THE RELEVANCE OF ISLAMIC BANKING IN DEVELOPING ECONOMIES: A CASE OF ZIMBABWE

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Journal of Sustainable Development in Africa (Volume 11, No.3, 2009)
ISSN: 1520-5509
Clarion University of Pennsylvania, Clarion, Pennsylvania



By: Kosmas Njanike

ABSTRACT
This study was carried out to establish the relevance of Islamic finance in developing economies. It
strived to explore the background, issues and views of Islamic banking in relation to the financial system
or structure in Zimbabwe’s economy. The paper sought to assess the benefits of Islamic banking in
developing economies and, to establish how it will solve the of interest rate regime dilemma facing
Zimbabwe among other nations. Islamic finance would close the gap created by an ineffective interest
rate regime between the surplus (savers) and deficit (borrowers) units currently in the economy. It was
recommended that an Islamic financial system was not only theoretically viable, but had desirable
characteristics that rendered it superior to a debt-based conventional system in Zimbabwe. The paper
concluded that the crises we have been witnessing in the international system have set the stage for
Islamic finance to demonstrate its viability as potentially a genuine alternative global financial system.

Keywords: Islamic Finance, Interest, Profit-and-Loss-Sharing (PLS)

INTRODUCTION
The Institute of Islamic Banking and Insurance London (IIBIL) refers to Islamic banking as a system of
banking or banking activity that is consistent with Islamic Law (Sharia) principles and guided by Islamic
economics. In particular, Islamic law inhibits usury, the collection and payment of interest, also
commonly called Riba in Islamic discourse. Many of the principles which Islamic banking is based on
have been commonly accepted all over the world, for centuries rather than decades. The outlawing of 266

riba, a term that encompasses not only the concept of usury but also that of interest has seldom been
recognized as applicable beyond the Islamic world, many of guiding principles have. The majority of
these principles are based on simple morality and common sense, which form the basis of many
religions, including Islam. The attractive features of the Islamic Banking system may go a long way into
developing economies that have been subdued by high cost of capital or finance such as Zimbabwe. The
universal nature of the principles is immediately apparent even at a cursory glance of non-Muslim
literature. The background of this concept can be traced to the biblical era. Usury was prohibited in both
the Old and New Testaments of the Bible, while Shakespeare and many other writings particularly those
writing in the 19th
century, have attacked the barbarity of practice. Much of the morality championed by
Victorian writers such as Dickens ranging from the equitable distribution of wealth through to man’s
fundamental right to work is clearly present in modern Islamic society. Although the western media
frequently suggest that Islamic banking in its present form is a recent phenomenon, in fact, the basic
practices and principles date back to the early part of the seventh century. It is evident that Islamic
finance was practiced predominantly in the Muslim world throughout the Middle Ages, fostering trade
and business activities. In Spain and the Mediterranean and Baltic States, Islamic merchants became
indispensable middlemen for trading activities. It is claimed that European financiers and businessmen
later adopted many concepts, techniques, and instruments of Islamic finance. Disenchantment with the
value neutral capitalist and socialist financial system led not only Muslims but also others to look for
ethical values in their financial dealings and in the West some financial organizations have opted for
ethical operations. In addition, Islamic law inhibits investing in businesses that are considered unlawful,
or haraam (such as business that sell alcohol or pork, or businesses that produce media such as gossip
columns or pornography, which are contrary to Islamic values. In the late 20th
century, a number of
Islamic banks were created, to cater for this particular banking market.

According to the Reserve Bank of Zimbabwe (RBZ) the adjustment and the realignment of the interest
rate structure in Zimbabwe is designed to dissipate inflationary pressures and defend the currency, while
ensuring consistency of returns between yields of different structures. In Zimbabwe the current interest
rate regime is discouraging, with negative real interest rates prevailing on many investments (The
Financial Gazzette, 2008). The macroeconomic environment remained volatile and was characterized by
high interest rates, high inflation and shortages of foreign currency (RBZ Annual Report, 2006). The
extent of financial disintermediation in the economy remains an issue of regulatory concern. RBZ 267

maintained that balance sheets of most banking institutions remained inclined towards investments in
the money market at the expense of traditional loans and advances to the corporate (productive) sector.
The efforts by firms to expand or sustain production have been hampered by a number of challenges,
which include among others: 1) punitive interest rates; and 2) lack of acceptable collateral. This paper
seeks to establish how Islamic finance can close the financial gap prevailing in the Zimbabwe economy.
In Islamic banking, interest (riba) is prohibited and most importantly, the project sponsored or financed
becomes collateral.

The Islamic financial system employs the concept of participation in the enterprise, utilizing the funds at
risk on a profit-and –loss-sharing (PLS) basis (Iqbal, 2001). This may imply that investments
with financial institutions are necessarily speculative. This is mitigated by careful investment policy,
diversification of risk and prudent management by Islamic financial institutions. It is possible, that
investment in Islamic financial institutions can provide potential profit in proportion to the risk assumed
to satisfy the differing demand of participants in the contemporary environment and within the
guidelines of Shariah. The concept of PLS as a basis of financial transactions is a progressive one as it
distinguishes good performance from the bad and the mediocre. This concept therefore encourages
better resource management in an economy. Islamic banks are structured to retain a clearly
differentiated status between shareholders’ capital and clients’ deposits in order to ensure correct PLS
according to Islamic Law.

Islamic banking revolves around several well-established concepts, which are based on Islamic canons
and adhere to the concepts of Islamic law. Since the concept of interest is forbidden in Islam, all banking
activities must avoid interest. Instead of interest, the bank earns profit (mark-up) and fees on financing
facilities that it extends to the customers. Also, depositors earn a share of the bank’s profit as opposed to
a predetermined interest.

This type of banking has the same purpose as conventional banking except that it operates in accordance
with the rules of Shariah, Known as Fiqh al-Muamalat (Islamic rules on transactions). Amongst the
common Islamic concept used in Islamic banking are profit sharing (Mudharabah), safekeeping
(Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah) (Sarker, 1999).
268

Sarker (1999) stated that in an Islamic mortgage transaction, instead of loaning the buyer money to
purchase the item, a bank might buy the item itself from the seller and resell it to the buyer at a profit,
while allowing the buyer to pay the bank in installments. However, the fact that it is profit cannot be
made explicit and therefore there are no additional penalties for late payment. In order to protect itself
against default, the bank asks for strict collateral. The goods or land is registered to the name of the
buyer from the start of the transaction. This arrangement is called Murabaha. Another approach is Ijara
wa Iqtina, which is similar to real-estate leasing. Islamic banks handle loans for vehicles in a similar
way that is selling the vehicle at a higher than market price to the debtor and then retaining ownership of
the vehicle until the loan is paid.

There are several other approaches used in business deals. Islamic banks lend their money to companies
by issuing floating rate interest loans. The floating rate of interest is pegged to the company’s individual
rate of return. Thus the bank’s profit on the loan is equal to a certain percentage of the company’s
profits. Once the principal amount of the loan is repaid, the profit-sharing arrangement is concluded.
This practice is called Musharakah. Further, Mudarabah is venture capital funding of an entrepreneur
who provides labor, while the bank provides financing so that both profit and risk are shared (Sarker,
1999). Such participatory arrangements between capital and labor reflect the Islamic view that the
borrower must not bear all the risk/cost of a failure, resulting in a balanced distribution of income and
not allowing lender to monopolise the economy.

Multiple interest rates have caused distortions of interest rates in Zimbabwe and its elimination may help
significantly uplift the functionality of financial markets, promote business confidence through viability,
and engender increased free enterprise. Monetary authorities have had a perennial problem of coming up
with the proper interest rate structure in the economy. When the interest rate is less, saving is less than
investment (Ederington and Lee, 1996). Depressed deposit rates are as low as 50% with lending rates
averaging 1 200% as at 30 June 2008 (ZNCC, 2008). There is a shortage of saving in the economy and
borrowers cannot find the loans they want but lenders are able to lend all the funds they have available
at punitive rates. It is quite clear that two-tier (or more) interest rates cannot take the Zimbabwe
economy forward (RBZ Monetary Statement, 2006). Changes in interest rates ultimately influence the
real Gross Domestic Product (GDP) growth rate (Parkin, 1997). Parkin argued that the long-term interest
rate is determined by saving and investment plans. There is also evidence of decline in real investment 269

and contraction in the economy due to punitive interest rates (ZNCC, 2008). Islamic finance
introduction in the economy will assist investors to get funds they demand and savers can lend all the
funds they have available. The plans of savers and investors will be consistent with each other.

The research was motivated by the realization that over the last ten years there has been a massive
contraction of the industry from primary to tertiary. The Gross Domestic Product (GDP) has declined
resulting in a hyperinflationary environment with a number of firms closing (The Zimbabwe
Independent). Among other reasons, the cost of capital or punitive interest rates was the main cause for
unavailability of business. The paper was prompted by the global increase in inflation and interest rates
that may result in firms operating below capacity due to prohibitive costs. Since Zimbabwe has had
reduced influx of foreign capital, scrapping of interest rates may improve domestic resource
mobilization hence production in the economy. Therefore there is need to address the issue of interest
that directly affects the relationship of financial institutions, savers and investors. High inflation levels in
Zimbabwe of 2.2 million per annum as at 30 June 2008 has marginalized a large part of the deposit
market and reduced the demand for credit while causing volumes of reductions in savings. This paper
seeks to provide insight on Islamic Finance to the fiscal and monetary authorities as an alternative or
solution to the problems associated with interest rate regime. It therefore gives a background of Islamic
finance and assesses the performance/benefits of Islamic banking in developing economies. The study
establishes how Islamic finance will ease interest rate regime dilemma in developing economies.

Research Questions
This paper, thus, strives to answer the following research questions:
(i) What are the benefits derived from Islamic banking in developing economies?
(ii) Is Islamic banking the solution to interest rate regime problems in Zimbabwe?

CONCEPTUAL FRAMEWORK
The natural consequences of elimination of interest as alluded to earlier is the elimination of money
market. In a non-interest system, credit is based on a Profit Loss Sharing Principle (Sarker, 1999).
According to Sarker (1999) Islamic business contracts can be classified into three broad categories:
1) Business contracts on the basis of Direct Financial Accommodation or Uqud al- Ishtirak: Profit
Sharing Principle, profit Loss Sharing Priciple, and Output Sharing Principle. 270

2) Business contacts on the basis of Indirect Financial Accommodation or Uqud al-Muawadhat: Mark-
up based Principle, Lease based Principle and Advance Purchase Principle.
3) Other forms of permissible contracts are: Direct Investment, Finance on Development Charge, Rent-
Sharing on the basis of construction/purchase of houses/flats, go downs, sheds etc on co-ownership
basis, Investment Auctioning, Syndication and consortium Financing.

The major motive to use money is for transaction purposes, which underlies the structure of ordinary
demand and supply schedules for goods and services (Samad and Hassan, 1999). Based upon the logical
statement that “the speculative motive is derived from money’s use as an asset, as a store of value”,
money can no longer possess the “store of value function” in an Islamic framework (Harcourt, 2004).
Khan (2004) argued that removal of interest and all its derivatives (i.e., lending on interest, money
market and speculation) from an economy will lead Islamic banks to finance investment projects
through Profit and Loss Sharing (PLS). The criteria to be used by such banks are both profitability and
feasibility of the projects. Hence, projects compete with each other on the bases of their Internal Rates of
Return (IRR). However, the criterion used by a potential investor is IRR of a specific project. The role
of the central bank in determining arrays of IRRs for different sectors and various activities is highly
valuable in channeling resources into proper projects (Toutounchian, 2005).

Toutounchian (2005) stated that ranking IRRs in descending order, an investor would first choose the
project with the highest IRR. However, the rule, which seems appropriate in choosing the amount to be
invested, is “cut-off rate”. The maximum amount one investor is willing to invest in a project is
determined by the IRR of the next project whose value is almost equivalent to the chosen project,
without it being “the opportunity cost” of capital. Harcourt (2004) argued that cut-off rate is mistakenly
interpreted as opportunity cost. .In capitalist system, rate of interest is justifiably used as the opportunity
cost of capital. It is well justified that interest rate is essentially determined independently from the rate
of return in the real sector of the economy. However in the absence of interest, projects compete with
each other to obtain finance from Islamic bank on the basis of their IRR because there is no other
alternative (Makiyan, 2001). Comparison among various IRRs brings about the role of cut-off rate
without anyone of them becoming opportunity cost of another project. Cut off rate functions as a signal
to show an investor up to what point he should invest and where to stop and select another project (Dar 271

and Presley, 2000). Interdependencies among various investment projects produce cut off rate the
special character and function of which differ from those of interest rate.

After confirmation of their feasibility and profitability by Islamic bank’s qualified personnel, projects
become eligible to obtain finance; furthermore, the projects themselves become collateral for finance.
Collateral as a requirement to the accessibility of a credit facility in conventional banking would be
waived, as the projects themselves would become security to obtain finance (Haron and Ahmed, 2000).
There are a lot of unemployed factors of production in Zimbabwe suitable to be utilized in investment,
projects have to be financed by Islamic banks no matter how much money is required to finance them.
This solves the problem of disintermediation created by unattractive deposit rates and punitive lending
interest rates in the economy.

Islamic modes of contract can be classified into two broad categories: (1) those with variable return and
(2) with fixed return (Sarker, 1999). Musharakah and Mudarabah contacts fall into the first classification
and Instalment Sales, Hire-Purchase, Joalah, and the like into the second one. Musharakah (i.e. PLS) has
well and rightly been recognized as the core of Islamic banking. In Mudarabah contract labor has no
responsibility as to any loss that may occur provided that it had done its best. The second class of
contracts may be defined as auxiliary contracts, which could be used in conjunction with and after the
first category has been utilized. Risk is involved with the first type but the second is risk less, which is
more appealing to Islamic banks.

According to Harcourt (2004) the primary function of banks is to deal with “money”, one cannot speak
about “banking” without referring to money. Interest and profit, although being clear concepts, have
been subjected to many misunderstandings. Harcourt clarified that interest and profits are rewards to
money and capital investment, respectively. In other words, capital investment produces profits and
money produces interest. He described interest as a normative concept (basically discussed in schools of
economic thoughts), which can neither be proved nor refuted by use of scientific tools of analysis. There
is general apprehension about the applicability of profit and loss (interest free) banking in the economic
system (Khan, 2001). The common question that is generally raised is how the financial system can
operate without interest? The savers in the economy need reward for parting their savings to deficit units
in the economy (Fry, 2005). According to classical school, interest rate represents the rate of exchange 272

between present and future goods (Khan, 2001). Khan maintained that the rate of interest signifies the
price of a loan of present money in return for a promise to repay future money. Since the interest is the
price of credit, the factors determining interest rate are rather naturally analyzed in terms of demand and
supply of loanable funds.

This school of thought uses productivity and thrift and interest rate as corner stone of theory of finance.
Interest rate does every thing to encourage savings and stimulate demand for savings. This concept is
apparently not compatible with the philosophy of profit and loss based on supply of savings and demand
for it (Dar and Presley, 2000). Another equally important school founded by Keynes has shown some
reservations for the above theory (Ahmed, 2003). Keynes insisted that savings and investment varied
directly with the level of income and in turn they determine extent of aggregate demand and thereby
level of income. Thus interest rate is not a factor in determining economic activity. It is the profit and
loss that guides the economic process. Even in a monetary framework in free market economy, the
banks or the lenders do not determine interest rate independently. They have to keep in mind demand for
funds and supply of funds with them.

There is a view that finance is not a capital, it is only potential capital and requires the services of the
entrepreneur to transform it into real assets for actual productive use (Ahmed, 2003). The lender has
nothing to do with the conversion of money into capital and with using it productively. The whole risk is
thus bond by the user of finance. In such a system, resource mobilsation or creation of liabilities by the
Islamic banks on the one hand and utilization of these resources or financing of assets of other entities
by Islamic banks on the other hand assumes importance. The bulk of liabities of Islamic banks can be
decomposed into current and investment deposits. The banks guarantee the nominal value of current
deposits.

In Malaysia, principle of A1 Wadiah (trusteeship) is used for mobilization of demand and saving
deposits (Khan, 2001). These deposits do not receive any return as banks provide transaction facilities.
Investment deposits are accepted on the basis of A1 Mudharabah (trustee profit sharing). In Malaysia,
Pakistan and Iran profits are shared between the depositors get return on the basis of profits earned from
the projects financed by their deposits. At the same time, the investment account holders or long-term
depositors (Malaysia) bear part of the losses if the investment made by the banks is not profitable. On 273

the assets side, different principles are used for different kinds of financial facilities offered to
customers. For project financing, the principles of A1 Mudharabah or Musharakah (partnership or joint
venture with profit sharing) are used. The former works in a manner used in the case of investment
deposits. In this, bank provides the entire capital and the borrower, often an entrepreneur, provides the
management services. The profit is shared accordingly to an agreed proportion wile the loss is borne by
the bank alone. Under the model of Musharakah, the bank shares the cost of project with the
entrepreneur based on an agreed proportion basis and both parties have the right to participate in the
management of the projects.

Money as a potential capital is a legal (conventional) concept capable of being transformed into actual
capital (Presley and Dar, 1999). Presley and Dar gave an example of Mudarabah contract, among others,
in which as soon as one person’s money is legally combined with another person’s labor force, the
nature and the function of money is changed into capital. Given that in an Islamic framework there is no
reward to money lending (i.e interest being zero) yet capital (i. e., money’s transformed version) is
eligible for part of the profit earned (Ahmed, 2003). The profit from the project is distributed according
to an agreed ratio, which is not necessarily the same as the share in the cost (Rahman, 2003). As the
sharing of risk and loss is the fundamental principle in Islamic banking, model of banking system
provides for accumulation by the banks for loss compensating balances during the phase of high profits
as well as for deposit insurance, asset diversification and monitoring of projects to reduce the risk borne
by the investment depositors (long term depositors) (Anouar, 2002).

In Malaysia, Islamic finance was first introduced 30 years ago and has gained widespread acceptance
among Muslims as well as non-Muslims as a viable form of financial intermediation in the global
financial system (Aziz, 2007). Khan (2001) argued that it is the obligation of the government to ensure
that lagging minorities in India have the tools with which they can catch-up to the rest of the nation. One
such tool is credit, and only with proper credit, that lagging minorities can catch-up and decrease the
economic disparity between them and the majority (Khan, 2004). Khan maintained that the
establishment of full-fledged banks practicing Islamic Finance is one-step towards decreasing the
economic disparity between Indian Muslims and the rest of their countrymen. He argued that reform of
the banking establishment in India is possible and could very well lead to many entrepreneurs having
better access to the credit suitable for them. Siddiqui (2003) referring to the situation in India wrote: 274

“Interest-based loans go to those who are credit-worthy. They do not necessarily go to finance projects
expected to be most productive (profitable)…a project of dubious prospects may pass if it comes from a
party which has assets out of which the bank may recover the principal with interest. A most promising
project may fail to receive finance if it comes from one who does not have other assets. Credit
worthiness and not the expected profitability of the project to be financed allocate investible funds in the
present system. This is inefficient.”

The sharing of risks, profits and losses lead to a more equitable outcome for all of society and this is
what the structure of the Islamic banking system promotes (Iqbal, 2001). One might be concerned about
moral hazard and the possibility of fraudulent understatement of profits. There are a few reasons to rest
assured that fraud will not be any more rampant in an Islamic system than in the conventional system
(Ibrahim, 2000). The first is that banks, when considering the expected profitability of a venture will
surely consider the history of the entrepreneur. An entrepreneur with a history of loses and low-profits
will be less likely to have his venture financed than one with a history of high profits. In addition,
standardized audit and accounting procedures can help increase transparency between the entrepreneur’s
enterprise(s) and the bank, which will decrease the chances of fraud (Rahman, 2003). The success of
Islamic finance institutions in the Gulf region and Southeast Asia serve as evidence that moral hazard
issues can be contained and deals with, and that that the system itself is sound (Khan, 2004). The
emphasis on equity-bases finance and social justice set the Islamic system apart from the conventional
banking system and helped propel its phenomenal growth. All over the world, in vastly different
economic and social contexts, the Islamic financial system has proved to be entirely functional and
stable (Ahmed, 2003).

Whether it is the Islamic banking or the realization of Keynes’ expectation to reach full employment, it
is yet to be seen (Toutounchian, 2005). Making capital goods so abundant that the marginal efficiency of
capital is zero, this may be most sensible way of gradually getting rid of many of the objectionable
features of capitalism (Fry, 2005). Fry maintains that it is to our best advantage to reduce the rate of
interest to that point relatively to the schedule of the marginal efficiency of the capital at which there is
full employment.
275

DISCUSSION
Ethical investing is the only acceptable form of investment, and moral purchasing is encouraged. Based
upon Keynes’ criticism on the classical economists on ability to recognize speculative demand for
money in the presence of interest (rate), it can easily be shown that interest is both necessary and
sufficient condition for speculation. In other words there, there is a two-way relationship between
interest and speculation. It is probably for this reason that he has also recognized commodities rates of
interest in addition to money rate of interest that he was much concerned about. With the abolishment of
interest, speculative motive of the demand for money, logically derived from interest would disappear.
Speculation, which necessarily entails artificial risk in any market, be it money, bond, stocks, gold,
commodities and so on, is not permissible in an Islamic setting. All these can be safely taken under the
heading of “gambling”. However, impermissibility of artificial risk may be grounded upon the fact that
any income received by speculator will eventually bring about excess demand for goods and services
(without the speculator having any share in productive activities). In Zimbabwe interest rate distortions
have been brought about by government controls, and some of these controls have been abused and
deliberately exploited for selfish reasons by those in political, economic and social positions of authority
and influence. Speculative activities are rife in the economy and it aggravates the already ailing
economy.

Western economists have always and justifiably been worried about unnecessary expansion of money
supply the volume of which is hard to control by central banks (Dar and Presley, 2000). This is due to
the fact that considerable portion of it (very difficult to determine if not impossible due to uncertainties
involved in interest rates) goes to money whirlpool. If Islamic banks are prohibited to lend on interest
nonetheless different modes of contract, as mentioned earlier, are available to them to finance specific
needs of both firms and individuals upon their proper requests. In developing economies such as
Zimbabwe this may result in better accessibility of capital by the productive sector and at reduced in
cost.

According to the Institute of Islamic Banking and Insurance London (2007), Islamic investment equity
funds market is one of the fastest growing sectors within the Islamic financial system. The total assets
managed through these funds currently exceed USD5 billion and is growing by 12-15% per annum.
With the continuous interest in the Islamic financial system, there are positive signs that more funds will 276

be launched. Some western majors have just joined the fray or thinking of launching similar Islamic
equity products. Islamic banking is synonymous with full-reserve banking, with banks achieving a 100%
reserve ratio (Harcourt, 2004). However, in practice, this is not always the case.

Despite these successes, this market has seen a record of poor marketing as emphasis is on products and
not on addressing the needs of investors (Owen and Othman, 2001). Over the last few years, quite a
number of funds have closed down. To support the orderly growth and development of Islamic finance,
it is important that the necessary financial structure and regulatory framework is in place. In this regard,
different boards can be formed to monitor its development in Zimbabwe and globally. The committee or
board will also play an important role of developing the international prudential standards for Islamic
banking and finance in the global financial system. This is aimed at ensuring the soundness and stability
of the Islamic financial system. The development of such prudential standards in Islamic finance is
crucial facilitating and supporting its development as a viable, competitive and sustainable mode of
financial intermediation in the domestic and international financial system.

In addition to being focused on the prudential standards for Islamic finance, the board can also provide
an important platform- through its regular series of seminars and conferences- to highlight and deliberate
issues concerning the various aspects of Islamic banking and finance. In the Republic of South Africa
(RSA) Islamic finance is doing fairly well as it coexist with the convectional banking system but there is
need for aggressive marketing strategies for the economy to enjoy its full benefits. For the successful
implementation of Islamic finance in Zimbabwe the monetary and fiscal authorities have to appreciate
the concept and benefits attached to it in solving interest rate (regime) problems in the economy.

CONCLUSION
It can be argued that there are a lot of differences between Islamic and conventional banking systems
both at micro and macro levels. These differences are in approach, in concepts, and in the resulting
behavior. The benefits to Zimbabwe of opening itself to full-fledged Islamic Bank institutions or funds
are significant and numerous enough that the opportunity cannot be neglected easily. Zimbabwe’s
banking sector should be reformed to allow and encourage Islamic financial institutions to enter the
market place.
277

Monitoring costs in Islamic banking are relatively higher in Islamic banking than conventional banking.
However, potential benefits as to its effects on reducing unemployment and keeping prices constant
over-shadow the cost. Most important, distribution, of income and wealth is expected to be more
equitable than otherwise. Such a scheme of distribution guarantees sustained economic development.

There is need to research more on the implementation and feasibility of Islamic banking in a
conventional (interest) banking structure. The adoption and measuring of customer service quality will
be necessary to study before implementation. There will be need to find out the performance, problems
and prospects in other countries with this type of banking.

With the problems facing the country Zimbabwe needs such a system as Islamic banking to bridge the
gap between the surplus units and productive sector of the economy. Islamic funds will be made
available to the productive sector at PLS instead of interest that has caused many firms to scale down or
close operations. There will be need for a series of public lectures and seminars with the central bank’
guidance. The objectives of these seminars and forums will be to promote the sharing of experiences and
dialogue among the international financial community on the leading issues in Islamic finance.
Renowned experts and practitioners in their respective fields will present sessions on different areas.
These will serve as a catalyst to drive further innovations and developments in the financial (banking)
system in the economy. Collaborative efforts in the development of Islamic finance will facilitate the
further strengthening of financial linkages in Zimbabwe’s economy, and thus increase savings and the
potential for more balanced GDP growth.

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