|Shariah finance needs original deals, not copycats – scholarMohamed Akram Laldin
|KUALA LUMPUR: Shariah banking needs to develop more of its own products and avoid imitating conventional financial instruments in structures that compromise the spirit of Islam, a leading religious scholar has said.
Shariah instruments have to satisfy Islam’s objective of ethical and equitable investing while retaining a commercial proposition that can draw investors who plough in funds with the aim of reaping returns.
Scholars say Islamic bankers sometimes tailor Shariah instruments according to market demands to ensure they can be more easily sold as Islamic assets vie for investors that also have access to a wider range of conventional banking products.
“People tend to, to a certain extent, dilute some of the principles or objectives of certain contracts in order to accommodate conventional features,” Mohamed Akram Laldin told Reuters in an interview.
For example, in the mudaraba partnership contract where the bank provides capital finance for a venture, the parties are required to share the profits but the bank bears any monetary loss. However, this is sometimes tweaked as investors demand capital protection, he said.
Akram cited the diminishing musharaka and takaful, or Islamic insurance, as examples of pure breed Islamic products that are not derived from conventional finance.
The diminishing musharaka is a partnership where a bank gradually reduces its equity in a project and ultimately transfers ownership of the asset to the participants.continue reading at