Understanding Islamic Finance - Doha Academy of Tertiary Studies

456 Understanding Islamic Financebe able to realize the objectives of an Islamic financial system as visualized by its pioneers,even in the long term.But some are harsher and consider the present Islamic banking “an attempt to legitimizeconventional Western banking by distorting the Sharī´ah”. 8 It seems that the writerswho make such remarks might not have tried to gain sufficient awareness about the conceptsand philosophy of Islamic economics and finance (notwithstanding their scholarshipin some other areas). Further, they should take into consideration “the tricky issues thatthe present generation of humanity faces in following divine guidance” (as remarked byDr M. Nejatullah Siddiqi in his response to the article by Dr Asad Zaman; Ahmad andSiddiqi 2006). Responding to the above criticism, Professor Khurshid Ahmad says: “Weall are concerned that systematic and sustained movement in that direction (equity-basedeconomy) is yet to be made. It would be a tragedy if the Islamic movement does not movein that direction. But it would be less than generous to condemn the whole effort and regardit as an exercise in legitimization of the interest-based banking model.”Further, banking is only one part of an economy; public finance also has to follow ajust and equitable system for getting the real benefit. The scope and need for the use ofequity-based modes will be discussed in the final chapter, “The Way Forward”.17.5 CONCLUSIONThe emerging system is subject to a number of myths and severe criticism, not only bythose who do not accept the prohibition of interest but also by those “pious” people – bothlaymen and the well-educated/elite – who visualize an ideal system without giving anyweightage to the evolutionary challenges and teething problems and difficulties. The conceptand philosophy of Islamic finance is based on sound reasoning and is being accepted by anincreasing number of people across the globe. What the practitioners need to do is to createawareness so as to remove the myths among the public.As regards Islamic banking practice, IFIs need to apply stringent internal controls toavoid systemic and operational risks. Training of the operational staff at all levels, aimed atenhancing their vision, confidence and commitment, is a prerequisite for sustainable growthof the new discipline. They must find ways and means to apply equity-based modes, keepingin mind the risk profile of the fund owners and the nature of business on the financing side.A starting point in this direction may be financing of consignment-based trade practices,micro-business operations, Shirkah-based securitization and fund management.Taking collateral and security is entirely valid for Islamic banks. However, they mustalso facilitate the clients who are capable of doing any profitable business but are not ina position to offer any tangible collateral, to enable them to start some business to earnsustenance on the basis of personal and/or group sureties.8 Zaman, 2006. For a response to this by Professor Khurshid Ahmad and Dr Nejatullah Siddiqi, see Ahmad, Khurshid, 2006 andSiddiqi, 2006b.