ISLAMABAD, Dec 18: Adviser to Prime Minister on Finance and Economic Affairs, Shaukat Aziz said on Wednesday the government is committed to the goal of promoting Islamic banking in the country.
He was speaking to the inaugural session of a two-day international seminar on “Accounting, auditing and governance standards for the Islamic financial institutions” here at the National Institute of Banking and Finance.
The inaugural session of the seminar, organized by International Institute of Islamic Economics, International Islamic University (IIU), was also addressed by Justice Khalilur Rehman, Rector IIU; Dr Rifaat Ahmed Abdul Karim, Secretary General, AAOIFI, Manama, Bahrain; and Dr Mahmood Ahmad Ghazi.
Mr Shaukat said the government was committed to promoting Islamic banking, adding, however, there are many challenges that remain in realizing the full potential of this new financial system.
“Accounting, auditing and governance standards are some of the challenges that we need to face in this regard,” he pointed out.
The adviser said as part of the broader reforms introduced in the country, audit and accounts and governance issues have occupied attention.
Regarding government’s commitment for promoting Islamic banking, he said: “Let us acknowledge that there are numerous challenges that we continue to face in this field. This recognition will enable us to formulate a pragmatic and meaningful strategy.”
He said the modern financial system had not been constructed overnight rather it had evolved over centuries, adding it has been thoroughly tested, applied and measured for its ability to meet the needs of fast expanding and increasingly complex economies of the world.
It is widely recognized, accepted, voluntarily adopted and practised simply for its efficiency, reliability and safety, he said, adding, however, this does not mean that “we cannot challenge the system, in fact given the system of beliefs that we subscribe to, we should never hesitate to challenge the conflicting practices.”
Mr Shaukat said but “we have to approach the challenge in a rational and persuasive manner, adding there has to be a matching response in terms of rationale basis of the alternative system and its capacity to work effectively, efficiently and without disrupting order in the society.”
“In the debate on Riba and its elimination we have to keep this principle in view,” he added. He further said the government, while acknowledging the need for moving toward a Riba-free financial system, was conscious of the fact that this process has to be evolutionary and not instantaneous and jerky.
The adviser to PM said, undoubtedly, it was the responsibility of the government to create the necessary space and enabling environment so that such incremental steps could be adopted out of free choices made by private individuals and institutions.
It is in this perspective that the government has adopted a number of steps, he said, adding, “we have developed a regulatory framework that affords adequate flexibility for undertaking interest-free operations in various alternative institutional forms.”
He said the State Bank had already announced this framework under which three distinct forms of organizations will be allowed, which include: (a) Establishment of dedicated banks, like AI-Meezan Bank, whose operations will have to conform with the requirements of Shariah for which an independent board will be set up in the State Bank; (b) Setting of branch operations by any of the existing banking and financial institutions, where all transactions will be Shariah compliant and will be kept separately from the rest of the operations; and (c) Creation of specialized subsidiary companies devoted to Islamic financing.
Shaukat Aziz said the operations of such institutions which are amenable to quick transformation to Islamic system of finance would be further strengthened, adding, in this regard the example of HBFC is notable.
In the case of HBFC “we have removed non-Shariah elements and now its operations are fully Shariah compliant,” he added.
In this regard, Malaysia, Saudi Arabia and Egypt are particularly important, he said, adding the “approach adopted by these countries has many lessons to teach us.”
Other than these measures, Mr Shaukat said the State Bank was currently engaged in developing special government securities that would be Shariah compliant and met an important requirement of the Islamic banks.
He said the State Bank was also in the process of introducing a new export finance scheme that would specially cater to the needs of the Islamic banks.
Shaukat Aziz said in banking and finance “we are dealing with the savings of millions of depositors,” adding only an impeccable and impeachable level of confidence and trust can persuade such depositors to part with their wealth and place it at the disposal of bankers.—APP