Challenges and opportunities in Pakistan Islamic Banking.

Byline: Arooj Asghar

Islamic banking and finance are emerging as viable alternatives to conventional interest-based banking and financing. Islamic financing is not only expanding its footprint in Muslim countries but also expanding in Western countries. In today's connected world of business, Islamic finance is a concept that people working in the banking and finance industries are likely to come across in their careers.

Islamic finance is not limited to Muslim countries. It has shown growth globally, including in Europe. Total Islamic finance assets worldwide are projected to grow to USD3.5 trillion by 2021 from USD2.5 trillion currently, according to a report.

There are over 600 institutions providing Islamic finance courses worldwide, and over 200 provide Islamic finance degrees, according to a report of KPMG London. Europe is increasingly showing interest in Islamic finance education. There are 109 institutions that provide Islamic finance education in Europe, 63 percent of them in the UK. Britain issued its first Islamic bond (Sukuk) worth British pound 200 million (over USD 250 million) in 2014.

Islamic finance is not a religious product it is, however, a growing series of financial products developed to meet the requirements of a specific group of people. Conventional finance includes elements (interest and risk), which are prohibited under the Shariah law. Developments in Islamic finance have taken place to allow Muslims to invest savings and raise finance in a way, which does not compromise their religious and ethical beliefs.

It is estimated that between 1.5 and 1.8 billion people (one quarter of the world's population) are Muslim. Geographically, most Muslims live in Asia (over 60 percent) or the Middle East and North Africa (about 20 percent). Despite these figures, Islamic finance is still very much a niche market, with the vast majority of Muslims, who have access to finance, using conventional financial products.

Islamic banking, which became established in the 1970s, currently consists of a variety of financial instruments or products. These include Mudarabah (trust financing), Musharakah (equity financing), Ijarah (lease financing), Murabahah (trade financing), Qard al-Hassan (welfare loan), and Istisna` (progressive payments). According to the Shariah, Islamic financial institutions and modes of financing are based strictly on the following principles:

* Transactions must be free of interest (riba').

* Goods and services...