Finance says money is interchangeable and mental accounting is a BIAS. This means the amount you budget to be expensed out on furniture can be used to buy groceries. There should be a clear and crisp understanding of religious rules in terms of lending and borrowing and the general conventional banking rules. The fundamentals, policies, and parameters of Islamic Banking are different from that of conventional Banking. Yes, there is a factor of interest that consists of Kibor and spread, yet the execution of the transaction is what matters. Giving an example, why do you ask the butcher to recite Bismillah before slaughter, because that assures that this execution has completed the requirements to make it halal.
Understand what KIBOR is?
KIBOR as only a pricing benchmark. A pricing mechanism. KIBOR is KARACHI INTER BANK OFFER RATE which is decided daily by almost 20 banks by 11:30 a.m. Kibor is implemented by State Bank so every Islamic Bank has to follow the market rule implemented by State Bank.
The Case of IBOR or IIBOR: KIBOR in Islamic Banking
Islamic Banks Proposed their Islamic Banks Offer Rate which is still to be implemented. Despite a summary is already on the desk of the Governor of the State Bank of Pakistan for the past 10-12 years but it’s not been approved as yet with the issue that Islamic Banks and divisions are not even 30% as compared to the conventional bank’s. Unfortunately in Pakistan IBOR (ISLAMIC BANKING OFFER RATE) is not implemented despite having Trillion of Deposits, so this is the reason State Bank ordered all Banks to make their Islamic windows so that after a decade or so deposit and transaction sizes match up.
