Collective responsibility stressed for adoption of Islamic financial system

Islamabad : Pakistan can develop and reshape its economy and financial system based on Islamic principles if the state and all stakeholders demonstrate absolute acceptance and support for it, insists development expert Farrukh Raza.

"From the legislature to the executive to policymakers to regulators to market players, all stakeholders should demonstrate willingness and take responsibility to adopt Islamic financial system," Group CEO of the UK-based Islamic Finance Advisory and Assurance Services and co-founder of the IFN Services Farrukh Raza told a discussion on Islamisation of Pakistan’s economy at the Institute of Policy Studies here.

Mr Raza called for government policies and legislation to transform the country's finance industry in line with Islamic principles and said federal and provincial governments should create policies and enact laws reshaping the legal framework.

"To maintain the integrity of Islamic finance practices, robust regulatory supervision, corporate and Shariah governance laws, capacity-building initiatives targeting stakeholders, and raising public awareness are crucial for promoting a comprehensive understanding of Islamic finance," he added.

The expert said the transformation journey involved exploring sovereign funding tools like Sukuk, adjusting financial institutions to align with Islamic principles, and integrating Islamic funds with the economic development needs of the country.

He said despite prevailing challenges, establishing Islamic finance was certainly feasible in Pakistan.

"The Islamic finance industry can achieve tremendous development; for that, obstacles must be overcome with dedication, coordinated efforts, and a clear plan," he said. About the role of stakeholders in the successful implementation of an interest-free system, Farrukh Raza referred to the case of Malaysia and said the unanimous acceptance of Islamic finance principles by stakeholders, particularly religious scholars, had been a key factor in developing the Islamic finance industry and attaining financial inclusion in the southeastern Asian country.

He added that in 2015, he and his team provided Indonesia with a national master plan for conversion, outlining targets, action plans, timelines, ownership, oversight, and testing protocols to strengthen the Islamic finance sector.

"That plan received approval from the Indonesian parliament, and through a presidential decree, concrete actions were set in motion. Five years later, the share of Islamic finance doubled, with hopes of further increasing from 10 percent to 20 percent in the coming years. What's important to highlight here is that the Indonesian president took a keen interest in the plan and oversaw its progress contributing to the master plan's success," he said.

The expert said Pakistan needed the unequivocal willingness and cooperation of stakeholders, including government institutions, industry players, media, religious scholars, and regulators, to create an environment conducive to developing an Islamic economy and financial inclusion. He said Islamic banks had a responsibility to create mass awareness and dispel public doubts about Islamic banking practices from the minds of the public, a task not achievable by the clergy or government alone.

"Islamic banks and other financial institutions in Pakistan should form a consortium to allocate funds through marketing and CSR budgets for public education on the Islamic economic system and financial practices, addresses collective mistrust, and advances Islamic social finance capacity to address economic needs," he said.

Farrukh Raza lamented that the industry was not doing enough to create mass awareness of and sensitise policymakers to the matter.

On the recent advancements in the modes of Islamic social finance for poverty alleviation in the Muslim world, he lamented the regressive attitude of the traditional clergy in Pakistan that he said lacked the motivation for ijtihad to address the needs of society in the changing times.

"There is a need for programmes that involve ulema in interactions with countries excelling in this area, initiating awareness and capacity-building campaigns. These programmes should also facilitate discussions on various fatwas [decrees] concerning Islamic financial products in different countries, ultimately benefiting from their practices," he said.