By Kazim Alam, The Express Tribune
KARACHI: Former justice Mufti Taqi Usmani said on Wednesday that the ongoing global financial crisis gave credence to the Islamic financial system, which prohibited interest and short sale.
Speaking at the inaugural session of a two-day World Islamic Finance Summit, Usmani said that debt-based financing, sale of debt, derivatives and short sale were the primary reasons for the international financial crisis. “The worth of world’s total derivatives is 12 times the global GDP. This is virtual money, which discourages real economic growth,” he said.
Usmani said that the trade of money should be stopped, as it violated Islamic principles. “Money should not be traded like a commodity, because it has no intrinsic value. Money should only be a mediator to judge the actual value of a commodity.”
Usmani said that short sale – a practice where the lender allows a property to be sold for less than the amount owed on a mortgage and takes a loss – was tantamount to gambling, as both were driven by speculation. “You can’t sell what you don’t own in the Islamic financial system.”
State Bank Deputy Governor Kamran Shehzad said that the share of Islamic banking in Pakistan’s banking sector was 7.75 per cent. He said that there were five full-fledged Islamic banks with 800 branches operating across the country, adding that most other banks had Islamic banking sections.
Former information minister Nisar Memon said that the Islamic banking sector should suggest ways to get the nation out of the debt-servicing cycle. He called for Islamic bankers to introduce Shariah-compliant, easy-to-understand financial products coupled with a low borrowing rate and high yield to investors. He said that the countries where Muslims were in minority should also introduce Islamic banking, adding that a large number of non-Muslims were already taking advantage of Islamic banking.
Bank Alfalah CEO Sirajuddin Aziz said that Islamic banks should reduce their profits to attract customers of conventional banks. He said that the Islamic banking sector was growing by 15-20 per cent in Pakistan every year.
However, he warned Islamic bankers against claiming the high moral ground with regard to the religion-endorsed banking practices. “The worst form of arrogance is to believe that one is pious.”
Published in The Express Tribune, September 22, 2011.