The Islamic finance

ArchitectureArchitecture

Tariqullah Khan

The architecture of the financial system comprises of a number of vital and permanent principles and components

---- just like the foundations, pillars, ceiling etc., are critical elements of a building’s architecture

Financial infrastructure comprises of the resources, facilities and utilities that make the use of architecture beneficial for building an inclusive, dynamic and resilient financial system

----- just like the water, electrical, lightening, heating, communication, furniture etc., in a building that make the utilization of the building’s full capacity possible

Financial architecture has to be stable and could NOT be subjected to frequent changes ------ just like the foundations, pillars and ceiling of a building that cannot be changed

Financial infrastructure is work in progress and must be subjected to

continues improvement----- just like the water, electrical, lightening, heating, communication, furniture etc., in a

building that need maintenance and improvement

The objective of the Islamic financial architecture is to ensure that the

financial system operates inclusively, efficiently and soundly in a

sustainable and resilient manner and according to the aspirations of the

individuals, society and all stakeholders in compliance with

international best practice principles, guidelines and standards

the architecture - foundations, pillars and roof of Islamic finance

Individual motivations

not-for-profit & charitable motivations

for-profit and commercial motivations

❶ Prohibited & condemned: Interest-Riba-based transactions

Permitted & safeguarded: legitimate trading; charitable lending & debt rescheduling

the architecture - foundations, pillars and roof of Islamic finance

❷

Markets and property rights

Ownership of an asset has intertwined risks and benefits

The risks and benefits of an asset

shall not be separated and

traded separately

What is not owned should

not be sold

In contracts there should not be any room for

ambiguities

the architecture - foundations, pillars and roof of Islamic finance

❸Social ideals

Objectives of the legal system

Preservation of wealth

Preservation of intellect

Preservation of faith

Rights of future generations

Human rights & dignity

the architecture - foundations, pillars and roof of Islamic finance

❹Moral standards

Financial rate of return is subject to moral standards

Shariah screening of

products

Documentation and disclosure

standards

Principles based internal Shariah

supervision

the architecture - foundations, pillars and roof of Islamic finance

❺

Best practice standards

Internationally credible & comparable

Products & services

Internal control & risk

management

Governance & stakeholders'’

rights & responsibilities

Ownership risk and capital adequacy

Transparency & disclosures

the architecture - foundations, pillars and roof of Islamic finance

❻

Innovation & renovation

Guided freedom for innovation

All is permitted that is not expressly

prohibited