"At present there is no law defining what is Islamic banking and finance. We need a complete set of rules and regulations. In the absence of such a law, discrepancies will continue," Muhammad Yousuf Saleem told Arab News.
A comprehensive law would bring about dramatic improvement in the quality of Islamic banking and finance services, he said. There are now thousands of Islamic banks and financial institutions across the world, dealing with more than $1 trillion in deposits and assets. "These institutions are in need of a substantial law defining Islamic banking products and banking activities," said Saleem, who holds a doctorate degree in law from IIUM.
He added that many Muslim scholars are not happy with the present Islamic banking system due to the absence of a comprehensive law. The law would create public confidence in the system and encourage more Muslims and non-Muslims to deal with it. "Islamic banks should prove that they are totally different from conventional ones to attract faithful Muslims," he pointed out.
Saleem said Islamic banks should invest in real economy such as industries and agriculture to boost the development of countries and create more job opportunities. "They should take care of not only the interests of shareholders, but also those of common people," he said. He attributed the progress of the Islamic banking sector in Malaysia to strong central bank control.
The IIUM professor demands greater independence for Shariah boards that monitor the activities of Islamic banks and financial institutions. "At present, the board members are appointed and paid by the banks where they work. This is one of the weaknesses of the present system. The power of appointing and removing a board member should be vested in the central bank."
Saleem does not favor the opening of Islamic finance windows at conventional banks. "We can only approve these windows as a transitional step, not as a permanent system, because we don't know how they separate their transactions and use their funds. Traditional banks should open separate branches for Islamic banking to avoid mixing of funds," he explained.
Professor Saleem is optimistic about the future of Islamic banking in the world. "There is a good future for Islamic banks, provided they improve services and focus on real economy, infrastructures and SMEs, and do not invest in credit cards and derivatives," Saleem said. "Conventional banks encourage people to spend more. Islamic banks can put a break on this negative trend," he added.
