Challenges used to issuing Fatwa (Islamic verdict) to

Challengesof Islamic Banking: Islamic banking remained under various challenges,whether it is third world countries or developed nations and this has beenwitnessed during last 3 decades and more. One of such challenge is theprocedure of sentencing fatwa, which usually if acceptable by one school ofthought than declined by other school of thought. There is no one institutewhich shall be used to issuing Fatwa (Islamic verdict) to be used by allnations in letter and spirit.

InMalaysia Sharia Board is supported by their Government. Voluntary body inBahrain on Accounting and Auditing Organization for Islamic FinancialInstitutions has been established religious scholars who are authorized toissue Fatwa on Islamic financial products. Again its binding on other countriesis 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.Otherchallenge is shortage of qualified professional both at banking and shariaside. Legal frame work is another challenge for this industry. In few countrieslike in UK there is no legal frame work to deal with Islamic Banking.

operationof conventional banks to offer Islamic banking. Since, these conventional banksare not prepared and encouraged to spread Islamic banking therefore, they arejust meeting the regulatory requirement to open Islamic windows. Following aresome of the important challenges / issues in Islamic Banking. Common Fiqh: There are two mainreasons for this:  Banking based on particular school of thoughts isunthinkable.

 Every Islamic banking transaction,particularly related to  disbursement offinance needs to route through Sharia verdict. Shariascholars conclude their findings on basic principles of sharia, but thoseprinciples are very rarely explained. These are sharia rulings only withoutbrief interpretation and reasoning to a common banking practice.  Penalty on defaulters: There is a direneed to review the concept of penalty in Islamic modes of finances. Since,Islam prohibits taking interest as such penalty for late payment is not allowedin Islamic finance. However, a large chunk of customers take it as advantagefor them and use to make defaults.

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So, it is a big challenge to introducesharia compliant mechanism to review introduction of penalty on defaulters. Islamic Banking literature: ProperIslamic Banking Manuals, reading material, text books, systems and procedurebooks should be introduced to increase the knowledge base of bankers. ShariaAdvisor of Dawood Islamic Bank, Mufti Muneeb11 mentioned that during hisworking experience with the bank he has issued around four thousand Fatwas andare published in four volumes.

This literature is issued in the market with thename of ‘Tafheem ul Masaeel’. Such sort of literature proves to be asubstantial material for further research and development in the field ofIslamic banking.  Pricing Formula: At present, KIBOR isused as bench mark to determine price for finance. However, it would beappropriate to introduce Islamic bench mark to fix rates for all finances madefrom Islamic modes.  Accounting Practices: Accounting meansdocumenting mechanism to record claims, rights and obligations.

However, thereis no separate set of accounting in terms of sharia based Islamic principles.As such it is felt to conduct a comprehensive review of existing accountingpractices.  Regulations and Control: Bankingrelated regulations and control are applicable through BASEL accord. Basel Iand Basel II are released in this regard to provide control and regulatoryrequirement related to other practices including meeting requirement to corecapital to address the issues related to Risk Management. Basel III is alsoabout to implement in banking industry to further tighten capital andother regulatoryrequirements.

However, it is noted that Basel regulations are practicallyspeaking, are applicable for interest based banking. Need is therefore, felt tocorrelate Basel requirements with Islamic banking. Legal Framework:Somegeneral laws and guidelines are issued at the moment by regulators in terms ofpromotion of Islamic Banking in Pakistan. However, there is need to payattention for introduction of necessary changes in the banking laws and otherrelated laws that affect Islamic Banking.