Charity Funds in Islamic Banking Institutions (IBI) – A Conflicting Policy

Abstract

Islamic banking and finance is quite a new phenomenon in finance industry. It is aimed to cater to those who want to engage in banking without interest. Almost around five decades old now, the faith based banking idea now is not in its infancy age anymore, but is still in the developing stage. In the light of experiences gained during past few years, it is right and due time for the policy makers, regulators specially, to review their policies to see whether the journey is in the right direction or not. Status of achievement of desired objectives should be the top criteria to assess the performance, progress of Islamic banking operations, Islamic banking institutions and allied set ups. The policy of creation and maintaining charity funds by IBIs is one important area that needs regulators’ attention and review as it has some conflicts of interests. The funds, not belonging to IBIs, may be used for their benefits. Unnecessary delay in distribution of amounts available in charity funds (a period of two years), creates serious doubts and addressable concerns. Therefore, situation needs policy review, whether to continue with the current practice i.e. to be maintained by IBIs or to consider setting up a separate independent and national level fund to collect and manage such charity amounts in more prudent, effective and useful heads. This write-up addresses this issue and proposes a third party arrangement to manage such charity funds.