ABSTRACT
Islamic banking and finance have for over four decades now tried gradually to position themselves as a viable alternative to the conventional banking and finance system. The continuous growth and expansion of Islamic banking and finance indicates a very promising future for the industry. Yet several issues still create setbacks for the growth of the industry. One such issue is the pricing of Islamic banking and finance products and services. The industry continues to rely on the conventional interest-based benchmark to price its products. Islamic financial institutions have been using conventional finance benchmarks, such as the London Interbank Offered Rate (LIBOR), Kuala Lumpur Interbank Offered Rate (KLIBOR), the Federal Cost of Funds Index (COFI), etc. This has raised contentions among various scholars on the validity of such a benchmark, and the extent to which sovereign authorities such as the central banks can interfere in the market to administer and control prices. There have been attempts to develop an alternative benchmark but to no avail hitherto.
Despite all the contentions, there is a dearth of literature that has analyzed the various fatwas on the issues. This chapter fills in this research gap. It analyzes the fatwas on the issues related to pricing Islamic banking and finance products and services based on conventional finance benchmarks. The study has adopted qualitative research methods that include a critical survey of the literature, meta-analysis of issues and trends on fatwas and benchmarking, and thematic analysis to (a) review the existing classical and contemporary literature on pricing from a Sharī ͑ah perspective, (b) review the existing fatwas on pricing based on the conventional finance benchmark such as the KLIBOR and the LIBOR used by Islamic banks, and (c) provide some suggestions for the way forward. The major findings of the study show that the use of conventional interest rate benchmark by Islamic banking and finance remains an unresolved and contentious issue. Furthermore, there has not been any breakthrough in developing a viable alternative benchmark. These two issues set direction for future research in the areas of benchmark in Islamic banking and finance.
