Question

Though the industry of Islamic banking and Finance has been growing for the past 30-40 years, some Shariah scholars have openly refused to accept its role on both levels:

a)         Macro level (there can be no Islamic banking and finance under a Conventional Central Bank)

b)         Micro level (products such as Bay’ Einah, Tawarruq etc are nothing but legal tricks and a backdoor for Riba).

Based on your knowledge, provide four arguments (two on Macro and two on Micro levels) either to support or refute the above statements.

answer should reach minimum 2 pages.

Answer 1

Islamic Banks should be included in the macro- and the micro-economic level because of the following reasons -

1. Equity: The risk and the profit is shared by both the bank and the customer, which makes it a more equitable solution in banking. This also makes the possibility of default less as the risk is shared by the customers as well.
2. Inclusivity: Islamic banks are available for everyone and not just people belonging to the Islamic Religion.
3. Transparency: Islamic banks are very transparent in their delaing as they do not just aim at earning profits. The benefits and also the risks associated with a particular product or service offered by the bank is explicitly shared with the customers which makes them more informed.
4. Ethics and morals: These banks have a strong sense of ethics and morals which helps the banks to develop a netwrok of very well informed and responsible corporate and business environment with the bank and its customers and this reduces the risk of bankruptcy greatly.
5. Prevention of speculation: Islamic banks are prevented from speculating and hence, operate only on the market trends. This reduces the risk of instability in the market and misallocation of capital.