Qatar, in February 2011, surprised the financial industry by imposing a ban on riba-based banks to operate windows offering Islamic financial products. Some critics saw the decision, made to provide a competition-free market to Islamic banks, as affecting Qatar's position in the region with transparent business opportunities. But this is only one of the criticisms, not a fundamental issue, behind the decision. Of course, every decision has multidimensional effects and upshots which cannot be traced in full.
Before the regulation, riba-based banks were freely operating Islamic banking operations under one roof. Experts, however, could not trace any religious foundation behind the operations, which would be the only possible reason to allow dual financial structure. The primary objective of these institutions was to increase portfolio size and bank the specific segment who wanted riba-free transactions. Before the ban, analysts were always of the opinion that this operational structure could lead to conflict of interest. In a scenario when both types of transactions were being marketed by same staff of an organization under one roof, unbiased offerings could not be ensured. There were possibilities that concerned officers may not be fully trained in initiating and processing halal transactions, interested in selling Islamic products, or otherwise.
Riba-based banks, which were operating both setups at the same time, enjoyed a good chunk of customers. Shariah experts were always concerned for supervision of these transactions in the scenario, especially when compliance was being monitored internally. Many transactions have been pointed out in which basic requirement of halal transactions were not complied with, or the time frame of documentation(s) was not according to Islamic standards. The principle reason behind the issue is lack of commitment, not supervision. Can a riba-based banker be committed to Islamic banking setup? In the author's opinion, no, not at all. The only commitment which can be there is profitability. It is not a matter of banking setup, but rather related to fundamental principles of Islamic banking structure.
Looking at the decision from another dimension, Qatar Central Bank has not restricted registration of Islamic Banks, and any institution interested in exploring the area may operate by registering an Islamic bank. Any financial institution, however, cannot be allowed to open an Islamic banking window just to do business. In current setup, Islamic banking is relatively expensive as compared to riba-based setup. And clients with an option to select between the two will likely prioritize low cost funds, unless one is committed to Islamic financing.
There is yet another aspect to analyzing the ceasing of the operations. Islamic financial transactions cannot be funded or allowed from riba-based pool. In riba structure, the treasury is also infested with the same funds. The majority of Ulamas have very strong verdicts on riba-based funds and advise those committed to Islamic finance to use separate setup. Halal activities cannot be considered halal just due to nature of activities. Resources must also be halal, which, otherwise cannot be justified. Islam is not restricted to goodness of outlook or front end. Every judgment is based on whole structure "Innamal A'malu Bin Niyat"
However, the imposition of a ban on window operations may result in leakage of investments or at least uncertainty. Inter-bank transactions will also be difficult to handle in the initial phase, unless a mutually agreed upon procedure has been developed and adopted. But a clear message has been delivered to the business world: we want to do ethical business in true letter and spirit. It will be compelling to see how Malaysia, which is also a hub of Islamic banking, responds to the issue. This type of decision was first taken by Kuwait in the region, and now followed by Qatar. Other countries committed to Islamic banking should also start analyzing how they can implement the practice and what would be the time frame.
Critics who view the decision as a way to give free market competition to Islamic banking cannot be refuted simply. Yet if one views it from another angle, Is this not unjustified that riba-based institutions can access both types of customers, whereas Islamic financial institutions are allowed to target only one type of market AND must also compete with riba-based banks in the divided pie. There is no gain in saying that there should be complete discrimination between target markets with restriction of access. Simply, riba-based bankers should no longer be allowed to misuse Islamic modes of transactions while misleading customers by modification of transactions or changed time frame of documentation. This does not only turn a halal transaction into haram, but also leads to loss in faith of existence of halal banking.
Author:
Syed Mehboob is an MBA graduate and holder of a PGD in Business Administration from IBA-Lahore, & a PGD in Islamic Banking & Issuance from IIBI-London, with over 10 years professional experience in the fields of audit, credit and business management. He is currently an auditor for ESL Education.
© Business Islamica 2013
