mployment opportunities in the country. Enhancing the role of financial sector in development of SME sub-sector could mitigate the serious problems of unemployment and low level of exports. The banks may introduce SME Financing Funds with various geographical locations. The corporate sector and the commercial banks may set up a network of such Funds under the aegis of SECP by establishing institutions under syndicate arrangements or otherwise. [14]
Future challenges for Islamic banking and financeInnovation in Critical Areas:
Progress of Islamic banking will depend on its ability to innovate in the following areas:
Financial instruments yielding stable income flows for orphans, widows, pensioners and other weaker segments of the society
Financial instruments for meeting government s financing needs
Cover or security for financing, in particular Shari ah-compliant alternatives for penalty on payment defaults
Formulas for pricing of Islamic financial products
Competition:
Islamic banks should be ready to brace not only intra-industry competition but also inter-industry competition from interest-based banks. The latter are already offering Islamic financial products. The competition is likely to grow. p align="justify"> Effect of Islamic banking on economy and economic life
The following effects are anticipated:
The real and financial sectors in the economy will be better integrated, as compared to what one finds in interest-based economies.
Both what the governments do and the way in which they work, will change.will mainly stem from the fact that without tax revenues, governments may address only those needs for which an economic transaction-other than pure loan transaction-can be defined between the government and the financiers. p align="justify"> Inter-bank money market and central banking will take new form. New matrix of Shari ah-compliant divisible and tradable financial instruments and the Shari ah parameters for contracts will give shape to this development.the above happens, the regulators will also have to ensure compliance with Basel requirements for international acceptability of Islamic banking. In cases of no conflict between the Shari ah parameters and the Basel requirements, there would be no problem. However, where conflict arises, there will be need (1) to design Shari ah-compatible ways for compliance with the Basel requirements and (2) to sell the same to the international reg...
