-Extracted from Bernama-
A three-tier system is needed in Islamic banking to further strengthen the industry, an economist suggested.
“The first tier is to be like the conventional bank, where people put their money in and where the bank gives money to meet their type of transactions,” said Professor Dr M. Kabir Hassan of New Orleans University.
He said the second tier was like a mudarabah type of institution or mudarabah company, where people put their money and combine it and try and develop different things.
“This model is very much applicable for SME financing, where a person has the idea but does not have the money and another person has the capital. They can combine using the Islamic principle,” he said.
Kabir said this after delivering a talk on Can Islamic Financial System Be A Cure To The Global Financial Crisis in Kuala Lumpur on 6 April 2009.
He added that the third tier was like venture capital or musyarakah, where big infrastructure project financing was involved.
For this, a regulation for Islamic finance could be created with the support of the Government and finance institutions, as the existing conventional banking regulations do not suit the needs of Islamic banking, Kabir said.
“We simply cannot copycat the regulations of conventional banking to help this industry. We need to have our own regulation that is more consistent with Islamic finance,” he said.
Kabir also said that it was time to correct any problems within the system.
In the past 30 years, about 80% of Islamic finance dealt with short-term murabahah while the remaining 20% was long-term partnerships or mudarabah musyarakah, he said.
However, in Islamic finance, mudarabah musyarakah-type of transactions should reach 80%, he said.
“To achieve this, there needs to be Government support and there have to be institutions, laws and regulations to help grow the industry,” he said.
According to Kabir, some big Islamic banking players were already practising the three-tier system
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