Islamic banking is set to flourish in Asia, encouraged by governments of the region and international Islamic banking Groups such as the Dar Al Maal Al Islami. This was the message of the seminar on ‘Islamic Banking and Allied Subjects’ organised by the Asian office of the International Association of Islamic Banks (IAIB). Asia was identified as the region which would enjoy the fastest growth of Islamic banking over the next ten years or so.

Asia’s large Muslim Population would also ensure a growing demand for the alternative system. Islamic banking groups are speeding up the process by making available information on the system - a crucial task since Islamic banking has suffered from a lack of reliable information.

More importantly, the Groups are playing a key role in setting up Islamic banks across the Asian world, including Sri Lanka; Pakistan, Bangladesh and Brunei.

Making it clear that there is nothing new about the region’s commitment to Islamic banking, Mr S.A. Haqqani, Chief Executive of the Karachi-based Professional Modaraba Company, pointed out however, that Asia needed to be independent politically before it could put this commitment into practice.

Describing how the arrival of imperialism in Asia had put paid to the Islamic system of finance, Mr Haqqani said that the entire system was put on hold whilst Western modes were introduced. ‘The Islamic economic system remained dormant for at least two to three centuries, as the imperialist powers replaced the Islamic system with either capitalism or socialism.’

Not surprisingly, these systems remained in place long alter the departure of the Imperialist powers. In tact, it is only n the last ten years or so that any serious attempt to replace this system with the Islamic system of finance has been made. What Islamic bankers are now witnessing is a very gradual move back to the original system. Perhaps inevitably, the Islamic economic system has by no means enjoyed a smooth ride, presenting Asian governments with a whole new set of problems - of the sort that one would associate with such a move.

Said Mr Haqqani ‘these countries are now facing the challenge of switching over to their own economic system and the consequent conflicts arising Out of that prevalent system.’

Mr Muazzam Ali, Vice Chairman of the IAIB also made it clear that in the Field of banking as well, the path to Islamisation is strewn with difficulties. Cautioning that takes a bank more than just removing element of interest for it to become Islamic as is commonly believed - he said that Islamic banking system has its own unique value oriented system.

As such Islamic banking’s approach different from the conventional in all aspect ‘be it behaviour, dealing with customed modes of Financing, accounting or distribution of Zakah.’

Mr Haqqani also pointed out that up until now the approach adopted by the Pakistan government towards Islamisation has b evolutionary rather than revolutionary. He described how some Islamic instruments have been introduced to Pakistan’s commercial industrial activities with a view to ultimately transforming the economy of the instruments used to do this Modaraba - basically a partnership of financial and management. Modarabas are approved of and controlled by a religious board to ensure that Islamic laws are compiled with. A legal definition has been provided in the form of the Modaraba Companies and Modarabas control Ordinance of 1980. But, Mr. Haqqani said, so far lack of information about the instrument has proved itself to be a major stumbling bloc.

Perhaps inevitably, the Islamic economic system has by no means enjoyed a smooth ride, presenting Asian Governments with a whole new set of problems - of the sort that one would associate with such a move.

This has made the task of Pakistan’s Islamic economists even more difficult. Commenting the fact that in the early stages of its introduction at least, there was little or no response to the instrument, Mr. Haqqani said that ‘as long as the economy remains interest-based, it is unlikely that Islamic financial instrument will be a great success.’

Mr. Haqqani described how Pakistan’s private sector has shown itself to be reluctant to venture into the unchartered Modarabas. The solution he put forward was that because similarities between the Islamic and the capitalist system are few and for between, only a overhaul of the system will solve the problem.

Since both the Islamic and capitalist systems are entirely different and infact are in conflict with each other, the private sector in Pakistan have continued to use interest-based facilities rather than venturing into an area not yet tried and tested.’

Adding that because the Islamic system is based on economic justice and the distribution of wealth, Mr. Haqqani pointed out that ‘it holds little or no attraction for the die hard capitalist.’

Mr. Haqqani also said that the task of Islamic economists is being made much harder through lack of public confidence in the instrument. Unfortunately, many of Pakistan’s entrepreneurs, failing to find finance through conventional banking sources turned to Modarabas as an alternative - and easy source of financing.

During 1991, 15 Modarabas were launched, mostly by little known companies.

Not surprisingly, this caused widespread public concern. In a bid to protect the public interest, Mr. Haqqani said, the State Bank of Pakistan began monitoring and controlling Modarabas, leasing companies and other non-bank financial institutions. At the same time, the Corporate Law Authorities has restricted permission for the issue of multipurpose Modarabas.

But, Mr. Haqqani concluded these regulations seem to be having the desired effect and confidence of investors is gradually increasing. At present there are 47 Modarabas listed on the stock exchange with a paid up capital of Rs. 6558.6m. Other countries intent upon Islamising their own economies are becoming increasingly convinced that Modaraba’ scan play a useful role within the economy.

But whilst Modarabas seem to have successfully chartered a course through the minefield of Pakistan’s economy, so far the goal of transforming the economy is proving to be another story.

It would not be unfair to say that the impact of Modarabas on the Islamising of the economy have been limited. The problem is that the areas of the economy currently covered by Modarabas remain extremely small. Matters have not been helped by the less than consistent attitude of the government towards the policy of Islamising the economy as a whole.

Mr. Haqqani made it clear that this erratic approach has certainly not done the cause of Modarabas any favours either. In fact, changes in government policies has consistently had a direct negative impact on the market price of Modaraba certificates.

Islamic finance has shown itself capable of withstanding the region’s political upheavals as well as keeping up with its ever-changing economic realities. Looking across the rest of Asia, support for the Islamic banking system is assured, witness the seemingly never ending setting up of Islamic banks.

However, summing up Mr. Haqqani said that whilst there is obviously still much scope for encouraging Modarabas to act aggressively in the commercial and industrial sectors and so play their part in transforming the economy it was equally true that many of the more serious problems had been successfully tackled. He was convinced that the future for Islamic banking in Asia looked bright.

The obstacles that lay in the path of the Islamic system were also stressed by the Islamic economist, Mr. Jafery. He identified the lack of faith among a small, but nonetheless powerful clique of Muslims as a major stumbling bloc, allowing practices such as nepotism and corruption to continue.

‘Looking around Pakistan’s economic system, as it is today, it will be seen that although it is by no means an Islamic system, it has many good features. However these good features do not serve their purpose because of lack of faith, which accounted for much of the corruption and nepotism.’

Warning that whilst no one expects change to the Islamic system to occur overnight, Mr. Jafery pointed out that these practices would nonetheless hinder development especially as the Islamic system has the added burden of keeping pace with ever-changing economic realities.

Mr. Ziauddin Ahmad, ex deputy governor of the State Bank of Pakistan also lamented the fact that many Muslims were pessimistic about the likelihood of achieving the goal of Islamising the economy. Concluding that hard work and patience would win out in the end, he said that such a step was crucial if the problems of the modem economic system were to be avoided.

A more optimistic note was introduced by Muazzam Ali. Citing the establishment of Islamic banks in Indonesia, Bangladesh and elsewhere as evidence of Asia’s commitment to the system, he said that as one of the major Muslim continents, it had a bright future.

His optimism was not limited to Asia but also to the West. Mr. Muazzam Ali congratulated the major commercial banks which had been operating Islamic banking windows successfully for many years. Praise was also awarded to leading international Islamic banking groups by Mr. Ziauddin Ahmad, for their role in contributing to the Istamisation of the banking system through research and publications.

Overall the conference pinpointed the many obstacles that Islamic finance has had to face but demonstrated how in a relatively show space of time much has been achieved. In Pakistan, real change is being affected and Islamic finance has shown itself capable of withstanding the region’s political upheaval as well as keeping up with its ever-changing economic realities. Looking across the rest Asia, support for the Islamic banking system is assured, witness the seemingly never ending setting up of Islamic banks. Over the next ten or twenty years the region will certainly one to watch.