V Educating the masses ² lack
of awareness,
Misconceptions, misnomers
V No International Islamic
Money Market
V Absence / Underdeveloped
Islamic Capital Market
V No secondary market for
global Issues
V No Lender of Last Resort
V No Common Agreement on
Shari'ah Issues
V Substance over Form Issue
V No Harmonization of Islamic
products or instruments
V No uniform regulatory and
legal framework
V Emerging Stock Markets not
fully compatible with Shari'ah
V Non-acceptance of
standards, accounting
practices by the industry
players?
V Extract From Quaid-e-Azam·s Speech

......´I shall watch with keenness the work of your Research

Organization in evolving banking practices compatible
with Islamic ideas of social and economic life. The
economic system of the West has created almost
insoluble problems for humanity and to many of us it
appears that only a miracle can save it from disaster
that is not facing the world. The adoption of Western
economic theory and practice will not help us in
achieving our goal of creating a happy and
contended people.
We must work our destiny in our own way and present to
the world an economic system based on true Islamic
concept of equality of manhood and social justice. We
will thereby be fulfilling our mission as Muslims and giving
to humanity the message of peace which alone can
save it and secure the welfare, happiness and
prosperity of mankind.µ.......

Source: Quaid-i-Azam's Speech On the occasion of the

Opening Ceremony of The State Bank of Pakistan on 1st
July, 1948
V Like any other ´newµ concept, Islamic banking and
finance is also going to take some time to be fully
comprehended by the people, at large.

V In Pakistan the failure of implementing the Islamic

banking system in its true spirit in the 1980·s is major
factor that contributes to the high level of skepticism
expressed by many commentators.
V Without Institutionalized Islamic money market, liquidity
management is not possible for IBs

V Result; efficient funds management is unattainable

(funding gap)

V Excess Funds- No deployment like overnight, 7 days,

fortnight etc.

V Short term liquidity gaps/deficit.

V In most of the countries Islamic Capital markets are
either non-existent or not mature enough to be
acclaimed as true reflector of fair Risk-return framework

V Sukuk issued in most of the cases are subscribed by

institutional investors and such sharia compliant
investments are not yet in the reach of general public
V Infrastructure is lacking for trading of Sukuk in secondary
markets, hence no active trading of Sharia· complaint
issues is available at this juncture globally

V Moreover, like GDRs, global sukuk issues are not yet

quoted on any stock exchange or NASDAQ
V Given the fact, Islamic Finance is at its nascent stage,
intuitional developments are still lacking, for the purpose
of insulating banks/FIs from abnormal loss incurring
situations
V There are lot of variations amongst different
institutions/countries regarding Sharia· Issues, examples
include:
Bai Innah (Malaysia)
Tawwaruq (Reverse Murabaha); liquidity management
tool
Agency Relationship (In Pakistan used in trading modes)
Bai-U-Dain (Iran)

V These differences mainly arise because of different

school of thoughts prevailing in Muslim Societies
V One of the main objection of counterparts of IBs is; use
of complex nomenclature and structures by Islamic
Bankers to camouflage the form, whereas substance of
the underlying product/concept is same as in case of
conventional finance models

· Murabaha Syndrome (Example)

V Every institution/country is using its own unique set of
products/instruments, thus posing difficulty for customers
in comprehension as well as adoption

Example; For IERS (Islamic Export Refinance of SBP) DIBP

is using Wakalatul Istithmar, whereas all other IBs are
using trade modes like Murabaha, Musawama, Istijrar,
salam etc.
V Every country has its own unique set of regulatory and
legal framework, hence IBs have to follow these laws of
land in different regions.

V Uniformity is required to make IF a true success story in

coming days

V There must be an apex body that promulgates and

regulates legal framework globally and specific
regulators must such rules in letter & spirit
V Emerging Markets like Singapore, Hong Kong etc. which
are being evolved as hubs of Islamic capital market
structures are not fully complaint with Sharia laws
V AAOFI is an apex body which issues Sharia·h,
accounting and corporate governance principles. Till
date 70 standards have been issued by AAOFI

V In Pakistan in the first phase, AAOIFIs Shariah Standards

No. 3 (Default in Payment by a Debtor), No. 8
(Murabaha to the Purchase Order), No. 9 (Ijarah &
Ijarah Muntahia Bittamleek) and No. 13 (Mudaraba)
have been reviewed and adopted for IBIs in Pakistan .
V Rapid growth of 15% - 20% annually
V US$ 4 Trillion worth market sector
V Crossed boundaries of Islamic world and spreading in
non-Islamic countries
o UK, USA, France, Germany, Hong Kong, Japan,
Thailand, etc.
V :
  
    ² Benchmarks for
Islamic investment related categories have
outperformed their non-Shari·ah compliant
counterparts by 3 to 4 % in key indexes
V ¢      
 

 
 ²
¶The ethical principles on which Islamic finance is based
may bring banks closer to their clients and to the true
spirit which should mark every financial service·
 (

The birth of modern 20% tapped
experiment with Islamic
Banking
(
Last 35 Years 80% untapped
Achievements
Moving Islamic finance to new horizons͙

10-Year Master Plan

To tackle issues & challenges
( Active Infrastructure Institutions
ʹ IFSB, GCIBIF, AAOIFI, IIFM, IIRA..

 Sukuk Issues, Fund of Funds, Market

Makers, Secondary Market

Market shift ͙
Windows, Independent branches, Subsidiaries

 


 Conversions + Mergers
Islamic & Conventional banks
V Islamic Finance is a viable alternative and has to go a
long way

V It needs to be supported in its mission to eliminate the

curse of Riba from our societies.

V The global developments in Islamic Finance are

encouraging and the sector is growing at rapid pace.

V May Allah give us success in these efforts. ² Ameen!

 þ