Islamic and conventional banks have the same bottom line

A Cambridge office, and a question the host has been carrying

The episode opens with Muzamil welcoming his guest from Cambridge — Dr Humayon Dar, director general of the Cambridge Institute of Finance and chairman of the Cambridge International Finance Awards. Muzamil walks the audience through the résumé carefully: economics at the International Islamic University in Islamabad, an M.Phil and PhD in economics from Cambridge, a long career in investment banking with a focus on Shariah compliance, Shariah board seats at Abu Dhabi Commercial Bank and Islamic Bank of Malaysia, and a previous run as CEO of Deutsche Bank’s Islamic Finance Division.

The host’s first question is deliberately basic. He has done a couple of recent conversations on Islamic finance, he says, and what kept jumping out from Dr Dar’s profile was the recurring reference to Shariah boards and Shariah compliance. “What is this role? What is Shariah compliance? How did this entire thing enter modern banking in the first place?”

Dr Dar’s answer sets the tone for the next ninety minutes. A Shariah board, he explains, is central to Islamic banking because the moment an institution describes itself as Islamic, it has to actually be Islamic — and somebody has to certify that the products and services in front of customers are in fact in compliance with Shariah. In most jurisdictions, including Pakistan, the existence of a Shariah board is not optional but a regulatory requirement. In DIFC the minimum is three members; in Malaysia, five. The members, he is careful to say, are not general ulama. They are specialists in fiqh al-muamalat al-maliya — the jurisprudence of Islamic financial transactions. “This is a very specific position in fiqh.”

How Islamic banking actually got here

Muzamil presses for history. With thirty-plus years inside the field, Dr Dar should be able to say where Islamic banking really came from. Was it pushed by Eastern scholars, or did Western banks invent it for Muslim communities?

Dr Dar is firm on this. “Fortunately, the intellectual foundation of Islamic banking was laid in the subcontinent.” Muslim scholars in the 1940s and 1950s, working in the context of a newly independent Pakistan, began arguing that the financial inheritance from 1947 had almost nothing Islamic in it. The idea built up through the 1960s in academic circles. An early experiment in Egypt — a small non-bank Islamic savings institution — was shut down by Nasser’s government because the political environment treated anything Islamic as a possible vehicle for the Muslim Brotherhood. The state replaced it with a public-sector Nasser Social Bank that survives to this day, classified as Islamic on the technicality of being interest-free.

The first successful experiment, he says, came in 1975, when Dubai Islamic Bank was set up in the private sector and the Islamic Development Bank was established by the member states of the OIC in the same year. “Both of these banks are still operating today, which is why we say the first successful experiment with Islamic banking was in 1975 and it has sustained.” Two figures, he adds, did a disproportionate amount of the early work: Prince Mohammed Al Faisal of Saudi Arabia, whose Dar Al-Maal Al-Islami Trust based out of Geneva produced Faisal banks across twelve or thirteen countries, and Sheikh Saleh Kamel, whose Dallah Al Baraka group seeded Al Baraka banks in seventeen-odd jurisdictions.

He notes, almost in passing, the irony of the early opposition. The resistance to Islamic banking did not come first from the West but from Muslim-majority governments. Saddam Hussein refused to allow Islamic banks in Iraq while he was alive. Gaddafi did the same in Libya, Hafez al-Assad in Syria. It was only when Western institutions — HSBC, Citibank, BNP Paribas, Credit Agricole — entered the market in the late 1990s, and Dow Jones popularised its Islamic equity screening, that Muslim countries took the field seriously. Today, he says, global Islamic financial assets stand at around 4.5 trillion US dollars — a large number that is still only 1.5 to 1.7 percent of the global financial market.

Why the products end up identical

The host then asks the question the episode is named after, in its first form. If a Pakistani walks into a conventional bank and into Meezan Bank, what is actually different? Deposits, cash-in cash-out — surely those are the same?

Dr Dar concedes the point and then sharpens it. “As far as banking is concerned, the banking products will be the same, whether they are offered by conventional interest-based banks or by Islamic banks. Islamic banks are not going to come up with some new product. What they do is bring the same products through a Shariah-compliant route.” He walks through the mortgage example carefully. A conventional bank lends the customer money against the house. An Islamic bank buys the house, holds the title, and structures a payment schedule that combines rent and equity transfer over fifteen, twenty, or twenty-five years. At the end, the customer owns the house. The monthly payment is, by design, similar to what the conventional bank would have charged.

What is the value, then? Dr Dar puts it bluntly. “This is for an Islamic satisfaction.” He reaches for an analogy. In London, he says, an ordinary KFC is not halal. “However, when I find an alternative KFC where halal chicken is also available, it gives me a lot of comfort. From a pure commercial viewpoint, taste-wise, the two products are the same. But because I believe in some kind of Shariah compliance, one product gives me peace of mind and the other disturbs me.” Banking, Islamic or conventional, follows the same logic. “The products are the same. Their economic profile is the same. The contracts, the processes, the way the things work — those are different.”

What riba actually is

The conversation turns, inevitably, to riba. Muzamil’s setup is careful — he points out that the prohibition is not unique to Islam, that Christianity and Judaism have wrestled with it for centuries, and that Bassem Youssef recently traced its long Jewish history in finance from the fifteenth to the eighteenth century. His question to Dr Dar is at two levels: what does riba actually mean in the technical sense, and how does that map onto modern interest?

Dr Dar opens with a lighter aside. There was once a writer in Pakistan, Tufail Hoshiarpuri, who loved interest so much that he published a pamphlet titled Sood Mand — literally “beneficial.” The confusion, he says, is older than most people realise.

The technical definition he offers is precise. Riba, in simple terms, is the exchange of a thing in unequal quantities, in such a way that one party stipulates an additional amount of the same commodity in return. A kilo of rice for a kilo and a half of rice — the extra half-kilo is riba. He then layers on the harsher form, riba al-jahiliyya, that the Quran describes as a state of war with Allah and His Messenger: a hundred-pound loan that doubles to two hundred at three months if unpaid, then quadruples at six. “This was extremely exploitative.” The base-level form is prohibited just as firmly as the exploitative one.

Muzamil asks the modern question directly. Whatever you call it — sood in Urdu, interest in English — is it covered? Dr Dar’s answer is short. “Yes. Whatever the name, all of these fall under the Islamic prohibition of riba.”

The Islamic Development Bank Pakistan does not see

Muzamil pivots to a personal observation. Every Pakistani schoolchild, he says, knows the IMF and the World Bank by name. The slightly more literate also know the Asian Development Bank. The Islamic Development Bank — established at the same time as Dubai Islamic Bank in 1975 — is invisible. Has it interacted with Pakistan at all? And what does Dr Dar make of the IMF–World Bank model compared to the IDB model?

Dr Dar makes two careful moves. On the IMF, he resists the easy populism. “The IMF has become a kind of curse word in Pakistan — they come and ruin our economy. The IMF does not ruin the economy. We ruin it ourselves.” The IMF’s paid-up capital sits just under 1.928 trillion dollars, Pakistan included as a contributor. When the country shows up without coherent answers about how it intends to repay, the IMF imposes the conditions. The currency depreciation that follows opens the door to imported inflation, and the public concludes the IMF has impoverished them. “When you are in comfort, that is when to go to the IMF for short-term support. When you are already in trouble, the conditions only get heavier.”

Muzamil pushes back gently. Theoretically, he says, the situation may never have arisen if the country had been running on Islamic banking principles in the first place. Dr Dar agrees immediately, and adds a detail that surprises the host. The IMF, World Bank, Asian Development Bank, African Development Bank — all of them have the capability to lend on a Shariah-compliant basis. “Our kind of countries simply do not ask. They do not raise the demand.”

On the Islamic Development Bank specifically, he is firmer. “The IDB is invisible in Pakistan because we choose not to see it.” Pakistan, he says, is actually over-exposed in the IDB’s allocations relative to its share, and the IDB has financed energy-crisis projects and consistently raised about five billion dollars every other year through sukuk tied to ESG and sustainability goals. The IDB’s recent focus has moved heavily toward Africa, where developmental needs are sharpest — but Pakistan continues to receive significant allocations.

Fiat is not the villain

The next stretch of the conversation is the longest disagreement of the hour. Muzamil leads with what he frames as a genuine confusion. The conventional system books a transaction as interest and Islam prohibits it. But what if the lender is only trying to protect value — what if eighteen percent inflation produces an eighteen percent interest rate, simply to keep the lender whole? And isn’t the gold-backed era easier to defend, because value was protected by design?

Dr Dar’s response is the line the conversation will keep returning to. “Gold is over-romanticised.” If you took any non-monetary asset from a century ago and priced it in terms of another non-monetary asset — rice in terms of wheat — the ratio would still be roughly stable today. The point is not unique to gold. Every non-pecuniary asset tends to hold its value over time. “The function of money is medium of exchange. Whether this is paper-based money or gold-based money, on the spot a thousand pounds stolen feels the same to me as a thousand pounds in currency lost. That is the perception we have built up. It is not because the paper has intrinsic value — paper is useless. It is because we have agreed it has value.”

When Muzamil reframes the point as a question about financial inclusion — that the unbanked Pakistani holding cash in a chest loses twenty to thirty percent of value every year, while gold in the same chest would hold — Dr Dar gives no ground. “Money is not a thing to hold. If a hundred thousand pounds arrives in my account, even my wife would tell me, do not leave that in savings — go buy a house, buy an asset that maintains value and pays a return. Treating money as a long-term store of value is not a rational decision. That is not what money is for.” A gold standard, he adds, would only restrict choice. “When you tell people only gold can be a store of value, they will all rush into gold, and gold is itself a scarce commodity. The price has to go up. That is not a fix.”

The riba defence the host did not expect

The hardest exchange in the episode is over inflation. Muzamil’s position is that if a lender hands over a hundred rupees and gets a hundred rupees back a year later at twenty percent inflation, value has been extracted from the lender. Surely the interest rate restores symmetry?

Dr Dar’s answer is the one most likely to surprise the audience. “Riba is a quantitative concept. It is not a qualitative concept.” The Shariah definition is about quantity, not about real purchasing power, and that is by design. He pushes the logic further. “If lending is causing you a loss, do not lend. Invest in a more productive asset. Islam will not stop you. Islam is a very rational religion — it will not even ask you to do charity beyond zakat. But if your lending is being eroded by inflation, that is a macro phenomenon. You did not cause it. The borrower did not cause it. Why penalise the borrower?” The implication, he is open about, is that in an inflationary regime the rational holder of cash should not be lending or even saving — they should be in productive assets. He acknowledges that this is part of the discomfort.

When Muzamil presses on Meezan Bank specifically — pointing out that its September 2023 savings rate of 11.5 percent was paid in an environment where inflation was twenty percent and policy rate twenty-one, while Meezan invested in government sukuk at a lower rate than conventional bonds — Dr Dar accepts the framing and then redirects. “Meezan is profitable not because of the spread. Sukuk yields are substantially lower than conventional bonds, so that disadvantage is real. The bank is profitable because of cost effectiveness. Ask any CEO at MCB, HBL or Allied Bank which is the most cost-conscious bank in Pakistan. They will tell you it is Meezan. A lot of credit goes to the founding CEO, Irfan Siddiqui. His own personality is cost conscious, and he built that culture into the bank.”

Muzamil tries to close the loop. “Just to confirm — Islamic banking and conventional banking, the bottom line is the same. Other than the way the contract is written, the bottom-line result is the same?” Dr Dar adjusts the wording. “I would not use the word ‘bottom line’ loosely. What I always say is that Islamic banking and conventional banking, so far, in terms of the economic profile of their products, are the same. The financial outcome to the customer will be the same.”

Then why bother

The question the host has been circling finally lands. If the outcome is the same, why does Islamic finance exist? There is a school of thought, he notes — including from a well-known socialist professor at LUMS — that treats the entire field as a marketing layer around fourteen-hundred-year-old categories.

Dr Dar’s defence is on identity. “Islamic banking is in search of an Islamic identity, and it is substantiating the Islamic identity of individuals. If you flip the argument — if Islamic and conventional are the same, then conventional is unnecessary too. Just keep one.” Identity, he reminds Muzamil, is recognised by the UN as a fundamental human right, religious or otherwise. Liberals, he says, should be agnostic on this — “this is not for you, this is for us.”

His second defence is geopolitical. Islamic banking, in his reading, is the first contemporary phenomenon to create an avenue for the integration of Islam with the wider financial world. “Merrill Lynch, BNP Paribas, Credit Agricole — when they say they are willing to do Islamic banking, and large Shariah scholars sit next to them and rub shoulders, what does that mean? It means this system is creating harmony in the world.” He contrasts it with political Islam, which produced friction at every level — making the West nervous, making Muslim governments nervous, creating no space for ordinary practice. “For the first time in modern history, a Muslim can practise his religion not only in the mosque but in the market as well. The Western institutions accept us, the Muslim governments accept us, and Muslim wealth management is finally being localised — asset managers in Riyadh, Kuala Lumpur, Doha, Dubai. Financial dependence on the West will diminish in the decades to come.”

The defeatist line, and where Muzamil holds his ground

Muzamil refuses to let this stand without pressure. He points to the framing offered by another guest, Dr Asad Zaman, who argues that an earlier generation cared about the core fundamentals of Islam and built a political identity around them, and that the current generation — Dr Dar’s caricature, the host says politely — accepts the existing system and wraps Islamic vocabulary around it. The risk, Muzamil argues, is a slippery slope. If we justify integration with banking on the grounds that it works, what stops us from justifying integration with weed, or alcohol, or any other Western norm on the same grounds? “At what point do we sit down and say that the friction is happening because our way of life is being ostracised?”

Dr Dar’s response is direct. “This is a defeatist argument. From the beginning, Islam has adopted good things from previous civilisations.” He then offers an anecdote that he clearly intends as the rebuttal. Ten years ago, he and his chairman went to Manhattan to meet Nat Rothschild and pitch a Shariah-compliant product. Rothschild listened, did not commit, and walked them to the lift. The chairman asked why he had not reacted. Rothschild’s answer, Dr Dar recalls, was: “This product is not sufficiently Islamic for us. We are Jews. If we have any doubt at all, people will not trust us.” His point to Muzamil: even non-Muslim counterparties hold the line because the line is the point. “It is not as if we are monkeys following them. They are accommodating us. The FSA in this country accommodated us after a lot of effort. We are accommodating them, they are accommodating us. One hand gives, one hand takes.” Arrogance — refusing to take anything from anyone — is what stops a community from moving forward.

Bitcoin, productivity, and the seventies

The conversation widens in its last stretch. Muzamil walks Dr Dar through the chart he has been carrying around lately — the Economic Policy Institute graph showing that US net productivity and hourly compensation tracked each other closely until 1971, then divorced. Productivity, he says, is up 252.9 percent since 1971; compensation is up around fifteen. The break, in his read, lines up with the end of the gold peg, and the bitcoin and democratised-finance movements are a response. He asks Dr Dar where he stands on bitcoin and finite-supply currencies.

Dr Dar’s reply has two parts. On the productivity-and-fiat correlation, he is sceptical. “What you are describing is what we call in statistics a spurious variable. Inequality was rising before fiat — the Industrial Revolution produced enough inequality that the Marxists built an entire movement on it. The system itself has recognised the problem. That is why we have the MDGs and now the SDGs. Capitalism is not a religion. It is an economic system robust enough that when problems appear, it tries to crack them.”

On bitcoin and tokenisation specifically, he is more open than the host expected. “I am not against these. They are part of human development. They are part of progress.” His one condition is government oversight. “I am old school. I still believe the state is better than the private sector when it comes to safeguarding my interests. I would trust the state over a private person. If these phenomena come under government protection and government adoption, life on earth is going to be very different — and I believe it will be a better life.” He even argues that a fully digital, fully traceable currency would improve the ethicality of societies, because tax evasion and unexplained spending would become structurally impossible. “Like a camera on the wall — it makes me a better human being even if my heart wants to steal.”

Debt, demographics, and a polite disagreement on turbulence

Muzamil ends with the geopolitical question. Western governments are sitting on multi-trillion-dollar debts in the middle of ageing demographics, polarised societies, and stagnating growth. Europe in particular looks structurally stuck. How does Dr Dar reconcile that with continued faith in the system?

Dr Dar agrees it is not sustainable indefinitely, and is honest about not being a political economist. But he points out that despite the debt loads, the US and Germany are still in better shape than most. He floats the possibility of a future global debt jubilee — “if there is a global consensus to wipe it, things will keep moving.” Emerging markets growing at seven to ten percent will eventually flatten too, he says, and at some point a new global system will have to be designed, “not just a new economic system, because everything is interrelated.”

When Muzamil suggests that we are already inside that turbulent transition, Dr Dar gently disagrees with the framing. “We exaggerate the small turbulence. The 2008 global financial crisis felt like the end of the world for a year and a half. We forgot it. COVID was enormous, and a number of economies have already moved beyond pre-COVID status. These are turbulences — like the bumps on a flight between Dubai and London. They should be treated as turbulence, not as the end of the journey.” Muzamil takes the closing line — “if that is what they are, then inshallah we will get to London” — and uses it to wrap the conversation.

By the end of the episode, what Muzamil has actually produced is a paired reading of two opposing schools. He reminds the audience that he recently hosted Hare Sirfan from a different school of thought on the same subject, and notes that — interestingly — both guests once worked at Deutsche Bank. The point of the show, he tells the audience, is not to land on one answer but to put two of them side by side and let the listener think. “I would love to read your comments — not based on which side you are on, but on the rationale and the logic. I would like to increase the level of discourse in this extremely polarised world.”