Islamic Banking at Systemic Level: Issues and Approaches

IRTI DLP Lecture 9 Islamic Banking at Systemic Level:Issues and Approaches Prof. Dr. Sayyid Tahir IIIE, International Isl. Univ., Islamabad Islamic Banking at Systemic Level

Agenda • Financing private and public sector needs • Transformations Called for in: 1. International Trade 2. Regulation & Control of Isl. Banks and Monetary Policy 3. Legal & taxation framework • Islamic banks versus conventional banks Islamic Banking at Systemic Level

1. Financing Private Sector Needs • Consumer Financing • Working Capital Financing • Industry’s Expansion Needs • Resource Mobilization through Salam Certificates • Agricultural Financing • Real Estate Financing [MF, IJF or DMF] Islamic Banking at Systemic Level

2. Financing Public Sector Needs • Murabahah with Divisible and Tradable Securities • Project Financing through Ijarah • Istisna’-cum-Murabahah Financing • Redeemable Musharakah • Resource Mobilization through Selective Musharakah Islamic Banking at Systemic Level

General Formula • Mute Investments - MF, IJF • Financing for value- - MF, SF added activities IJF, MUF Note: Combinations of the above to suit a given instance also possible. Islamic Banking at Systemic Level

3. Special Issues in Foreign Trade Financing • Intermediary role of the banks • Trade Financing 1. Trade-based: Exports (MF) Imports (SF) 2. Partnership-based: MUF or MOF • Some special considerations Islamic Banking at Systemic Level

4. Regulation and Control of Islamic Banks • Prudential regulations • Liquidity and reserve requirements • Provision of liquidity to Islamic banks • Checks over the role of Islamic banks • Checks on misuse of Islamic Banking • Shari’ah Audit Islamic Banking at Systemic Level

5. Monetary Policy • Nature of the Islamic financial system: 1. Closer integration between the real and the financial sectors 2. Primacy of the private initiative • Need for and Room for Monetary Policy Measures Islamic Banking at Systemic Level

6. Transformations in the Legal Domain • Renewed emphasis on rights of the creditors (against the debtors) • Review of laws affecting role function of Islamic banks • Taxation reforms Islamic Banking at Systemic Level

7. Challenges from Conventional Banks • Critical dependence on distinctive nature of Islamic banking • Competitive financial products Islamic Banking at Systemic Level

Thank you. Islamic Banking at Systemic Level, IIIE Islamabad

Consumer Financing • MF – small financing for a short period • IJF – sizeable financing for longer duration Islamic Banking at Systemic Level

Working Capital Financing • MF – for a single input (sugarcane) • SF – working capital for the season • MUF – (pure) musharakah for season • MUF + IJF – musharakah blended with ijarah for the season Islamic Banking at Systemic Level

Industry’s Expansion Needs • MR, SF, IJF or DMF  for purchase of machinery and equipment • DMF or ISF+MF  for additions to plant Islamic Banking at Systemic Level

Resource Mobilization through Salam Certificates • Presumption • Tradable salam certificates • The Shari’ah restrictions Islamic Banking at Systemic Level

Agricultural Financing • MF or IJF  financing for inputs needed by the financing sector • SF  financing with settlement in terms of produce • MUF  financing for miscellaneous cases Islamic Banking at Systemic Level

Islamic Banking at Systemic Level: Issues and Approaches