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Islamic Banking at Systemic Level: Issues and Approaches

In this lecture, Prof. Dr. Sayyid Tahir from the International Islamic University Islamabad examines the systemic issues surrounding Islamic banking. The discussion covers the financing needs of both the private and public sectors, transformations in international trade, regulation and control of Islamic banks, and the unique challenges posed by conventional banks. Key areas include consumer financing, working capital needs, resource mobilization, and the interplay between legal frameworks and monetary policy, providing a comprehensive overview of Islamic banking's role in modern economies.

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Islamic Banking at Systemic Level: Issues and Approaches

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  1. 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

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

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

  11. Thank you. Islamic Banking at Systemic Level, IIIE Islamabad

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

  13. 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

  14. 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

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

  16. 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

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