November 08, 2007	Thursday	Shawwal 26, 1428

KARACHI, Nov 7: Very little work has been done to explore the unique features of Islamic finance for the larger good of the society, particularly in the context of economic growth and poverty alleviation, said Dr Ishrat Husain, Chairman, National Commission for Govt Reforms, while delivering the keynote address at the third WorldAsia Islamic Capital Conference here on Wednesday.

The former Governor of the State Bank, Dr Husain, said most of the attention on Islamic finance has, so far, been focused on the regulatory framework, products and services offered comparability with conventional finance, risk management characteristics, Shariah compliance, and expansion and penetration issues.

A recent study done by the IMF shows that income inequalities are rising and despite the unprecedented gains made by China in quadrupling its per capita incomes in a quarter century and bringing poverty to less than 10 per cent during this period regional , inter-personal, rural-urban and gender income disparities have widened and are getting worse.

“Empirical analysis shows that technology rather than trade and financial globalisation are behind these growing inequalities,” said Dr. Husain.

Unlike positive economics, the entire edifice of Islamic economy is built upon a set of objectives.

He said Islamic economics is normative in nature with the objective of the Shariah being to promote the wellbeing of all mankind which lies in safeguarding their faith, their human self, their intellect, their posterity and their wealth.

Islamic system tries to promote a balance between market, family, society and the state. It does so by promoting both the material and the spiritual urges of the human self, foster peace of mind, enhance family and social solidarity, he added.

The truth of the matter is that most of the poor posses only one asset i.e. their unskilled labour. But to produce income and take care of their consumption as well as investment needs, they require some capital to add to their labour.

“This credit constraint can be eased by Islamic banks by locating their branches in underserved areas, catering to neglected economic activities,” said Dr. Husain.

“Although the religious fervour has been misused to mobilise these disgruntled young men and women and provide cover for the crimes against society, the underlying root cause, in my view, lies in the growing gap of perceptions and expectations between the well-to-do and the excluded segments of the population.

“The more difficult question that eludes us is how can Islamic economic system that incorporates the inclusive growth in its true spirit be introduced and sustained in 53-member countries of the OIC with such a diversity in political, economic and social conditions, resource endowments and power relationships,” he said.

Commenting on Islamic banking in the country, he said most of the attention on Islamic finance has, so far, been focused on the regulatory framework, products and services offered comparability with conventional finance, risk management characteristics, Shariah compliance, and expansion and penetration issues.

He said in order to win the confidence of their future clients Islamic banks have to take extra precautions and safeguards to ensure that they meet the exhaustive requirements to be Shariah compliant.

On the financing side, Islamic banks must ensure that funds are directed towards identifiable and acceptable productive activities.

Most Islamic financing modes ought to be asset backed, i.e. they are used to finance specific physical assets like machinery, inventory, equipment, etc, he said.

He said Islamic banks and Islamic financial institutions can accelerate their pace of expansion, which will result in poverty alleviation but also reduce income inequalities.

During the last eight years, the number of borrowers from the banking system in Pakistan has risen from one million to 5.5 million — an impressive rise. But this number can easily double if Islamic banks take measures to penetrate in the above geographical areas and serve those who are currently outside the banking system.

President and CEO of Meezan Bank, Irfan Siddiqui said Islamic banks have to put extra efforts to attract their customers as declaring the products Islamic demands more innovation.

He said consumers don’t merely come for Islamic products. They expect quality and satisfactory services as well. He said that 12pc market share target is achievable given the fact that Islamic banks have shown tremendous growth in last five years.