Question

The Islamic financial system has evolved into a viable and vibrant component of the overall financial system, complementing the conventional financial system. The system encompasses the Islamic banking system, Islamic money market, Islamic insurance or takaful, Islamic capital market and the specialized financial institutions which provide alternative sources of financing.

Evaluate the requisite for a successful Islamic financial system. (850 words)

Answer 1

The following points highlight the seven requisites for making a successful financial system, i.e,

(1) Clarifying Objectives,

(2) Proper Delegation of Authority and Responsibility,

(3) Proper Communication System,

(4) Budget Education,

(5) Participation of All Employees,

(6) Flexibility, and

(7) Motivation.

1. Clarifying Objectives:

The budgets are used to realize objectives of the business. The objectives must be clearly spelt out so that budgets are properly prepared. In the absence of clear goals, the budgets will also be unrealistic.

2. Proper Delegation of Authority and Responsibility:

Budget preparation and control is done at every level of management. Even though budgets are finalized at top level but involvement of persons from lower levels of management is essential for their success. This necessitates proper delegation of authority and responsibili.

3. Proper Communication System:

An effective system of communication is required for a successful budgetary control. The flow of information regarding budgets should be quick so that these are implemented. The upward communication will help in knowing the difficulties in implementation of budgets. The performance reports of various levels will help top management in budgetary control.

4. Budget Education:

The employees should be properly educated about the benefits of budgeting system. They should be educated about their role in the success of this system. Budgetary control may not be taken only as a control device by the employees but it should be used as a tool to improve their efficiency.

5. Participation of All Employees:

Budgeting is done for every segment of the business. It will also require the active participation and involvement of all employees. In practice the budgets are to be executed at lower levels of management. Those for whom the budgets are framed should be actively associated with their preparation and execution. The employees, on the basis of their past experience, may give more practical and useful suggestions. The success of budgetary control system depends upon the participation of all employees of the organisation.