Shariah Restrictions and the Development of Islamic Banking

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1. Shariah Restrictions and the Development of Islamic Banking Islamic banks are currently giving greater care and attention to product development and there is wide competition among them in this domain , and for this reason they offer everyday new services and variety of arrangements which provide more options for liquidity and risks management to investors and depositors of money. Wouldn't Islamic banks be able to carry out such work? Or should its Shari'ah obligations represent an obstacle for carrying out the needs of modern society in the fields of banking services? The answer for this is that Shari'ah restrictions upon which the work of Islamic banks are based, differ from the laws and regulations on which any bank can operate. Sometimes laws themselves restrict the ability of banks to proceed and expand in a certain activity. It is understood for example that securitization which become one of the most important modern financial developments would not have become so important and effective without the enforcement of U.S acts which hinder banks from operating outside the boundaries of the licensed state of the bank. The trick was to transfer the assets into something like a security whereas it comes under the act of bank financial notes and hence they can be marketed outside the state. It was clear then that the idea in itself is a good idea and very feasible even without inclining to fraudulent acts and therefore it was widely spread throughout the entire world. Undoubtedly, Shari'ah restrictions will make the Islamic bank different from the conventional bank, but it would not necessarily restrict its ability to develop and achieve high standards of efficiency. The most important elements for upgrading the ability of banks to develop and meet people's requirements are the explicitly of laws, the strict abidance by them and enforcement of inexorable supervision by the central bank over the banking work. Having all these in hand, then the Shari'ah abidance may become a tool for perfection and achieving quality work that may not be available as the conventional banks. For the purpose illustration, we offer here a practical situation: The restriction over circulation of debts in Shari'ah made it impermissible for investment in companies equities whose assets are overwhelmed by debts. Though Islamic Investment Funds adopted a criterion which limits the debt/equity ratio to only one third of the company capital. Debts and their bad consequences on the company is an illicit matter, but there has never been a major investment portfolio that involve only low indebted companies such as that of the Islamic investment funds. When these Islamic funds appear, people discover by practical test that they are more profitable and more stable compared with others, to the extent that one company which is managing such type of fund had been awarded a notable prize in the U.S and indeed it deserve it because it had drawn the attention to this important investment element. The company had done this because it had abided by the direction of its Shari'ah adviser. Shari'ah would not have closed a door for a non-permissible thing but, have opened many doors for permissible and allowable things, and therefore there are no limits for what can be developed by Islamic banks such as useful services that would benefit the people. This does not mean that we should follow the same modes and same procedures, but the domains for development and innovation have no limits at all.