The solution

It may have been possible to remove some of these difficulties faster if all the monetary authorities in Muslim countries had played a more positive and helpful role in the evolution of an enabling environment for this system. They would have tried to provide a proper legal framework, facilitated the establishment of shared institutions and an Islamic financial market, and made some arrangement for the creation of a lender of last resort. The Islamic banks would not have thus been like an embryo struggling to survive in an inhospitable environment without support systems.

What is needed is a change of attitude on the part of monetary authorities of those Muslim countries, which are allergic to Islamic finance. They need to take a keen interest in the rapid and healthy development of these institutions. They must regulate them adequately to ensure that they have sound management, adequate capital and reserves, proper accounting, auditing and risk management systems, and greater transparency, and that they do not indulge in practices that would tend to sap their strength and creditability. The central banks should not, however, confine their role merely to regulation and control. They should also help them overcome the difficulties that prevent them from adopting the classical techniques. This is not an option, which the central banks may or may not exercise. They owe this to Islam and to the Muslim Ummah. Islamic banking is undoubtedly more difficult than conventional banking and one would expect that central banks would render to Islamic banks at least as much assistance as the conventional central banks normally provide to their commercial banks for their healthy and sound development.