Page 67 - CMA Journal (Mar-Apr 2025)

Asia's Economic Transition:
Focus Section

From Conventional Banking

to Islamic Finance

In the Islamic Economic System (IES), trade redesigned
concentration, exchange/barter systems, and resource financial products
sharing and distribution are key elements. In contrast, tailored to evolving
money markets play a central role in the Conventional needs, or, in some cases,
Economic System (CES). On the other hand, capital may render existing
intensification is a major focus in conventional products obsolete.
economies, leading to wealth concentration in fewer Speculative activities
hands, with a larger portion of the population relying on are expected to be
these concentrated resources. curtailed proactively in
line with these shifts.
Fixed vs. Merchandise Economy
Project-Based
In conventional economies, returns from trades and Khizar Hayat, FCA
economic activities are often fixed in advance to handle Product Deputy Manager Finance
fluctuations in business outcomes. Opportunities Attock Refinery Limited
in Islamic Finance
The conventional economy can be summarized as:
• (F) Cash considerations as the main source of value. Islamic finance emphasizes real economic activity,
preferring transactions backed by tangible assets and
• (O) Profits from trade as the main focus.
value creation. The system seeks to convert financial
• (S) Surplus-based systems with little emphasis on
transactions into trade-based models such as buying,
CSR (Corporate Social Responsibility).
selling, and giving. Long-term ventures are encouraged
• (S) Fixed returns or semi-variable paybacks through equity partnerships and joint ventures, with risk
in sourcing/pledging. and burden shared among parties. Physical delivery
• (L) A tendency towards economic bubbles with mechanisms are prioritized in scrip-based deals, and the
easy exchanges. system promotes marginal return instruments that serve
• (E) Endless cycles of capital growth. both businesses and broader economic inclusion. By
supporting the masses through socially responsible and
In contrast, the IES focuses on economic activities based
ethically sound financial practices, Islamic finance aims to
on relevant rules for trade deals. Complex transactions
generate sustainable economic betterment.
are centered around sharing market outcomes, rather
than just capital growth. Key Advantages of the Islamic
Economic System (IES)
Key Drivers in the Islamic Economic System (IES)
The Islamic Economic System (IES) offers several unique
The main drivers in the IES are:
advantages. It channels capital flows towards socially
• Financial freedom, not just equity lending. responsible and deserving causes through compulsory
mechanisms like zakat. It advocates universal wealth
• Trade inclusion, which is prioritized over capital
distribution, recognizes mandatory social obligations,
inclusion.
simplifies the tax structure, and operates both
• Operating within proper governance frameworks. centralized and decentralized execution models for
economic opportunities. It replaces capitalism’s
Future Trends in the Money Market
profit-maximization motive with broader objectives
The future of money markets is likely to be shaped by including spiritual fulfillment, equitable growth, and
several key trends, including the rise of spot business socio-economic justice. Rather than funneling resources
modes, increased activity in forex and forward markets, into speculative or artificial bubbles, the system
full market conversions, mechanisms for maintaining encourages parallel accretions rooted in real economic
parity, and greater diversity in operational systems and productivity and community welfare.
digital add-ons. These developments may demand

ICMA’s Chartered Management Accountant, Mar-Apr 2025 65