Dr Mohamed Sharif Bashir. Picture: BT/Melvin Jong

THE aftermath of the global economic crisis has left its mark on financial institutions all over the world.

Dr Mohamed Sharif Bashir, Sultan Sharif Ali Islamic University’s dean of Faculty Business and Management Science, however, said that Islamic banks, had been able to minimise the damages due to their strong fundamentals.

Dr Mohamed shares with The Brunei Times his views on Islamic banking and what it takes to further develop Brunei’s Islamic finance industry.

BT: Can you tell us a little about the current scenario for Islamic banking and finance?

Dr Mohamed: Islamic banking and finance is now a proper industry. It has witnessed rapid growth in the last two decades and there are now over 270 Islamic banks worldwide with an approximate total market capitalisation in excess of US$13 billion ($18.3 billion Brunei).

Why is there such rapid growth in this industry?

The main reason why there is such growth is because of the strong fundamentals and basis of Islamic banking. We see this during the recent financial economic crisis where Islamic banks were not affected as much as conventional commercial banks. This is due to the approach adopted by Islamic banks to minimise risks which helps us avoid problems such as non-performing loans and bankruptcy.

What are the main differences between conventional commercial banks and Islamic banks?

Conceptually, Islamic banks are not money-lending institutes but they work as a trading and investment house while modern conventional banking institutions are money-lending entities. Islamic banks work under the socio-religious guidelines that prohibit charging and paying interest and guide them to be ethical in their decision making, but in the conventional banks, banking interest is the back-bone of conventional banking system. Being a trading concern, Islamic banks need to actively participate in trade and production process and activities and it requires governing framework in terms of Syariah Supervisory Board which approves the transactions in the light of the syariah (Islamic law) rulings. Generally, conventional banks do not involve themselves in trade and business as they act only as a money lender.

If Islamic banks are not loan- and interest-based, what are they based on?

Islamic banks recognise loan as a product but exclude it from the domain of commercial transaction, while almost all the financing and deposit side products in a conventional bank are loan based. Islamic banking products are usually asset-backed and involve trading of assets, renting of asset and participation on profit and loss basis, while conventional banks treat money as a commodity and take interest as its compensation. Implementation of Islamic banking products is not a mere change of paperwork and terms but it involves having the right intention, the correct sequence of steps and timing of execution to fulfil a legitimate need steps that are not focused in the conventional banking world.

What about the concept of profit sharing?

Yes, Islamic banks also use the concept of profit sharing as a tool or media to attract people to do business. The concept of profit sharing is the idea of equity-based financed. The partnership between the entrepreneur and the capital will be based on the hindsight provided capital and finance. The customer or entrepreneur will be responsible for the management of the business and provide either professional, managerial or technical expertise for managing and operating the business. The profit will then be shared according to a pre-agreed ratio and the client will be liable to bear losses if such losses are an outcome of his managerial report.

What are your thoughts on Islamic banking in Brunei?

I think Islamic banks in Brunei are doing well but they have to upgrade their employment skills and come out with new products that are not only relevant but also a necessity to meet the needs of clients while still being syariah-compliant. I am not saying that it is outdated but some aspects of operation have to be improved.

Can you give some examples for improvements?

Most of the Islamic banks all over the world are very efficient at attracting people to deposit but they are unable to utilise and make use of this wealth. We need to introduce more innovative products and ways to make use of this money. It is not a matter of getting to do business but how to mobilise this wealth to achieve the development of the community while improving the life of clients. The Brunei Times

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