Islamic Banking Takes Shape As New Alternative

Bandar Seri Begawan – Islamic banking and finance has now taken some form of contemporary shape and will continue to do so successfully in the future, as an alternative to the current system.

Dr Mabid Ali Al-Jarhi, Director of Islamic Research and Training Institute of the Islamic Development Bank in Jeddah, said this in his keynote address yesterday morning.

“Despite its introduction only some twenty-five years ago, Islamic banking and finance has evolved itself theoretically and successfully,” he said.

Dr Mabid Ali Al-Jarhi also said that the philosophy of Islamic banking and finance is a group of theories and ideas related to its understanding.

“As such, it is essential to start with the rules of Islamic Shari'ah from which the very idea of Islamic banking has been drawn from,” he added.

Then monetary and macro theory is needed to explain why Islam considers dealing through the rate of interest as totally unacceptable and the economy wide consequences of such practice.

The banking theory itself is also necessary to understand the behaviour of Islamic banking and finance as well as to assess its comparative performance.

Dr Mabid also stated that as the Islamic banking and finance avoids the use of interest-based lending, it is bound to have implications on monetary policies.

He further said that in modes of Islamic finance that are based on equity and profit sharing, focus would be on the profitability and rate of return of the concerned investment.

“Financial resources would be directed to the most productive investments,” he said.

“This would increase the efficiency of the financing process and reinforce efficiency in the real sectors.”

Meanwhile, during the first session of the conference, Mr Umer Chapra, Research Advisor of the Islamic Bank of Jeddah, explained that the introduction of a new model of financial intermediation based on profit and loss sharing is not an easy task.

He, however, stressed that it is imperative to introduce this system as per religious value to committed Muslims. “This is of prime importance to those who are not so highly committed to this system.”

Therefore, it is necessary to show that the interest-free financial system is superior to the interest-based system on the basis of efficiency and equity, the two criteria on the basis of which any economic or financial system needs to be evaluated, he concluded. -- Courtesy of Radio Television Brunei 

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