Based on theoretical models developed around the middle of the 20th century and some Islamic banking experiences in 1960's, Islamic financial institutions have passed through various stages of operational mechanism. A large number of Islamic banks have emerged in the last two decades. They have earned recognition not only in Muslim countries but also in other countries of the world. These institutions are rendering diverse global services in commercial banking, insurance, trade, and investment funds.
According to an estimate forwarded by the General Council for Islamic Banks and Financial Institutions, published in "Banker Middle East" of December 2003, these institutions were managing some $260 billion of assets. In addition, $200 to $300 billion were being managed by the Islamic windows and subsidiaries of international banks.
The growth of the sector is recognised over 10%, despite all the challenges of product development, financial engineering, Shariah interpretation, market linkages, globalisation, and interface with the conventional banking. Preferences of Muslim clientele are clearly reflected through these trends.
Motivated by the outstanding capability of the Islamic financial system of earning handsome profits, as against the declining real interest rates, the conventional global financial market is devising new frameworks to attract estimated $1.0 trillion resources in the Muslim World.
The changing scenario in the post Afghanistan and Iraq events leading to withdrawal of large funds by the Muslim investors has inspired these banks to market Islamic financial services in a move to bring this investment back. Introduction of special legislation in United Kingdom has facilitated development of Islamic financial mortgages. More recently, the Islamic Bank of Britain, the first stand-alone, Shariah compliant, retail banking institution has been established.
The Islamic finance project of the Harvard University has demanded effective supervisory and regulatory framework for expanding Islamic finance industry in the United States. The forum on Islamic finance has become the regular annual event of this university.
Bahrain has become the hub of the Islamic finance and is represented by the largest number of Islamic financial institutions. Countries like Malaysia, Pakistan, Sudan and Iran are following suit with legislative support of their respective governments. The procedures and governance criteria of the Islamic finance are developing fast.
The accounting and auditing standards for Islamic financial institutions, rating of Islamic banks and international Islamic financial markets have increased the compatibility of these institutions. The Malaysian-based Islamic Financial Services Board (IFSB) is striving to bring soundness and stability in the Islamic financial services industry to achieve the highest standards of corporate governance.
The Islamic banks as such are appropriately poised to tap large financial resource in Muslim countries and catch the investment opportunity in real projects creating physical assets, as well as, reconstruction of Afghanistan and Iraq.
Descending from the constitutional provisions, the move of the Government and the State Bank of Pakistan (SBP) to promote Islamic banking in the country has paved a landmark in the history of banking. Deriving guidance from the Shariah Board, the new framework established by SBP to regulate and support Islamic banking, provides enabling environment for Islamic banks to compete with the conventional banking system in the country.
The State Bank of Pakistan has already issued detailed criteria for setting up of scheduled Islamic banks in the private sector and developed model agreements specifying minimum standards for various modes of financing. The relevant laws have been amended to facilitate undertaking banking business strictly in conformity with the injunctions of Islam.
Meezan Bank has been the pioneer Pakistani bank in the field while Bank Islami Pakistan has recently been allowed to start operations. The impact of Islamic banking on the financial sector of the country has been quite significant. It has led the commercial banks to open Islamic banking divisions and branches. In particular, the Islamic banking experience of Bank of Khyber has led the way for its transformation into an Islamic Bank.
MCB has successfully launched the new experience. This demonstrates the recognition and workability of the Islamic financial system. SBP has already granted licence of Islamic banking to CitiBank and Standard Chartered. Dubai Islamic Bank has also been issued licence to operate Islamic banking in Pakistan. NBP, ABN Amro, Metropolitan Bank, Soneri Bank, Prime Bank, Bank of Punjab, and Askari Commercial Bank are planning to enter the market.
There are many opportunities, yet the field is not free from challenges. One of the most crucial issues is the scarcity of skilled manpower in Islamic finance which needs to be adequately addressed. Strategic steps are required to prepare the industry players to demonstrate the best managed institutions and achieve significant competitive edge. As such, the highest priority need to be accorded to develop management teams equipped with necessary expertise in Islamic economics, finance, and Shariah appreciation.
ACADEMIC PROGRAMMES OF IIUI:
Cognizant with the niche market being established, locally and internationally, by the Islamic banking sector, the International Islamic University, Islamabad (IIUI) has responded with full confidence to the growing demands for trained manpower in this field. The Department of Islamic Banking and Finance, established in the International Institute of Islamic Economics (IIIE) of the university, offers unique academic programmes targeting to develop the skills of the students required to lead and manage effectively in the new banking environment.
One year post-graduate diploma (PGD) in Islamic banking and finance, introduced in 2003 to impart professional knowledge and skills of Islamic banking to the participants, mainly from the commercial banks and investment and leasing companies, is progressing well. It develops students' competencies to build on their past experiences and equip them with the new skills and knowledge in Islamic finance that they can employ in Islamic banking setup. Considering the increasing desire for expanding academic focus beyond the requirements of diploma, the department launched a broader curricula based MSc Islamic Banking and Finance Programme effective September, 2004.
The new programme, which is ideal for recent graduates, is expected to meet in more profound way the needs of Islamic financial markets. The PGD students who consistently perform well can opt to get them transferred to the Masters programme. Both the programmes aim to produce the experts possessing strong knowledge in
Shariah compliant products and services as well as, financial management techniques.The department is also planning to initiate short certificate courses and trainings in Islamic banking and finance and also the courses for Shariah advisors.
Core courses of the academic programmes address the vital areas of Islamic finance, encompassing Shariah foundations, Islamic law of financial contracts, legal framework for Islamic banks, Islamic economics and finance, commercial bank management, product development & pricing, investment analysis and risk management, regulation and Shariah supervisory aspects, Takaful, quantitative techniques for financial managers, etc.
A wide range of electives allows participants to tailor their educational pursuits to meet individual interests and development needs as well as those required by the Islamic banks. The mix of faculty drawn from IIIE, Shariah and law and financial institutions including Islamic banks is well versed with the subject requirements and carry the requisite expertise. Speakers in extension lectures and seminars discuss the operational procedures of various Islamic banks and products and address the significant issues in this area. The research projects and practical attachments with Islamic banks are the integral part of the programmes which are designed to give students first hand experience in product development and working procedures.
(The writer is head, Islamic Banking and Finance Department, International Institute of Islamic Economics, International Islamic University, Islamabad)
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