Islamic Finance towards partnership - hindrances and possible solutions.

• Author: Farrukh, Muhammad Zeeshan

Byline: Muhammad Zeeshan Farrukh

Islamic Banking and Finance practices are running and growing at the rapid pace and has been proved itself as a viable financial system before the conventional economic and banking system. Here, we must consider whether the prevalent practices are fulfilling the Islamic socio-economic goals and objectives. If not, there is a need to determine the shortfalls and challenges in this direction and suggest the possible solutions in this respect.

It is a fact that every system has principles, mechanism, objectives and goals. The same is the case of Conventional and Islamic economic systems.

Conventional economic system is based upon man-made system and rejects any involvement of revelation in worldly manners. On the contrary, Islamic economic system is based upon the commandments of Almighty Allah.

When the man rejects the involvement of revelation, the factor of self-interest arises and the policies are made by the powerful persons that formulate policies in their vested interests without any consideration and welfare of other segments of the society.

On the contrary, Allah, the creator of the Universe, gives eternal guidance and law that leads to social welfare and prosperity without any unjust approach to any segment of the society.

The present day Islamic banking practices are Shariah-complaint as clearly recognized by the Shariah scholars but the socio-economic objectives could not be achieved with these practices. What was the objective to start Islamic finance? The objective was to start a financial system that could lead to Islamic socio-economic welfare system.

The reason for transforming banking and finance system was that this sector is the engine of the present day economic vehicle of the society. There was not the objective to merely establish the Islamic banking system but to effect upon the overall socio-economic structure.

The prevalent practices of Islamic banking and finance are based upon the modes of Murabaha, Ijara, Diminishing Musharaka, Salam and Istisna' etc. on the financing side and Mudaraba on the deposit side. The real modes that may bring revolution in the socio-economic scenario are partnership modes i.e. Mudaraba and Musharaka on the financing side but these modes are, unfortunately, not being functioned due to many problems and hindrances.

It is a fact that Islamic finance system has proved itself as a practical and viable system therefore; this is the moment that we should move to...