An average person on the street now asks the question whether the Islamic Banking concept is one way of taking advantage of their faith. For the purists, the question goes even further — they see a vague line separating conventional and Islamic banking.
We know that the main selling point is that it is Sharia compliant. It adheres to prohibition of interest and avoids doing business with forbidden sectors such as alcohol and gambling. But how really compliant the industry is?
To some customers, the vagueness is even more when they open an account in the Sharia compliant banking system where the validity of the operation is unclear. They want to deal with genuine Islamic banking, not with a concept that is a mirror image of the existing set of rules already used by conventional banking.
To start with, the Islamic banking's benchmark is LIBOR, which is an interest-based concept, developed years ago. It needs to develop its own and not copy existing structures which are not Sharia compliant. For many people who I talked to here in
For example, investors in Sharia compliance instruments struggle to find meaning in words like Sukuk (Islamic bonds). For that matter, the so called experts of sharia compliance have failed to restructure Sukuk from conventional operation to Islamic.
Currently, there are some
Authentic Sukuk issues should involve the company targeting investors first with a business proposal and inviting them to invest in the company or project. The company would also say how much it expected to generate from the project and the size of a potential return, payable regularly.
This will interest many first-time investors in
Another thing is that different countries have some variations of Islamic banking which adds to further confusion for the customers. For example, conflicts of Fatwa (legal opinions of religious scholars). The Sharia procedures of the same product differ among banks around the world. There is no consistency and it seems as if one Islamic bank claims to be more compliant than the other. We already see these differences right here in
There are interbank disputes in the country involving sharia compliance, like problems with syndicated finance which customers are not aware of. The lack of standardisation and coherence within the Islamic banking will be a test not only for the faith of customers but their intelligence. Transparency about where exactly Islamic banks are getting the funds from and where they invest the customers' deposits is another issue.
Customers are also wary of the Islamic banking products offered by conventional financial institutions in the so called Islamic windows. It is an operational schizophrenia where one hand holds what is deemed as Sharia compliant and the other as non-Islamic.
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