JEDDAH: A leading economist has urged Muslims living in non-Muslim countries to open interest-free accounts in their banks in order to encourage the regulators and policy makers to license Islamic banks. “If a large number of customers insist they want interest-free banking services, it would surely have a big impact on decision makers,” said Mohammed Obaidullah of Islamic Development Bank.
He highlighted the role of customers in strengthening Islamic banks and financial institutions by asking right questions and monitoring the bank’s activities and dealings. “I would say the customer is the driving force who can make Islamic banking move,” Obaidullah said while giving a lecture on the relevance of Islamic banking and finance in the modern world at the Islamic Education Foundation. The lecture was organized by the Indian Islahi Center in Aziziya.
Obaidullah called for the establishment of independent Shariah bodies to monitor and approve the activities of Islamic banks. “The current practice of Shariah scholars being remunerated by Islamic banks to certify their products weakens their credibility,” he pointed out. “We need more people specialized in Islamic banking and Shariah laws. We also need more researchers and think tanks in order to strengthen this banking system,” he said.
He said Islamic banking and finance had become a strong industry that would not be shaken by defaulting of some institutions or individuals. “Islamic banks are here to stay. Some abusive practices could occur since it is a nascent industry. But these abuses should not be allowed to grow into a monster,” he said emphasizing the importance of taking protective regulatory measures.
Obaidullah described Murabaha as the most popular and widely used Islamic banking product. “Over 75 percent of Islamic finance deals are conducted by means of Murabaha, primarily because of its simple structure and close similarity with conventional loans. While this is a cause for concern to some observers of the industry, Murabaha has clear economic benefits over interest-bearing loans. Further, Islamic banks are slowly but steadily turning toward participatory modes of financing,” he explained.
He said Islamic banks and financial institutions should follow certain rules to make their Murabaha deal conform to Shariah. “The dealings should be transparent and free from uncertainties regarding price or product features,” he added. Obaidullah, author of seven books, spoke about the history and development of Islamic banking and commended the role of Nejatullah Siddiqui, a winner of the King Faisal International Prize for Islamic Studies, for his pioneering efforts in promoting the system.
He expressed his satisfaction at the growing popularity of Islamic banking and finance, especially in the wake of the global financial crisis. There are now more than 500 major institutions providing Islamic banking and financial services across the globe. Countries like France, China and Hong Kong are the latest additions to the list of countries vying to become Islamic finance hubs and get a major share of the market estimated at nearly $2 trillion.
Obaidullah hoped that India would soon get on the bandwagon of Islamic banking. India needs to change its banking regulations to accommodate Islamic banks, he said, adding that India would benefit from introducing the system as it would help tap the much-needed funds available in GCC countries for its infrastructure projects. Specifically Islamic microfinance has huge potential in enhancing financial inclusion of India’s poor. He called upon the Indian media to support the venture for the benefit of the country and its people. “It has been the burning desire of Muslims in the county for quite some time to have an interest-free banking system and we hope that the New Delhi government will soon take a decision to introduce the system,” he added.