount x and returns amount x to the lender after a time.
Islamic banking in Pakistan is guaranteed to give investors the best bang for the buck!
@3rdRockFromTheSun:
First read the concept properly before making adverse comments just because the word ISLAM is added to the system. Many countries who have introduced it are not fools and the growth rate proves it.
@Analyst:
Well way back in the 7th century there was no inflation. HEnce the directive to not have interest might have been practical. Now with inflation so high, it is simply impossible to have people lend without interest. Yet to comply with the diktat in 7th century A.D. people are simply rebranding interest and calling it profit.
@someone: Please read where @G. Indian wrote
@Gram Massla: "Islamic banking is an idea whose time has come. It is high time for folks world-wide to have access to real choice; between banking sometimes based on ruinous usury and an alternative lending system. Using terrorism to keep out Islamic banking is not kosher anymore."
Thank God, after a wait of 1400 years, not too late!
@G Indian: What you're saying is that there is interest paid in Islamic banking too but it is not called "interest". Why bother at all then?
Beggars can't be Bankers too........... :)
How can a system that prevailed more than 1000 years back be relevant now? Would you use a camel to go from town to town today?
I am new to Islamic Banking. Could someone please elaborate how a private bank can sustain using Islamic banking? If they do not charge interests over the loan, then are they going to charge high service charges from account holders? How are thy going to maintain the infra structure of the bank, salaries, other expenses etc.? Would it also mean that they won't be providing any interest income to the people who are putting their money in saving accounts?
Islamic banking is an idea whose time has come. It is high time for folks world-wide to have access to real choice; between banking sometimes based on ruinous usury and an alternative lending system. Using terrorism to keep out Islamic banking is not kosher anymore.
People generally get a false idea that Islamic banking transactions are interest free, which is totally false. Remember there is no free lunch. Islamic banks are in the business to make money and not for charity. According to FT "The holder of a “halal” credit card pays a penalty on unpaid balances; this penalty is proportionate to the size of the balance, which makes it equivalent to interest." From Wikipedia "In an Islamic mortgage transaction, instead of lending the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments." . The term "profit" is called interest in plain language. That being said, there are too many wealthy Arabs out there who doensn't know what to do with their free oil money. Setting up Islamic banking institutions in Pakistan will help to attract a portion of their wealth as Pakistani middle class is numerically larger than the whole population of many Arab countries. Profit (I mean interest) seeking sheikhs will definitely invest in Pakistan.
Pakistani banks have trouble connecting with other banks around the world:
http://www.dawn.com/news/1117090
Our financial sector is always on the very edge of being sanctioned and cut off from the western dominated global financial system. So we can't really provide banking services to the rest of the world.
I should also like to point out that our banks are quite happy lending money to the government. They are not interested in providing services for the modern world. For example they don't even provide internet capable payment methods and payment processing for ecommerce sites. Then there is the poor technical skills of personnel in banks' IT departments. This shows up in bank ATM machines not working, networks are always down etc. What sort of global financial center will Pakistan be?
@Riaz Chohan: The concept of muslims not charging interest gave a good opportunity for non-muslims to become money lender because many muslims need money and not everyone can get it without loan...
Thats y Jews are associated with money lenders and in Indian subcontinent,the banias thrived with money lending...
Interest is the biggest motivation to pay back loans or else everyone would take 20 years to pay back a loan of Rs.5000
To all the attackers of Islamic finance. Islamic finance is the only possibility in a true muslim country. We must end this hypocrisy that reigns in Pakistan. No interest should be on loans. It is the one way. This part of the dream of achieving the Sharia state that we have been promised but the enemies of Islam have been driving back.
So-called Islamic banking are financially unstable . You have to impose interest in some way . this is the basis of financial industries . Otherwise what will happen , People will go to Islamic bank when they need loan and will go to common banks (aka Secular bank) when they want to deposit money .
It's wonderful to daydream that Pakistan has all the attributes and credentials to become a centre-of-excellence for Islamic finance. I wonder what this self-proclaiming Islamic economist -- is there such an animal in the finance jungle? -- was thinking of, because he forgot the most essential features that would make any country attract any kind of financial activities: security, stability and economic viability. These factors are missing in Pakistan as every child probably knows, except this distinguished author. I also suppose the author forgot the existence of other Islamic financial centres such as Dubai, Abu Dhabi, Labuan (Malaysia), Jakarta, etc. These centres will continue to attract greater financial flows from investors (Muslims and non-Muslims alike) and not Pakistan which is fast losing wealth thanks to the rising outflow that exceeds inflow of money (thanks to overseas Pakistanis who are also slowly losing their interest in their country).
It looks like the author is angling for the Special adviser position he refers to. He has however failed to specify what are Pakistan's competitive advantage vis-a-vis Malaysia, Qatar and UAE that would allow it to wrest marketshare from these countries.
Fancy... What you need and what is possible are two diffrent things. All the best Pakistan.
Pouring wine into a milk bottle does not turn the said liquid into milk - it remains as wine. Calling 'Interest' by any other name does not change the fact that interest is actually the cost one pays to rent a commodity; in this case money; just as you would pay money to rent a house or a car.
Global banking and finance has certain basic rules and norms, and those cannot be changed without fundamentally altering the way that industry works today. Islamic banking goes against the very foundation of the global financial industry - and the financial industry is not about to change. The ball is in your court.