of Islamic Banking: Islamic banking remained under various challenges,
whether it is third world countries or developed nations and this has been
witnessed during last 3 decades and more. One of such challenge is the
procedure of sentencing fatwa, which usually if acceptable by one school of
thought than declined by other school of thought. There is no one institute
which shall be used to issuing Fatwa (Islamic verdict) to be used by all
nations in letter and spirit.
Malaysia Sharia Board is supported by their Government. Voluntary body in
Bahrain on Accounting and Auditing Organization for Islamic Financial
Institutions has been established religious scholars who are authorized to
issue Fatwa on Islamic financial products. Again its binding on other countries
is not restricted as such few countries refer their verdict and other do not.
As such lack of authentication is a big challenge for Islamic banking industry.
challenge is shortage of qualified professional both at banking and sharia
side. Legal frame work is another challenge for this industry. In few countries
like in UK there is no legal frame work to deal with Islamic Banking.
of conventional banks to offer Islamic banking. Since, these conventional banks
are not prepared and encouraged to spread Islamic banking therefore, they are
just meeting the regulatory requirement to open Islamic windows. Following are
some of the important challenges / issues in Islamic Banking.
Common Fiqh: There are two main
reasons for this:
Banking based on
particular school of thoughts is
Every Islamic banking transaction,
particularly related to disbursement of
finance needs to route through Sharia verdict.
scholars conclude their findings on basic principles of sharia, but those
principles are very rarely explained. These are sharia rulings only without
brief interpretation and reasoning to a common banking practice.
Penalty on defaulters: There is a dire
need to review the concept of penalty in Islamic modes of finances. Since,
Islam prohibits taking interest as such penalty for late payment is not allowed
in Islamic finance. However, a large chunk of customers take it as advantage
for them and use to make defaults. So, it is a big challenge to introduce
sharia compliant mechanism to review introduction of penalty on defaulters.
Islamic Banking literature: Proper
Islamic Banking Manuals, reading material, text books, systems and procedure
books should be introduced to increase the knowledge base of bankers. Sharia
Advisor of Dawood Islamic Bank, Mufti Muneeb11 mentioned that during his
working experience with the bank he has issued around four thousand Fatwas and
are published in four volumes. This literature is issued in the market with the
name of ‘Tafheem ul Masaeel’. Such sort of literature proves to be a
substantial material for further research and development in the field of
Pricing Formula: At present, KIBOR is
used as bench mark to determine price for finance. However, it would be
appropriate to introduce Islamic bench mark to fix rates for all finances made
from Islamic modes.
Accounting Practices: Accounting means
documenting mechanism to record claims, rights and obligations. However, there
is no separate set of accounting in terms of sharia based Islamic principles.
As such it is felt to conduct a comprehensive review of existing accounting
Regulations and Control: Banking
related regulations and control are applicable through BASEL accord. Basel I
and Basel II are released in this regard to provide control and regulatory
requirement related to other practices including meeting requirement to core
capital to address the issues related to Risk Management. Basel III is also
about to implement in banking industry to further tighten capital andother regulatory
requirements. However, it is noted that Basel regulations are practically
speaking, are applicable for interest based banking. Need is therefore, felt to
correlate Basel requirements with Islamic banking.
general laws and guidelines are issued at the moment by regulators in terms of
promotion of Islamic Banking in Pakistan. However, there is need to pay
attention for introduction of necessary changes in the banking laws and other
related laws that affect Islamic Banking.