When we talk about Islamic banking and finance, we must first understand the reality and need for Islamic Banking and finance in the present world. In this respect, we must understand and think about some matters that may clear our minds and eradicate confusion.
What is the reason for Islamic Banking to begin when the already conventional banking and finance are being run? What is the goal of Islamic Banking and finance that is not being achieved by conventional banking and finance? Before the emergence of modern Islamic Banking and finance i.e. in the mid of twentieth century, why the practice of Islamic economic transactions did not follow before this emergence? Why do Muslims follow the principles of conventional economic and banking systems? What is the sense of the prefix “Islamic” before banking? This article has been written to address the answers to these confusions and queries.
Every system has philosophy, goals, and objectives that are followed while practicing the certain system. Therefore, it is important to know about the philosophy of that system. The same is the case of conventional and Islamic economic and banking systems that have been laid on certain principles, mechanisms, and objectives. When we think about this respect, we find that conventional banking is based upon the principles of conventional or secular economics which are based upon man-made principles and not on revelation. On the contrary, Islamic banking is based upon the principles of Islamic economics that are based upon Shariah, the law revealed by Allah through His Messenger Muhammad (SAW). Therefore, there is a clear difference between the two theories.
When we go into the difference, we know that in secular economics, the principles and mechanisms are not compatible with Islamic socio-economic principles like interest, excessive uncertainty, gambling, lotteries, etc. Through this analysis, we come to the point that we cannot follow these principles and must adopt Islamic commandments because we are followers of Islam. The ultimate goal of Islamic banking is to implement an Islamic socio-economic system and the objective behind this goal is to achieve a welfare society that the conventional economic and banking system has failed to achieve. The reason is that when a man makes laws without guidance from revelation, the factor of self-interest arises. The same is the case with conventional or secular economic and banking systems. When the factor of self-interest arises, a welfare society cannot be established.
As it is proved that Muslims cannot follow the rules and principles of the conventional economic and banking system as these are repugnant to the Islamic commandments, the next question arises why Muslims are following these rules. For the answer to this question, we have to go to history where we would know that Muslims were losing their strengths and territories at the same time when the modern economic and banking system was being established in the West. Due to the continuous downfall of Muslims in that era, the Muslims became slaves of the West due to which they could not implement the Islamic economic framework, and the socio-economic policies of the West and secular mind were implemented and followed by Muslims. This is not only the territorial downfall but there is a social, economic, and mental downfall in such respect that the effects of the downfall also exist in the present era despite of the fact that Muslims gain significant territorial power in the world.
The Author is a Team Leader-Training & Development Unit, Shariah Compliance Department, National Bank of Pakistan