Analysis of Islamic Mutual Funds Operations in Pakistan

Salman Ahmed Shaikh ()

MPRA Paper from University Library of Munich, Germany

Abstract: Islamic finance is a set of financial institutions representing a connected financial architecture that works based on prescribed Shari’ah principles. Growth in the industry has been stellar, but, certain principles, the strategic direction and the practices do not warrant celebration yet. This paper while noting the impressive performance of Islamic mutual funds in Pakistan, strives to a) discuss the theoretical problems in screening principles followed in investment policy, b) identifies the problematic and less ideal investment alternatives used in practice, and c) highlights the anomalies in income purification methodology. The paper argues that the vision of leading the establishment of an egalitarian and balanced financial system has taken a backseat and increasingly innovative financial engineering seems to have blurred the distinctive identity of Islamic financial system. The paper concludes with the recommendation that in the short term, Shariah regulators must comprehensively train themselves in prevalent financial reporting standards and understand their implications. In the medium to long term, centralized Shariah board and revised financial reporting standards must be structured taking into account special needs of auditing the fulfillment of Islamic principles in practice.

Keywords: Islamic Finance; Islamic Banking; Takaful; Murabaha; Ijarah; Mudarabah; Musharakah; Salam; Istisna (search for similar items in EconPapers)
JEL-codes: E44 G11 G2 (search for similar items in EconPapers)
Date: 2012-07-01
New Economics Papers: this item is included in nep-cwa
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Published in Journal of Islamic Banking & Finance 3.29(2012): pp. 14-23

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