Islamic Economics Project is making a humble effort to collect the views of Shari’ah scholars, regulators, practitioners, lawyers and academic experts to deliberate on the future course of action and generate ideas and debate on how to make this transformation possible. In this regard, we got the chance to get reaction and response from Mufti Dr. Irshad Ahmed Aijaz. We hope that the views expressed and shared with relevant audience and stakeholders will generate practicable ideas and keep the momentum towards achieving the end goal of an economy that is in compliance with Shari’ah and is able to utilize the instruments and institutions in the Islamic economic teachings.
Distinctive Profit Rate Benchmark in Islamic Banking
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.
Zakat Rate as Base Risk Free Rate in Post-LIBOR Era
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.
Islamic Banking and Transition from LIBOR
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.
Economic Growth Rate as Benchmark for Islamic Finance
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.
Roundup of World Zakat Forum 2021
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.
Using Rental Index in Fixed Assets Finance
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.
Output Price Index as a Pricing Alternative in Islamic Finance
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, IEP Ink MoU to Bolster Research on Islamic Economics and Finance￼
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.
History of Islamic Banking in Pakistan
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.