ARTICLE REVIEW OF ISLAMIC FINANCIAL PRODUCT DEVELOPMENT IN THE PAKISTAN:…
ARTICLE REVIEW OF ISLAMIC FINANCIAL PRODUCT DEVELOPMENT IN THE PAKISTAN: SHARIAH
The Imperative of Islamic Financial Product Development
To be able to survive, it is crucial that every player in this race, including the Islamic banks develop strategics for long term presence in the market and short term competition.
keep concern such as liquidity and risk management in mind, continuous service development is the best tool at hand.
Islamic banking system, including the consultants need to truly be innovative to keep up with the times so that growth and profitability in business be ensured (Nomad,n.d.).
Pakistan support dual financial system: Islamic and Contemporary.
In contemporary system, Islamic financial system has earned itself quite a few customers.
This competition resulting from dual system make the Islamic banking products more sophisticated (Bakar,n.d.) by marketing and reengeering the conventional product, these Islamic ones usually come into being (Gainor, 2000).
it is Important Islamic banks use foresight to product the future needs of market and then provide product that are compatible with them.
Having the kind of competition banking and financial services industry has, it is imperative that
these institutions focus their skill and resources on customer service so that continuous market
presence can be ensured. Maintaining a good reputation once it has been earned is hrad in this day
and age and so product quality should be paid attention to (Gainor, 2000).
Aspect of Islamic Financial Product Development
Six stage make up the standard product development process; research and development, market intelligence,
resource allocation, team selection, marketing, distribution (Khan, 2002)
An Islamic product development team should ideally include shariah scholar, asset manager, advisor, custodian of administration services, customer and project coordinator, directors and distributors.
The aspects to be covered through observation are Shariah (Islamic Law), Law (governing), Tax structure, Accounting Standard, Technical system, Finance and Marketing.
Ijtihad as a mean of Islamic Financial Product Development
A mujtahid is a competent shariah scholar. The utmost effort of this scholar to derive teachings
and instructions from shariah sources and already existing knowledge, is called Ijtihad
This Ijtihad should be carried forth based on a special method that has been approved by laws of Islamic
It is crucial that shariah scholars play
an upfront and active role in the development process and in the required documentation.
The Al-tafri approach might prove useful in such cases, which allows the scholars to pass Islamic decrees
on thigns without their formal existence. The decree issuance should be carried forth based on the
the word of God and Sunnah of Prophet Muhammad.
The requirements which should be fulfilled for a person to be considered an Islamic scholar are; perfect knowledge of Arabic language, understanding of Quran and Hadith and different skills of legal reasoning (ijtihad)
Salients of Fiqh Muamalat
The product that fits into 2 categories should be preffered over others
Islamic financial of product development not being
Holds a lot of room of ummah according their needs
allow quite level to ummah
The beginning of Shariah based analysis of product developments
Primary invalidating and defecting factors in fiqh
Al-i`anah ala al-munkar (helping on unlawful purpose)
Al-Hilah (legal device)
Al-Najsh(arficial price hiking)
Al-Shuruth al-mufsidah(corruting conditions)
Intihak Al-humah Al-Shariyyah(violation of shariah sanctity)
summaries by: Prof Dr. Wahbah Al-Zuhayu based on nature and causes of invalidity and defect
contract Languange`s non-compliences
Object`s non -compliances
Contracting party`s ineligibility
non compliance of any among description ,condition and legal prohibition
Prof Dr. M Uthman Syubayr
helping haram activites
capturing other`s property unrightfully through oppression
subject matter`s illegality
violation of islamic brotherood
Application of Shariah concepts
Malaysian Islamic bonds
Malaysia Islamic banking system`s financing
The underutilization on Islamic Partnership Concept
Trading partnerships ( Al-Sharikat Al-Tijariyyah)
Heavy Reliance on the Fixed-return mode of Islamic Concepts
Strictly fixed-return financing mode
Put the Islamic banking system in a tough spot where matching assets and liabilities is concerned since most of their liabilities compries of floating rate instruments.
Complete reliance of Islamic banking systems on this mode of financing at the very onset.
Been harmful for the Islamic banking system in away because it gave the impression that Islamic banking system is inadaptable and inflexible.
Islamic Scholars have been found warning against such strict reliance on these fixed concepts for fear of becoming exactly like the conventional banks with their services and products.
Harmonization of Opinions.
Justifying their product to be abiding with the laws of shariah.
Advised that product be developed on those aspects of shariah that are widely known and accepted.
Carried out about the juristic beliefs of the target audience to be able to sell the product.
Responsible for a product's success or failure.
Shariah Concepts of Islamic Bonds
3)Lease-based bonds; Ijarah(lease) and Intifa'(sub-lease)
-rental payments and the principal will be received by them at the end of the contract
-intifa bonds, sukuk, only surface when sublease contract is involved
-ijarah concept the actual beneficial owners of both the lease owner and the leased asset and charge
4)Musyarakah(Profit-and-loss sharing) and Mudarabah (Profit-sharing)are equity based bonds
-issuers and holder of mudarabah bonds is that of a entrepreneur(mudarib) and capital providers (rabb al mal)
relatively risky for the investor.
-partner to partner relationship that exist between the issuers and bondholders
2)Sale based bonds i.e. Murabahah, BBA (Al-Bai'Bithaman Ajil)6, Istisna'7, and al-Wafa'8
-render to the concept of Bai' al-Inah9 in practice
-secondary market, it involves Bai' al-Dayn(Sale of debt), another controversial concept
-relation between bond issuers and holders is similar to that which exists between sellers and purchasers
5)A combination of the previously stated types, known as mixed or hybrid bonds.
-sukuk means a certificate to provide evidence for the undivided pro-rata ownership of underlying assets
-salesbonds represent the value of the debt and not the real asset can't even be named sukuk but its name is sanadat al-dayn,evidence of the issuer's promise to pay the investor back.
-ijarah, murabahah and istisna together form this combination and thus involve both real assets and debt based assets.
-six equity based bonds were also introduced musharakah5, and mudharabah1
1)Bonds based on loans; Al Qardh Al-Hasan
-provides nothing else to is holder
-somewhat unattractive for investors
temporary step to facilitate Islamic banking assets in the initial stages for their development
Main shariah issues in financial product development
2.Islamic partnership concept's underutilization
3.Legal device's practice
1.Extreme reliance on fixed mode of islamic concepts
4.Harmony of opinions
Shariah concepts of Financing in the Pakistani islamic Banking System
according to association of islamic banks, less than 20 percent of
the investments made worldwide did so on the basis of profit and loss sharing instruments(Dar & Presley,2000)
-made up by musharakah and mudharabah 0.3 percent
pervailant in islamic financing literature , that musharakah and mudharabah dominate the system
-BBA- based financing remains 40.7 percent