Media Type

Article

Publication Date

3-13-2013

Description

Islamic Finance is still a small player in Global Financial System with a share of less than 2 percent. The growth has been impressive but the takeoff has been bumpy. The vision of Islamic Finance is to offer itself as a source of stability to the Global Financial System that is coming out of a crisis of gigantic proportions –next only to the Great Depression of 1930s. If Islamic Finance can demonstrate that its unique and distinctive features and asset-backed transactions are able to reduce the fragility and volatility of the financial system in a convincing manner then there would be a lot of interest generated in Islamic Finance among other players in the world. In my view, however, there are at least five main gaps that have to be bridged before the robustness of Islamic Finance can be proved. First, there are serious misconceptions, misunderstandings and misplaced notions as to what Islamic Finance is all about. There is hardly any common or shared understanding about its objectives, underlying principles, mechanics and outcomes. As it was evident from the discussion at this Forum for last three days some of the practioners believe that profit maximization by Islamic Banks is antithetical to the precepts of Islam and they should engage only in Social Justice without realizing the repercussions of such an assertion. Banks can play an important role, along with the state, charity, zakat, waqf and other instruments in contributing towards this goal but to assign this sole responsibility to Islamic Banks is highly unrealistic. This view does not take into account that banks exist for financial intermediation – mobilize savings for which they remunerate the depositors by financing investment for which they charge the borrower. Therefore, the communication gap that exists between the various stakeholders and the public at large has to be filled in.

Notes

Concluding Remarks as Chief Guest at the Global Forum on Islamic Finance organized by COMSATS Institute of Information Technology (CIIT) at Lahore on March 13, 2013

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