Title of the Paper: Islamic Banking: The Way Forward- Al-Munawar (Brightness)
Theory.
Authors details:
Name: Munawar Hameed Mangalwala.
PhD (ABD)
International School of Management, France.
Affiliation Details:
Organization: Nizwa College of Technology, Nizwa, Oman.
www.nct.edu.om
Status: Head of Section- Accounting
Coordinator - FIA (ACCA)
Contact Details:
GSM- Oman: 0096893376552
Mobile Pakistan: 00923008211410
Email:
Islamic Banking: The Way Forward- Al-Munawar Theory
Abstract:
This paper explores the paradigm of Islamic banking as a way forward to Sultanate of Oman, which is a key factor for growth in Oman. The Islamic way of banking has become a challenging reality in banking sector and in the long run it might become a substitute of conventional banking. The objectives of this paper are two- fold. First, is to prove that the population of Oman is ready to welcome Islamic Banking in their country at a large scale on the basis of their mature understanding. Second, it is possible to change the mindsets of economic agents so they leave the conventional banking and practice Islamic Banking all over the world on the basis of Al-Munawar (The Brightness) theory.
A complex research question, related to pleasure against exploitation of economic agents in banking business is based on human psychology which is addressed by Al-Munawar Theory in this research. A linked is attached of Al-Munawar Theory with “fiqhal maumalat” (Islamic rules on transactions) and their impact on the financial matters.
This paper bears a subjective outlook. The research is aimed by this paper considering the updated developments in Islamic banking in the economic frameworks of different countries and its possible adoption in Oman.
Research methodology is based on comparison of conventional model of banking at a western bank with an Islamic bank provides its services on Islamic model. Explorative research is the main stream of research methodology, supported by interviews and surveys.
Not only simple research questions have been focused the difference between Islamic and non Islamic banking are the part of interrogation but also complex hypothesis to check the validity of Al-Munawar theory, which is a new approach in Islamic Banking literature.
The findings and conclusion of this research shows that Islamic Banking is a live industry for the growth in Oman. It is on its way and a lot of research is being made to investigate that when the boom grounds in Oman.
It is discussed as conclusion that IB is competitive alternative to conventional system in the world and it is not just an underlying theoretical principle in the field of business finance, but a practical approach. It is a way forward to IB in the Sultanate of Oman.
Keywords:Islamic Banking, Al-Munawar (Brightness) Theory, Economic agents, Interest rates, Ijara, Shariah. Islamic Banking Framework Draft (IBDF). Central Bank of Oman. Islamic Banking (IB), Conventional Banking (CB).
Introduction:
This introduction is based on Islamic Banking Draft Framework (Issued by Central Bank of Oman) and Al-Munawar Theory (Theory of Brightness).
The central bank of Oman has taken up a brave step to present Islamic Banking Draft Framework to the banking sector of Sultanate. Oman First Islamic Finance and Banking Conference was the first step to impart the knowledge and provided the awareness for the success of Islamic Banking in Oman. ”Ever since the Sultanate of Oman, under the wise leadership and guidance of His Majesty Sultan Qaboos Bin Said, has authorized to conduct of Islamic banking in Sultanate” (Hamood Sangour Al Zadjali, 2011) It is a way forward of IB in the Sultanate of Oman. The brain of IBDF proves that the CBO has taken in confidence the top officials of banking sector and opens the discussion among five members Sharia Board. It seems that Islamic way of banking has become a challenging reality in banking sector which will set clear-cut segregation of conventional and Islamic banking with separate team of people and account and in the long run it might become a substitute of CB. The customer pleasure is the part of mission of many organizations all over the world. The IBDF is the first step of the same ladder. The banking sector in Oman will see the drastic changes in future due to main highlights of the IBDF. Initially in a developing country, IB sector suffered from shortage of intellectual resources and socioeconomically conditions, which is a main concern in Oman as well. At present, main banking sector in Oman is based on CB. It follows the instructions of CBO. The conventional banks earn profits from the interest which is fixed, and works as a complete financial intermediary to deal on the basis of interest. Now, the next step is IB which will follow the principles of Sharia and will earn income as profit. It is a trade oriented approach, which will bring enormous amount of opportunity and growth in Oman. One among big four of the audit firms, Ernst & Young has taken the responsibility to name the IBDF as a ‘Unique Model’. Ernst & Young has advised the CBO on certain financial requirements and procedures which are the main pillars for reporting structure for Islamic banks and are vital for the practical application of a Sharia Board. At present, the banking professionals in Oman have expressed their concerns on segregating risk management for IB line of business from CB. Uzair (1976) has presented the working structure of Islamic bank and developed a mechanism to cope with the challenges of risk and Interest. The study suggested that Islamic bank could help to reduce risk to enhance productive activities in the economy. At present day the suggestion of Uzair is considered as true, as at the end of the day, risk is the same whether it is conventional line of business or IB therefore, clear cut segregation of conventional and Islamic banking with separate teams of people and accounts is a sensible support of IBDF of CBO. Central Bank of Oman is working on the regulations and the regulator expects changes in IBDF on the basis of feedback from banks before bring it in a final shape. Ernst & Young has advised the CBO on fixing of different limits and formation of Sharia board. CBO’s draft regulation also indicates on separate branches for IB window operation of conventional banks. The main idea is to cultivate and promote a culture among the people of Oman that Islamic banks will have their distinct identity and will perform different line of business, for which the people of Oman are already with a live mindset. To promote IB window operations “Meethaq” plays an important role. A 12% capital adequacy ratio with a minimum paid up capital of RO 10 million for starting window operations. However, the role of Sharia scholars with relevant experience will play a major role to satisfy the interrogative approach of the nation which is indeed their valid right, and will be a challenge for banking sector. Window operations have not only external challenges but also internal funds operation challenges as well. It is not just a privilege for Islamic window that funds can be transfer to Islamic banking line of business by a conventional parent bank but also a thread as IB operation cannot transfer money for using it in CB. This could create a problem at macro level, at least initially. The mix feeling of confidence on compliance and risk management as a threat in IB is noticeable by the statements of some banking professionals.
Omani Nation
The main target of IB is to introduce interest free products and services, which will be heartily welcome by the people of Oman who believe completely, in Islamic Ideologies and understand very well the concept of Halal.(Permissible) and Haram (Non permissible). The Omani nation has a huge advantage in being able to set up their religious thoughts for guidance in their commercial transactions. The Sharia law is a result of true believes in God. For all economic agents, including commercial organizations conduct in their duties honestly is the part of their devotion. The Interest of Omani nation can be judged that a number of steps are in process to launch IB in Oman. The two upcoming full-fledged Islamic banks, Nizwa Islamic Bank and Al-Izz International bank is ready to capture most of the market share and believe to offer efficiency and professionalism in offering Sharia-compliant products. It is a bright example of interest of Omani professionals in Islamic banking. Bank Muscat has commended the CBO model of Islamic banking and finance. Trust of Suleman Al-Harthy, group G.M Islamic banking in Central Bank of Oman, for CBO model proves that Oman will be considered in the top ranking of Islamic Finance Country Index. The chief executive officer of bank Dhofar is optimist about IB in Oman. “We are quite optimistic about Islamic banking in Oman” (Tony Mahoney, 2012). Finance companies are also ready to play their roles to increase market share in Islamic Finance in the Sultanate. Muscat Finance Company is conducting a feasibility study on expansion into Islamic finance. The required big bang is just an offer of services to Omani nation, who is ready to avail the opportunity by Islamic finance.
Al-Munawar (Brightness) Theory:
Al-Munawar theory is a creation based on a fact that not only the customers will find pleasure in performing IB Operations but also Banks will earn good amount of profit while working on Islamic rules. It is documented that banks have witnessed more profits on Murabaha facilities as compared to conventional loans due to profit and loss base of Islamic products (Ebrahim, 1999). The Al-Munawar theory invites the corporate sector to play a role towards corporate social responsibility of the bank towards human development all over the world generally, and in especially in Oman.
In past it is observed and it is found that Islamic bank performs activities in the right direction towards economic development having main focus on human development (Al-Harran, 1993).
Al-Munawar theory is based on a connected circuit of Islamic ethics and western philosophy is against capitalism. It makes a joint of Islamic ethical values which are build on stressing compassion, tolerance, leniency, benevolence and hospitality with western proactive approach to ensure ethical values by business organizations. The most prominent element of IB is the sharing of risk among the investors, and the borrower without interest. It is a solid concept which will promote social equality and fairness in economic activities for the welfare of the mankind (Chapra, 1985). The bright side of this wonderful concept is reported that equity based contract stimulate the investment in the economy. (Haqeue and Mirakhor, 1986). Indeed it is an excellent opportunity for banking sector to play their role in the development of economy of Oman by practicing Islamic Banking. It is a unique approach by Al-Munawar theory that on one hand the customers feel pleasure when they do not pay the interest but pay a rent for a financial transaction as per an agreement acceptable to them happily. Here one does not feel to be exploited by a commercial entity. On the other hand a commercial entity takes an amount of profit but not interest, as it is in a business, understanding the need of their customer and does not exploit them is important. Intention plays very important role and are the source of pleasure and to understand the concept of this wisdom, the key is “collective success” by any individual either works as a sole trader or act as a board of a bank. Pleasure is an important source of growth which eliminates fear of risk and support trust in oneself as a commercial entity to spread out the risk by investing in different trading projects. Islamic rules on transaction provide full support to all industries including a conventional banking system to change their way into Islamic banking on just by changing their mindset. There is a close link of Islamic rules of transaction to Al- Munawar Theory, and the link is “the success of human being” which is the most important feature in this world. Business transactions are the results of commercial activities performed by human beings. The world is full of talented people who show miracles and unbelievable phenomenon on which strong theories and facts are based. To be a student of Harvard University is a dream of all the students, all over the world, as after getting an attestation of the university, a large fortune is always awaited. However, a drop out Harvard student did the just opposite of the normal acceptable circumstances. Mr. Bill Gates has proved something different by establishing a world renowned successful organization, called Microsoft. Was it a miracle? It was just the matter of vision and believes! Is the world is full of miracles only? No! The hidden reality is trust and faith! Believe that doing business is always better than not exploiting people brings a pleasing feeling. A strong believe is needed by banking professionals that profit is always better than Interest, as profit is blessed and Interest is prohibited. Al-Munawar theory is designed on the “pleasure” which is an essential factor of human psychology. “Pleasure” comes on the basis of wisdom and understanding of Almighty Instructions, progression to human welfare and off course commercial success on ethical values, which is performed by individuals and groups in shape of commercial entity. Pleasure wins and exploitation lose is main concept of Al-Munawar Theory which is in support of Interest free finance for the progress of people of world and now this theory is in front of all the business banking professionals irrespectively their religion or region. Now it is their hands that how do they take a decision to make this world a place of peace and pleasure.
Updated Development in Islamic Banking.