Challenges to Islamic Banking Business

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The Islamic financial law has long history but Islamicbanking and finance industry came into existence with profit and loss sharing investment byEgypt’s Mit Ghamr Saving Banks in 1963. After official existence Islamic banking hasgrown in the area of finance, banking, insurance, mortgage, and assets management businesswith annual growth rate of 10-15 %. But actual development in Islamic banking has startedafter 1970 with new investment techniques, strategies and product development. Dubai Islamic Bank (DIB) is known as world first Islamic bank, it was formed in 1975.Currently it has lot of branches which provide great services. DIB offers higher returns thanconventional banking system as well they provide auto, home and personal finance products

In some countries such as Iran and Sudan all banks are operating according toIslamic financial law but in some other countries such as Pakistan, Bangladesh, Egypt, Indonesia,Jordan and Malaysia Islamic banking services are provided through Islamic Banks or windows provided by the conventional banks.

The main hypothesis presented in favor of Islamic Banking is that Muslimpopulation wants to spend their lives according to their faith. According to Islamic teachinginterest is strongly prohibited in Islam and they want to take banking services such as savingaccounts, current accounts, home finances, insurance and loan according to Islamic Sharialaw. Since in most of the countries their banking and financial rules are most in favor of conventional banking system hence due to this Islamic banking is facing some difficulties in the way of itsprogress. In other word these problems are great challenges for Islamic banking if they workhard Islamic banking will be developed in short period of time.

This raises a question about faith, what we mean by it, since Islam is a natural religion and its all beliefs are based on scientific principles or some understandable arguments. Islamic finance means business and no business can go without profit and loss. This is contrary to conventional finance where profit Is already fixed irrespective of the fact whether business is at loss. Apparently this is exploitation. But if Islamic Banks get loss in its investment on trading basis than it is not liable to pay any profit under arrangement of Mudarbah or Musharkah. This also creates exploitative kind of business in environment of inflation or time value of money which is also not permissible in any religion or on moral values. From this angle Islamic finance becomes more risky, hence to cover this risk, element of higher return becomes inevitable. However most of the Islamic Banks normally pay less return than conventional banks due to some obvious reasons. The reasons are as follows:-

  1. Is Islamic banking sector has a potential for product development? Whether Islamic

banking is in a position to satisfy its customers?

  1. Is Islamic banking has a potential to perform active role in the Financial Market

and its growth in market development?

  1. Do Islamic banking able to enhance the investment opportunities in the country and

whether it can play prominent role for the country’s economy?

  1. Is there any affect of the any country’s environment (political, social and geographical) for

growth and development of Islamic banking?

  1. Is Islamic banking has proper regulatory and institutional framework in thejurisdiction where it is working ?
  2. Whether Islamic banking has any problem in any country in respect of supervision and

scholarly committee?

  1. Is Islamic banking full informative to its customers or facing any difficulty in its

marketing sector?

  1. Is Islamic banking in a position to survive and develop in the age of competition and

globalization?

Unfortunately we have no cogent answers for the above questions particularly in Pakistan. This requires immense research which cannot be done by the degree holders coming out of Madrasahs. For this a joint effort is required from the Bankers having full knowledge of conventional and Islamic Banking, legal experts,Shariah Advisors and Market practitioners. This combination on joint basis can come up with the required answers.

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