Many countries in the world are promoting Islamic finance, including Islamic investment instruments (3Is), to cater to the growing demand for Islamic modes of financing and banking.
“Introducing innovative Islamic products in the financial sector has become necessary, as there is increasing demand for Shariah-compliant products, especially the 3Is, in both developed and developing countries,” said Joseph Tan, an economist at Global Research, Standard Chartered Bank.
There is now growing demand for the 3Is in the United States, the United Kingdom, Malaysia, Singapore, Pakistan, many of the Middle Eastern countries and India for the 3Is. The current world market for Islamic financial products is estimated around 300 billion US dollars
Experts say Islamic investment products are Shariah compliant. The 3Is are attractive for investors who want a handsome return on their investment or want to acquire loans in cash or kind without the string of Riba (interest) attached to transactions.
Riba has no place in Islamic banking and other Islamic modes of financing. With a Muslim population of almost 95 per cent, according to the 1998 census, Pakistan introduced Islamic Banking Policy in December 2001. In Pakistan, the banking spread of Islamic banks is higher than that of the conventional banks. The banking spread in conventional banking on an average is 7.2 per cent, and in Islamic banking it is 8.7 per cent.
The major products being offered by Islamic banks in Pakistan are cars and housing finance.
Officials of Islamic banks say that clientele of Islamic banks mainly comprise three categories of corporate and individuals. First, the Shariah-sensitive people, both depositors and borrowers, whose primary concern is Riba-free transaction; second, those in search of more competitive products; and third, companies and individuals who want high return on their investment without the involvement of Riba, a section of the press reported.
Dr Muhammad Imran Ashraf Usmani, who holds a doctorate in Islamic Finance and has authored Meezan Bank’s Guide to Islamic Banking, says: “There are nine modes of financing under Islamic banking: Musharaka, Modaraba, Diminishing Musharaka, Morabaha, Salam, Istisna, Istijrar, Ijarah and Ijarah Wa Iqtina.”
Islamic banks are offering their products in one of the above-mentioned modes of financing, besides operating depositors’ accounts.
“As a matter of fact, Islamic banks offer the same line of products in Pakistan as are being offered by the conventional banks with minor alterations to make them Shariah compliant,” experts said.
Islamic banks are marketing products that are no different from those of the conventional banks. They use Arabic terminologies to attract Muslims. According to the Meezan Bank’s Guide to Islamic Banking, Sukuk is for bond, Takaful for insurance, Ijara for leasing, Musharaka for joint sharing, Modaraba for venture capital and Salam for future trading.
Some of the mutual fund management companies also have introduced Islamic funds in the equity market. Funds are constituted in compliance with Shariah.
Given the growing interest in Islamic investment instruments in the country, the Securities and Exchange Commission of Pakistan (SECP) is considering introducing an Islamic index on the local stock exchanges, SECP chairman Razi-ur-Rehman said recently.
SBP Governor Dr Shamshad Akhtar sees a 40-50 per cent annual growth potential in the Islamic finance industry of the country raising its share from 3.5 per cent in the banking system to about 15-20 per cent by 2010.