Socio-economic objectives of Islam

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Socio-economic objectives of Islam

The financing activities of Islamic banks have to be directed towards achieving the Islamic Socio- economic objectives. These objectives, briefly, are the promotion of a pattern of growth best suited for the eradication of poverty, equitable distribution of income and wealth and sufficient opportunities for gainful employment for all.

It is found that the first concern of policy –makers in a country which proposes to switch over from interest based banking to Islamic interest free banking should be to ensure that the operating procedures adopted by banks fully conform to the requirements of Shariah. The best way to ensure this is to have an institutional mechanism where by the managers of banks have an easy and continuing access to religious scholars reputed for their piety and knowledge of Islam for consultations in evolving operations procedures, and where in turn, these scholars have a full opportunity to scrutinize the actual operating procedures of the banks. In the absence of any institutionalized arrangement of such a nature, there is a risk that some of the practices adopted by the banks may not be in harmony with the requirements of the Shariah.

Another important policy issue is whether, in view of the Islamic socio-economic objectives, the banks should have a preference pattern with respect to the various modes of financing which are permissible in the Shariah.The financing techniques based on the principle of profit/loss sharing are regarded by Islamic scholars and economists as the Ideal substitute for interest based financing and most suited of Islamic socioeconomic objectives.

The other techniques, such as murbaha, bai muwajjal, bai salam, ijara and ijara wa iqtina, are recommended to be used only case where there are genuine difficulties in the way of implementing the profits/loss principles enshrined in the concepts of mudaraba and musharaka.The main argument against the widespread adoption of the former is that, being fixed return techniques, they suffer from some of the same deficiencies as the interest mechanism and cannot, therefore, be of any significant help in achieving Islamic Scio-economic objectives. It also been pointed out by these scholars that, in the absence of any conscious policy measures to promote financing techniques based on profit/loss sharing. the banking system may come to rely too heavily on fixed return techniques, such as murabaha and bai muwajjal, because of their relative simplicity and minimum risk.

It is important to bear in mind that a system based on profit/loss sharing may also fail to achieve the socio-economic objectives of Islam if it is not familiar to the realization of these objectives. It is fact that the working of conventional banks in many countries has served to increase rather than decrease inequalities of income and wealth as banks have usually provided credit facilities mostly to the well-to-do sections of society.

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