Moderator's Note: The sender of this article is associated with Islamic banks in Bangladesh and is also a propagandist for their cause.
WRT: http://groups.yahoo.com/group/mukto-mona/message/46378
Dear members,
Assalamu Alaikum.I am sending to you a short article in the matter for your
perusal in response to the letter below.
Shah Abdul Hannan
Islamic Banking: Introduction.
Shah Abdul Hannan*
Islamic Banking
Before I discuss about the prospects of Islamic Banking, I am discussing
some primary issues such as definition, objective and history of modern
Islamic banking.
Definition:
An Islamic Banking is a financial institution that operates with the
objective to implement and materialise the economic and financial principles
of Islam in the banking arena.
The Organisation of Islamic conference (OIC) defined an Islamic Bank as " a
financial institution whose statutes, rules and procedures expressly state
its commitment to the principles of Islamic Shariah and to the banning of
the receipt and payment of interest on any of its operations."
According to Islami Banking Act 1983 of Malaysia, an Islamic Bank is a
"company which carries on Islamic Banking business....... Islamic Banking
business means banking business whose aims and operations do not involve any
element which is not approved by the religion Islam."
Objectives:
The objective of Islamic Banking is not only to earn profit, but to do good
and bring welfare to the people, Islam upholds the concept that money,
income and property belong to Allah and this wealth is to be used for the
good of the society.
Islamic Banks operate on Islamic principles of profit and loss sharing and
other approved modes of Investment. It strictly avoids interest which is the
root of all exploitation and is responsible for large scale inflation and
unemployment.
An Islamic Bank is committed to do away with disparity and establish justice
in the economy, trade, commerce and industry; build socio-economic
infrastructure and create employment opportunities.
History and Present Status of Islamic Banking around the World
The History of Islamic Banking :
The History of Islamic Banking could be divided in to two parts. First When
it still remained an Idea, Second-When it become a reality-by private
initiative in some counties and by law in others.
Islamic Banking as an Idea :
The scholar of the recent past in early fifties started writing for Islamic
Banking in place of Interest Free Banking. In the next two decades Islamic
Banking attracted more attention.
Early seventies saw the institutional involvement. Conference of the Finance
Ministers of the Islamic Countries was held. The involvement of institutions
and Government led to the application of theory to practice and resulted in
the establishment of the Islamic Banks. In this process the 'Islamic
Development Bank (IDB)' was established in 1975.
The coming into being of Islamic Banks:
The first private Islamic Bank, the 'Dubai Islamic Bank' was also set up in
1975 by a group of Muslim businessmen from several countries. Two more
private banks were founded in 1977 under the name of 'Faisal Islamic Bank'
in Egypt and Sudan. In the same year the Kuwaiti Government set up the
'Kuwait Finance House'.
In the ten years since the establishment of the first private commercial
bank in Dubai, more than 50 Islamic Banks have come into being. Though
nearly all of them are in Muslim countries, there are some in Western Europe
as well : in Denmak, Luxembourg, Switzerland and the UK.
In most countries the establishment of Islamic banking had been by private
initiative and were confined to that bank. In Iran and Pakistan, however, it
was by government initiative and covered all banks in the country. The
Governments in both these counties took steps in 1981 to introduce Islamic
Banking. There are Islamic Banks in all continents and most countries
Islamic Banks use the methods of Mudarabah ( profitand loss sharing
partnership) and Al Wadia ( safe deposits without any return with permission
to the Bank that it can use such fund without risk tothe depositor) in its
deposit side.
In its investment operation it uses Mudarabah, Musharakah ( capital provided
by both sides and profit of business operation shared by both parties), Bai
Murabahah, Bai Muazzal and Bai Salam ( different forms of purshase and sale
of goods and services against money on cost plus a margin of profit ),
Istisna ( manufacturing contract ), lease. different services against fees
etc. Any one can refer to know these in details to a standard book on
Islamic Banking or even by google search of Islamic Banking.
.
Prospects
In my understanding the prospect of Islamic Banking is very bright. Muslim
people everywhere want Islamic Banking. In Bangladesh, to give an example,
4/5 conventional Banks have opened separate Islamic branches recently. Five
hundred applications are pending with Islamic Bank Bangladesh Ltd. for
opening of new braches. IBBL has already 132 branches in the country.
The position may not be same in all countries. But if Islamic Banking
succeeds in any country, the position will same in every Muslim country in
my judgment. This means, that first Islamic Bank in any country should be
well managed and successful so that people have faith in this system.
Established Islamic Banks should co-operate by lending competent officials
in setting up new Islamic Banks.
The problems mentioned in the preceding pages are not insurmountable. Most
of them can be solved with more research and dedicated efforts. IDB, OIC
Fiqh Academy, Internatinal Islamic Banking organizations and individual
Islamic banks should put more resources in research in Islamic Banking,
Finance and Economic issues. Cooperation of Central Banks and the
Governments. will be needed in some areas. I have no doubt in mind that
Islamic banking will expand more and more in the entire world.
___
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* Former Secretary, Govt. of Bangladesh
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