Revieiv of Islamic Economics, Vol. 8, No. 2, 2004
justification, for the overwhelming use of deferred contracts in Islamic
banking, risk aversion is commonly mentioned, and of late profit
rates and dividend policies have appeared among the efficiency
criteria for Islamic banks. In fact, the two are listed among the reasons
for Islamic banks concentrating on short or medium term finance
(Hassan, 2003). But presumably the reverse causation is more valid.
The blame for concentration lies on the organizational design these
banks were allowed to assume (Hasan, 2003).
Opening Islamic Ufindotvs in western-style commercial banks
causes an apparent mismatch between the capabilities provided to
them, and what they are expected to achieve. Mainstream commercial
banks cannot be barred from entering the field for valid reasons but,
as I suggested elsewhere (Hasan, 2003), it would better that they
establish exclusive branches with pre-stated objectives. It is indeed
gratifying to note that Bank Negara Malaysia is now on that course.
Though the country’s banking law is yet to be suitably amended, the
Central Bank is now granting permission for Islamic financing only if
the interested mainstream banks open separate Islamic branches or
subsidiaries. This process has already started - two banks have
recently been granted such permission.
Islamic banking, in the true sense of the term, can rarely meet the
vital SharTah objectives of raising a strong and prosperous Muslim
ummah unless there is a complete break from tradition with reference
to goals, sources and uses of funds, and operation methods. Planning
authorities of a country, rather than its central bank, must prepare a
comprehensive plan for the purpose. Once the development is
redirected along appropriate lines, one can hope that PLS schemes
and deferred contracts will appropriately supplement one another
with a balanced growth and efficient performance of the Islamic
financial system.
Finally, Islamic finance, though important, is only a street under
construction in a much bigger Islamic road map. Its ultimate shape,
carrying capacity, and usefulness will depend on what happens to the
bigger picture. Crucial for success in the matter are social
conditioning and political will; things will then more easily fall into
their proper places.