As a substitute to T-bills, the governments can issue Treasury Sukuk Ijarah Bills to source funds. For profit benchmarking, data from trading operations can be used in which the government sets prices to reflect its target profit rate knowing the cost as well as the selling price. This target profit rate can become a benchmark for issuing Treasury Sukuk Ijarah Bills and affect the other rates of returns in Islamic short term financing instruments.
A key maxim of Islamic jurisprudence suggests that in the matter of commercial transactions, everything is deemed permissible unless explicitly stated otherwise. As long as the transacting parties adhere to the principles of Islamic jurisprudence while applying the benchmark to their transaction, it is acceptable to utilize a consensus methodology. In place of risk free rate or base rate of expected return on investment, some thinkers in Islamic finance suggest the possible use of Zakat rate.
From the Islamic finance industry perspective, an important criterion for the industry wide adoption of any benchmark, particularly one that is published every business day, is the simplicity, reliability and robustness of its methodology.
Growth rate of Gross Domestic Product (GDP) is one of the most frequently suggested alternative for Islamic finance transactions. GDP measures value of production in a given year. This alternative avoids reference to interest based benchmarks and reflects pure economic activities in a comprehensive way covering output of all sectors plus prices.
The discussions in the forum emphasized on creating synergy between Zakat and Waqf and integrate both the institutions together in institutional design and delivery as well as in public and social policy in member countries.
In lease based contracts, such as Ijarah and Diminishing Musharakah, the rental indices can capture the true essence of pricing as per the nature of transaction.
Repo transactions are not compliant with Islamic principles due to the buyback nature of transaction plus the use of interest based securities as underlying assets. However, in commercial contracts where Islamic banks would like to earn return, there is need for a pricing benchmark to mitigate risk as well as ensure transparency in the contract.
IPS signed a Memorandum of Understanding (MoU) on December 27, 2021 with Islamic Economics Project (IEP). MoU will facilitate both organizations to collaborate in holding and promoting joint online and on-ground events, details of which will be covered and reported on the websites of both organizations as well as in Moral Reflections on Economics – a monthly online publication of IEP.
Islamic banking is growing very fast, especially after the global financial crisis in 2008. There is need for more awareness and regulatory support to promote Islamic banking so as to comply with constitution of Pakistan, which clearly urged for eliminating Riba as soon as possible.
This paper aims to see which modes of financing are majorly employed by Islamic banks while providing finance to the clients. The empirical analysis shows that by and large Islamic banks use risk-shifting contracts. The use of risk-sharing based contracts is quite minimal.