In recent years, Islamic finance has emerged as a potential tool for curbing poverty and financing development worldwide. From an Islamic business ethics perspective, it is possible to identify four key dimensions and implications of Islamic banking and finance:
1. Poverty and inequality alleviation through the elimination of riba and promotion of charity;
2. Enabling the development of individuals and communities though a focus on risk sharing and societal well-being;
3. Multiplicity of stakeholders, instead of a narrow focus on stockholders, with a sense of responsibility to the wider community, society, environment and the Creator;
4. Ethical leadership with dual emphasis on social conduct (muamlat) and the conduct of worship (ibadat).
A recent joint report by the World Bank and Islamic Development Bank highlights the shared prosperity aspect of Islamic finance and identifies its four pillars: institutional framework and public policy oriented to the objectives of sustainable development; prudent governance and accountable leadership; promotion of the economy and entrepreneurship based on risk sharing; and financial and social inclusion, promoting development, growth, and shared prosperity.
According to the Global Report on Islamic Finance 2016, the Islamic banking sector has grown exponentially in the last two decades, accumulating nearly $1.9 trillion in assets and spreading across 50 Muslim majority and non-Muslim countries around the world. This figure is estimated to increase to $3.4 trillion by 2020. For example, in Pakistan in the last 5 years, there has been a growth of 20 per cent in the size of Islamic banking. On a global scale, the country is the ninth largest market in Islamic banking and finance. Other core markets of Islamic finance are in the Middle East and Southeast Asia. Major financial markets are discovering solid evidence that Islamic finance has already been mainstreamed within the global financial system - and that it has the potential to help address the challenges of ending extreme poverty and boosting shared prosperity.
There are, however, a few challenges and opportunities that need addressing, such as the asset quality of Islamic banks, the issues of effective liquidity, dearth of Sharia compliant products, variety of interpretations and regulations of Sharia, research on systems of regulation and governance, and ethical conduct of bankers, regulators and Sharia scholars.
The notion of risk sharing within Islamic banking is consistent with the notion of entrepreneurship where owner of the capital is willing to share risk in her or his pursuit of business. Indeed, the availability of qualified, trained and experienced individuals who have a sound understanding of and commitment to Islamic finance is of paramount importance to capacity building. Here, the role of academy-business and public-private partnerships is extremely important to produce the right quantity and quality of graduates.
In Pakistan, institutions such as the Suleman Dawood School of Business (at Lahore University of Management Sciences) and Institute of Business Administration Karachi along with other academic institutes are playing an important role in the creation and dissemination of indigenous knowledge in the domain of Islamic finance. In this pursuit, the State Bank of Pakistan is sponsoring research, training and awareness initiatives across the country.
As the Islamic finance industry grows and experiences greater competition, the importance of individuals who possess a sound technical understanding of the industry and its products, as well as effective leadership skills, is essential. Therefore, it is important to bring onboard Islamic finance experts to head this initiative. For example, in Pakistan, undergraduate and graduate level courses are being offered at the Suleman Dawood School of Business in Islamic banking and finance, accounting for Islamic financial institutions, Islamic management and ethics, and Islamic risk management. Executive education courses such as Leadership Development for Islamic Financial Institutions are helping managers successfully shift their conventional mindset towards a future-focused Islamic ethical mindset while keeping in mind the needs of their unique customer base.Suggest a correction