Most of the Islamic financial institutions, including the Islamic banks and the mudarabas (joint profit/ loss sharing Investment ventures) floated in Pakistan by a large number of mudarabah companies, are working today on the basis of murabaha and leasing. They are financing trade and industry by using these two instruments as Islamic modes of financing.
Looking at the origin of the transactions of murabaha and leasing, they are not the modes of financing in the strict sense of term as recognizes in the contemporary usage of the business community. Originally, they were transactions of general trade and not financing transactions.
However, due to certain difficulties in applying the real Islamic modes of financing (mudarabah and musharaka), in present circumstances the contemporary scholars of Shari'ah have allowed the use of murabaha and leasing as modes of finance, subject to certain conditions. The se conditions are necessary for making these modes of finance acceptable to Shariah, and unless these conditions are fulfilled the transactions cannot be held as lawful in Shariah.
Whether or not the present Islamic financial instruments are observing the prescribed conditions is a question of concern for every Muslim who transacts with them in the hope that he will not involve himself in an un-Islamic business activity. Despite the growing number of such institutions, no system has yet developed to examine n detail their activities from this point of view. The personnel employed in these institutions comprise mostly of persons educated and trained in the traditional financial system based on interest. They are not sufficiently familiar with the Islamic concepts and principles of business and despite their honesty, the possibility of mistakes and errors cannot be rules out.
Although there are some Religious boards which supervise the overall activities of some of these institutions, their function is limited to examining their model agreements and responding to specific questions referred to them by the management. They do not and perhaps cannot, examine the actual practice in individual transactions.
Therefore, the smooth functioning of Islamic financial institutions in accordance with the Shariah requires firstly the orientation of their personnel with a view to equipping them with the basic Islamic concepts of business and secondly a systematic method of auditing them from the Shariah point of view.