London-based Edbiz Consulting and Cambridge IF Analytica recently launched 7th edition of their Global Islamic Finance Report that includes a global survey on the need of an Islamic financial policy in different countries of the world.
In total, 2,170 respondents took part in the survey from 43 countries of the world from Australia and New Zealand (2%), Asia (73%), Africa (7%), Europe (15%) and Americas (3%). Clearly, the sample was highly biased in favour of Asia but there was also sufficient representation of other regions.
The respondents came from 165 institutions (banks, universities, fund management companies, central banks, consultancy firms and other organisations). Most of them were professionals working in financial services industry (51%) and a significant proportion came from academia (23%).
An important finding of the survey relevant to Pakistan was the observation that there was not sufficient awareness of the existence of an Islamic financial policy in the country. The respondents were asked if there was any law on Islamic banking and finance (e.g., Islamic Bank Act or any other legislation passed through a representative body like parliament.
In this respect, the respondents were informed that rules and regulations introduced by a financial regulator or a central bank should not be deemed as law.
Most of the respondents answered affirmatively (52%), while others either said no or they were not aware of any such legislation. Those who responded positively were predominantly from the countries where Islamic banking and finance is significant and visible.
Interestingly, all the 330 respondents from Malaysia answered positively. In case of Pakistan, however, only 63% of the respondents (334) said yes, although there is no specific Islamic Banking Act in the country.
The respondents were also asked if such a law is sufficient and effective for the promotion of Islamic banking and finance in their country of residence.
Although 52% of the respondents believed that the prevailing legislation in their countries of residence were sufficient and effective for the promotion of Islamic banking and finance, a significant proportion of the respondents thought that it did not sufficiently promote IBF in their countries.
The survey revealed that awareness of the role of financial regulators in Islamic banking and finance is more widespread than that of other government bodies or agencies. A total of 991 respondents out of 1,300 reported to be aware of the rules and regulations pertaining to Islamic banking and finance, as issued by the central bank. However, almost half of them doubted that these rules and regulations are sufficiently helpful for IBF.
Only half of the respondents were aware of a specific department set up for dealing in matters related with Islamic banking and finance, on the central bank level or within any other government body.
Malaysia was named as the most active player in the global Islamic financial services industry. Saudi Arabia is a curious case, as there is no specific legislation, like an Islamic Banking Act, although Islamic banking and finance has prospered in the country. Iran, Sudan and Indonesia are the other countries where there are specific Islamic Banking Acts but the respondents were by and large unaware of such legislations.
Importance of legislation
There is widespread realisation amongst the respondents that the absence of proper legislation by parliaments and other legislative bodies is a major hindrance to the development of Islamic banking and finance, as 88% revealed so.
It seems as if the lack of legislation in favour of Islamic banking and finance in most of the Muslim countries is not due to the opposition by political parties. Rather it is sheer due to lack of political will.
The loud and clear message from the survey is that the central bank and Ministry of Finance are the two government bodies that must be made responsible for formulating Islamic financial policy in a country. In many countries these two bodies work together and there is a need to create a liaison function specific to Islamic banking and finance between these two organs of the government.
The survey also asked a number of other questions some of which are produced below.
Answering the question if the use of interest should be banned altogether in the Muslim-majority countries comprising the Organisation of Islamic Cooperation (OIC), 75.9% favoured the idea. However, only 26.9% of the respondents viewed that Islamic banks and financial institutions should follow the same rules and regulations as other interest-bearing banks and financial institution.