Deposits in Pakistan’s Islamic banks rose from $3 billion to $4 billion last year, reports Pamela Constable (Washington Post, April 30).
According to business experts, the trend is a consequence both of turmoil in the Western financial systems in recent years and of a surge in religious feelings. Not only banks, but also all kinds of products deemed to be halal (i.e. permissible according to Islamic law) benefit from this religious mood. Several Western banks also offer “sharia-compliant services” in Pakistan. But there are also non-religious reasons for choosing Islamic financing, for instance, reduced financial risk.
The principle of risk sharing is at the core of the system.Despite such trust in the supposed security of Islamic finance, it is not immune to problems encountered by other types of firms. From this angle, 2009 had been a critical year in the Gulf, the cradle of the industry, according to an analysis published a few months ago by Asharq Al-Awsat (Sept. 6).
It makes clear that adequate supervision had been lacking in some cases, leading some executives to regard Islamic finance “as nothing more than a means of marketing”—although the system itself was not the cause of the problems. The prospects for the growth of Islamic finance and ethical financial products in general remain strong, but risks inevitably go along with a rapidly growing industry.