Page 39 - CMA Journal (Mar-Apr 2025)

Focus Section

1) Ethical Banking and Finance - Islamic finance
prohibits interest (riba) and speculative transactions
(gharar), focusing instead on profit-and-loss sharing
models, asset-backed financing, and ethical
investment. Institutions such as Malaysia’s Bank
Negara and Dubai Islamic Bank have demonstrated
how financial systems can thrive on ethical
principles, attracting investors looking for stable and
responsible banking options. The lesson here is that
ethical finance fosters long-term economic stability
and builds consumer trust.
2) Social Responsibility and Inclusive Growth -
Islamic economies emphasize social justice through
mechanisms like Zakat (mandatory almsgiving) and This emphasizes the need for proactive government
Waqf (charitable endowments). These systems policies that align economic strategies with ethical and
ensure wealth redistribution and poverty alleviation, sustainable development. Islamic economies offer a
promoting financial inclusion. Countries like unique blend of ethical finance, social responsibility, and
Indonesia and Pakistan have implemented digital sustainable investment practices. Their success
platforms for Zakat collection, increasing efficiency demonstrates that financial systems can balance
and reach. This highlights the importance of profit-making with social welfare. By adopting principles
integrating technology with social welfare initiatives of ethical banking, inclusive growth, and risk-sharing,
for inclusive economic growth.
economies worldwide can create more stable and
3) Risk-Sharing and Sustainable Investment - The equitable financial structures. Whether Islamic or
Islamic finance model encourages risk-sharing non-Islamic, these lessons serve as valuable tools for
through instruments like Mudarabah (profit-sharing building a resilient and fair global economy.
agreements) and Musharakah (joint ventures). These Islamic banking in Pakistan has experienced remarkable
methods align the interests of investors and growth over the past two decades, emerging as a key
entrepreneurs, reducing financial crises caused by component of the country’s financial system. With
excessive debt. Malaysia’s sukuk (Islamic bond) increasing public demand for Sharia-compliant financial
market serves as a model for sustainable investment, solutions and strong government support, the sector is
funding infrastructure projects while adhering to poised for further expansion. In recent years, Islamic
ethical guidelines. The takeaway here is that banking has held a significant share of the overall
risk-sharing mechanisms can create more resilient banking industry, and its growth trajectory continues to
financial systems.
attract both domestic and international investors.
4) Halal Industry and Economic Diversification -
Beyond banking, Islamic economies have Current State of Islamic Banking in Pakistan
successfully expanded into the halal industry, Pakistan's Islamic banking sector operates under the
covering food, pharmaceuticals, tourism, and guidance of the State Bank of Pakistan (SBP), which has
fashion. Countries like Malaysia and the UAE lead in implemented regulatory frameworks to promote
halal certification and market development, Shariah-compliant financial practices. Key indicators
positioning themselves as global halal hubs. The highlight the sector's rapid expansion:
lesson from these economies is that ethical
consumerism and certification standards can create • Islamic banking assets constitute over 20% of the
new economic opportunities and drive sectoral total banking industry.
diversification.
• Deposits in Islamic banks continue to grow at a faster
5) Government Support and Policy Integration - pace than in conventional banks.
Islamic economies thrive when governments
provide regulatory frameworks that support ethical • Major banks viz. Meezan Bank, Bank Islami, and Al
finance and business practices. Saudi Arabia’s Vision Baraka Bank, lead the sector with diverse Islamic
2030 incorporates Islamic finance to diversify its financial products.
economy, while Malaysia has created regulatory
bodies to oversee Islamic banking. • The government actively supports Islamic finance
through policy initiatives and incentives.

ICMA’s Chartered Management Accountant, Mar-Apr 2025 37