- Sukuks must also be allowed for public-private partnership projects
Interview with Mr Hamza Khalil Chaudhry, an academician
PAGE: Tell me something about yourself, please:
Hamza Khalil Chaudhry: I am currently working as assistant professor at SZABUL. I have more than twenty two years of corporate, audit, law, in addition to teaching experience. I used to teach at many leading business schools of Karachi.
PAGE: Although Islamic finance began in the seventh century, it has been formalized gradually since the late 1960s. How would you comment on it?
Hamza Khalil Chaudhry: Paper currency and Bretton wood systems changed the shape of banking from gold/silver to paper currency resulting there are now more financial assets than physical assets in the entire global financial markets. This system has created inflation and financial crises wherever one paper based market crashes it affects the whole financial system. This leads to revisit and rethought Muslim jurists to look into Islamic financial models adopted from golden early ages to reincorporate and revisit the Islamic principles onto changed circumstance that is paper based currencies. Twentieth century is a century of global changes, wars, shift of economic systems, and so on. Muslims are mostly affectees of these changes, resultantly Muslim scholars have to fight for their identity and revival trading system they were following, re-participate in the global trading in the changed custom laws, international legal laws for trade like WTO regimes etc.
PAGE: The concept of risk sharing is central to Islamic banking and finance. What is your perspective about it?
Hamza Khalil Chaudhry: Islamic finance is based on partnership/sharikah, and according to HADITH the Prophet Muhammad ﷺ said: “Allah’s hand is with the two partners as long as one does not betray the other” (Al-Daraqutni). Islam focus on taqwah that is purification of soul, so for Sharikah needs purified set of people who are fair in their dealings, this will expand the banking business. So the deficient part in Islamic banking is bankers are not penetrating in the real time market since businessman faces the risks, which is lacking from banking side leads to low participation in terms of volume of banking business. I think it’s the time Islamic bankers have to participate in business activities which will improve the exposure and reduce the risk associated due to counterparty.
PAGE: Leasing, or Ijarah, involves selling the right to use an object for a specific time. Your comments, please:
Hamza Khalil Chaudhry: Ijarah has two aspects of business, one is business ijarah, the other is consumer ijarah, and there are some issues of disclosure in accountancy need to be addressed and some problems lies with the competing leasing business. Ijarah has to be as efficient as leasing companies in terms of asset likability management, the capital to debt ratios and credit rating criteria’s. In consumer side, Ijarah concepts can flourish in the same manner as leasing improved their business while they in close coordination with, insurance companies for auctions, law enforcement institutions for stolen car recovery, theft preventive measures etc., so is needed and expected from ijarah, Islamic banks to take some innovative methods to improve their business, for example developing secondary market for used cars, claim repayment respond time, database of road systems where vehicle will move, change of vehicle facility while customer enjoying one vehicle under ijarah and so on.
PAGE: A sukuk may be a new borrowing, or it may be the Shariah-compliant replacement of a conventional bond issue. Could you give your views on it?
Hamza Khalil Chaudhry: Debt market is the need of the day for Islamic banking which works as catalyst and also offers benchmark rates for dealing interbank market transaction. Currently majority sukuk lies with government. Whereas banking does not have more exposure to private sukuk, I believe government may allow sukuks to public-private partnership projects by this means more accumulation of funds be available for infrastructure financing projects but it will improve the standard scheme of rates compatible to KIBOR.
PAGE: The rules of Islamic finance ban participation in contracts with excessive risk and uncertainty. How would you comment on it?
Hamza Khalil Chaudhry: It is not the case, Islam allows business on the injunctions of Holy Quran, the problems lies with goods does not have possessions and sold further, counterparty risk, and financial products which are somehow called financial engineering products, which are the products of forex markets. The problem of excess risk lies, whereas no physical assets exist on backend or agreement made without to be completed etc. since these agreements are prohibited so its assumed that institutions avoid these contracts. The fact is gambling and Gharar are prohibited in Islam so it’s a general perception that Islamic banks have lessor exposure to risk.