THIS refers to the article ‘Islamic banking — reflections of a practitioner’ (B&F, June 22), which provided a defence of Islamic banking and highlighted the distinction between structures and outcomes.

However, I believe a critical concern deserves further discussion. In Islamic home financing models, such as Ijarah and Diminishing Musharakah, the bank claims to earn rental income from its ownership share in the property. If the payment being charged is truly rent, then it should logically be linked to the actual rental value of the house or prevailing property rental market conditions.

In practice, however, rental payments are often benchmarked against the Karachi Interbank Offered Rate (Kibor) plus a spread which is commonly around three per cent. As a result, when Kibor rises, the so-called rent also increases, regardless of whether the property’s rental value has changed. This creates the impression that the charge is determined more by money-market interest rates than by the economic value of the asset being leased.

While Islamic banking scholars argue that Kibor is merely a benchmark and does not determine the Shariah validity of the transaction, many customers struggle to understand why rent on a house should fluctuate with interbank lending rates. If rent is genuinely compensation for the use of a tangible asset, then there appears to be a strong case for linking it more closely to actual market rents rather than interest-rate benchmarks.

I believe that addressing this concern openly would strengthen public trust in Islamic finance. As Islamic banking continues to grow in Pakistan, greater attention to the economic substance of rental calculations may bridge the gap between legal compliance and public perception.

Yasir Sultan
Wah Cantt

Published in Dawn, July 26th, 2026