Page 19 - CMA Journal (Mar-Apr 2025)

Exclusive Interview

Islamic commercial banking, guided by AAOIFI, operates
through profit and loss sharing, risk-sharing contracts The State Bank of Pakistan (SBP),
and asset-backed transactions allowing faith-based
participation without relying on interest. It ensures the Securities and Exchange
financial inclusion for the individuals affected by
religious prohibitions in conventional financial models. Commission of Pakistan (SECP)
However, as profit-oriented institutions, these banks are
not structured to fulfill broader social welfare role, which and Institute of Chartered
underscores the importance of developing comple- Accountants of Pakistan (ICAP)
mentary financial models such as Islamic social finance.
Islamic social finance focuses on equitable development adopt AAOIFI standards in
and financial access for underserved communities. It
utilizes instruments like Zakat, Waqf, and Qard-e-Hasan different ways, which may allow
(benevolent loans) to support the poor and unbanked. In
Pakistan, the Akhuwat Foundation is a prominent room for inconsistencies. A unified
example, providing interest-free microfinance to regulatory approach is necessary
low-income individuals.
for a consistent and
AAOIFI is working to further institutionalize such models
within its standards, aiming to integrate social finance comprehensive adoption of
more systematically with the existing Islamic commercial
banking structure to enhance financial inclusion. AAOIFI standards in Pakistan’s

Sustainability is deeply embedded in AAOIFI’s ethical Islamic finance sector
and governance principles. Islamic teachings emphasize
on care for the environment, including guidance on
conserving natural resources and avoiding ecological
harm even during the wars. These values are agricultural technology (agritech). These advancements
incorporated into AAOIFI’s Shari'ah Decision-Making and will also create pathways for extending agri-finance
Corporate Social Responsibility standards, which also through Shari’ah-compliant financial transactions.
align with the United Nation’s Sustainable Development Furthermore, emerging opportunities like collateral
Goals (SDGs). In a nutshell, AAOIFI’s standards offer a management and electronic warehousing will also
unique and multidimensional approach to financial complement these principles by offering secure,
development in Pakistan. By distinguishing between the transparent, and traceable mechanisms that align with
roles of Islamic commercial banking and Islamic social asset-backed and risk-sharing models.
finance, and embedding sustainability in its ethical
framework, AAOIFI supports the growth of a principled, For SMEs, which are vital engines of employment and
innovation, AAOIFI’s Chairman of Board of Trustees, H.E.
inclusive, and socially responsive financial system.
Shaikh Ebrahim Bin Khalifa Al-Khalifa in his public
ICMA: What opportunities exist for Islamic finance to speeches and in international forums has emphasized on
support key sectors of Pakistan's economy, such as this saying, “At AAOIFI, we want to push Islamic financial
agriculture, SMEs, and infrastructure, and how can institutions to commit at least 20% funding of their total
AAOIFI contribute to these efforts? financing towards SMEs sector.” Although AAOIFI is not a
Omar Mustafa: Islamic finance presents substantial regulatory authority, this advocacy encourages financial
institutions to prioritize underserved segments and
opportunities to strengthen Pakistan’s key economic
sectors including agriculture, SMEs, and infrastructure support inclusive economic growth through
Shariah-compliant microfinance models. In terms of
through Shari’ah-compliant instruments and ethical
financial models. In the agricultural sector, Islamic infrastructure development, Islamic finance offers Sukuk
as an instrument for long-term investment by linking
finance can offer targeted investment and financing
solutions, particularly in light of post-COVID disruptions financing to tangible assets, promoting fiscal discipline
through productive capital expenditure, and keeping
in global supply chains and heightened food security
concerns. Although agriculture contributes modestly to consumption low.
the GDP, it remains a critical livelihood source for a If utilized properly, Sukuk can discipline government
significant portion of the population. borrowing and spending. Governments should prioritize
asset-backed Sukuk over conventional debt, directing
Islamic financial tools such as Salam and Istisna contracts
can support pre-harvest financing, while Waqf-based proceeds into energy, transport, and water projects and
Public-Private Partnerships (PPP) through Islamic finance
models and Islamic social finance have the potential to
significantly improve farmer education, facilitate access principles, such as Musharaka and Mudharaba, while
Wakala, Hawala, and Kafala provide agency mandates,
to agricultural inputs, and accelerate the adoption of
debt assignments, and guarantees.
ICMA’s Chartered Management Accountant, Jan-Feb 2025 17