Islamic funds have actually provided a window of opportunities to a number of individuals, who were previously reluctant to invest into this sector because of their religious beliefs. The funds constitute 12 percent of the overall fund management in
Islamic funds industry is still at its initial stage. Presently, the country has all types of funds available on the Islamic side. These funds include money market, equity, sovereign, corporate fixed income, capital protected and index tracker. Fixed income, interest bearing bonds are not permissible in Shariah. Islamic finance, however, faces numerous challenges for its growth in the country. There is, however, a long way to go forward in this regard. There is still a high need to work for expansion of client base in the country.
An Islamic mutual fund is essentially a modaraba structure in which the funding is provided by the investors, while asset management companies provide the professional expertise in investment. The SECP regulates the asset management companies and ensures safety of the money deposited in mutual funds. At present, there are about 16 companies that manage 32 Islamic mutual funds in the country. The asset management companies are required to appoint Shariah Advisor, who reviews the working of the Islamic mutual funds and provides guidelines and criteria for investments. The Advisor’s guidelines are binding on the fund manager.
Islamic mutual fund industry has witnessed a phenomenal growth all over the world particularly in the Islamic world.
For the country’s central bank, Islamic banking has been a high priority area and it has taken steps to make Islamic banking industry robust enough to offer a viable alternative to conventional banking.
Islamic principles encourage entrepreneurship in productive sector, or in other words they enhance productive capacity of the economy. The experts, however, believe that there remains entrepreneurial risk, which can only be eliminated at the cost of compromising the basic distinctions of Islamic economic principles. There is a dire need for establishment of institutions, which could promote entrepreneurial culture. Questions have also been raised against the performance of Mudarabah companies and some Islamic scholars have declared investment with these companies as non-compliant from Islamic principles standpoint.
Islamic banking is one of the emerging fields in global financial market. It is growing at very fast pace all around the world. Islamic investment banks and Islamic venture capital funds are yet to be launched in
What primarily concerns the users of Islamic financial services is the Shariah compliance of the services. Noncompliance of Islamic law can result in withdrawal of funds from an Islamic bank. Hence, Shariah compliance is a serious matter for an Islamic bank. Islamic finance can find rich social grounds for its growth and expansion in the country. The concept of Islamic finance needs to be introduced for the promotion of Islamic banking and insurance industry in the country. As a regulatory authority of the insurance sector, the SECP should take initiatives to tap the country’s enormous potential in the sector by providing level playing fields to government and private sector.
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