'The money that prays'

The government appears to be very supportive of Islamic banking and, the State Bank of Pakistan (SBP) is keen for implementation of Supreme Court's decision of 2002 declaring bank interest as haram. Speaking at the launch of 'Centre of Excellence in Islamic Financing' of the Institute of Business Administration, Karachi, the Finance Minister and the Governor SBP went at length to explain their views on how Islamic finance is superior to conventional banking. However, the present government needs to take the lead and issue more sukuks (Islamic bonds) to establish a profit-based yield curve. But this requires identification of underlying assets owned by the federal government and gradually replacement of the outstanding treasury bills and Pakistan Investment Bonds (PIBs) both the bond issues are interest-based. However, a fiscally strapped government wants to lower its yearly debt servicing expenditure and appears to be taking advantage of cash/deposit rich Sharia-based institutions. The rate offered on sukuks is less than T-bills of one-year tenor.
The second problem that needs to be focused on is our tax system. The informal economy continues to expand and thrive as long as they are not on the radar of tax hounds. Real estate and housing offer bright prospects for sharing of risk. In this regard Murabaha, a particular kind of sale, is not a loan given on interest; it is a sale of a commodity for cash deferred price. In Pakistan, most of the lending by Islamic banks is on Musharika- or Modaraba-basis. Although, the local Sharia scholars, including highly revered Mufti Taqi Usmani, have worked very hard on making conventional banking instruments Sharia compliant, they have failed to come up with instruments or ideas that are not available in conventional banking. By allowing Islamic banks to be compatible with Kibor instead of clearly and unambiguously embracing Kibor (due to shallowness or lack of depth) - Islamic financing in the market remains handicapped.
Sharing of risk and the amount of pain incurred in repayment lies at the root of Islamic banking. Both - the depositors as well as the borrowers need to come clean with the (intermediatary) bank. A better system needs to reward both or else we will continue to evolve. No individual or institution can decide what nearly 200 million people want. Only better rates for depositors and lower cost to borrowers would attract the people towards Islamic banking.
Perhaps SBP and the academia could help the Ministry of Finance to identify and valuate the assets owed by the federal government for issuance of sukuks with regularity. Unless and until a proper yield curve is available to Islamic financial institutions we will not progress towards the Supreme Court decision of 2002. At present, only the religious-minded and those who do not or cannot tap conventional banks appear to be customers of Islamic finance. Transfer of risk forms an essential part of Islamic finance. Share in net profit margin instead of a share in gross profit restrict Islamic banks to bluechip customers. Thus, the answer lies in breaking fresh ground where conventional banks are shy in lending. Holding the nose through a circuitous route is not the answer to achieve the objective. Sharing of pain and risk lie at the heart of Sharia-based lending. But this requires honesty in our society which is at a premium. Hypocrisy cannot mean answer to our ills.
Last but not least, noted scholar Jeremy Harding in his work titled 'The Money That Prays' carried by the London Review of Books in 2009 profoundly argued, inter alia, "[T]o that extent, convergence [between conventional banking and Islamic finance] is the order of the day, as Sharia-compliancy wizards, Muslims and non-Muslims, seek to open up the trade in derivatives to the small but growing number of devout investors who can be persuaded to bid for a calf while the camel is still in labour."