2005 turning out to be year of ‘Islamic Banking’
Pakistan Times Business & Commerce Desk

ISLAMABAD: The West is taking a serious interest in Islamic banking and it looks like that within the next two years banks around the world will have become Islamic banks.

The sudden growths of Islamic banks have attracted full attention of world banks. Islamic banking and finance has become a hot topic of the financial world across the globe.

In recent months, international interest has appeared in favour of Islamic banking. The British Financial Services Authority has brought legislative changes to allow Islamic banks to operate under the Islamic Law, it is reported.

The US Federal Reserve Bank in its New York meeting decided to provide regulatory framework for Islamic banks to operate without restrictions. The first Muslim scholar from Egypt, Prof Dr Ahmed Nagar, who studied for his PhD in Germany, first gave the idea of ‘Islamic Banking’. He himself founded the first Islamic Bank in Cairo.

The idea attracted some Muslim scholars who favoured it but many of them came out with serious criticism. It took over three decades to develop the idea and it is now better understood among Muslim scholars where it has become financially attractive for traditional bankers.

Globally, Islamic banking is a hot topic in the financial world. The UK and the US central financial authorities have accomodated to legally allow for the Islamic finance products to operate under the Shariah principles.

The British Islamic Bank has been set up in London. One of the world’s foremost offshore banking centre, the Isle of Man, is seriously considering to establish an Islamic bank at the Island.

Similar interest is emerging in other European areas. Islamic bond or Sukuk are receiving a huge response. The first European Islamic bond issued in Germany got ‘AAA’ rating by Fitch Ratings. The first ever Sukuk or Islamic bond was issued in 2002 by Malaysia. Its tremendous success has attracted the attention of world financial markets.

There are a very few Muslim scholars who have real and practical grip on the subject. Therefore, we urge Muslim scholars to devote their attention and consideration and first master the subject not theoretically but practically in the real financial world so as to provide true guidance to interested international financial and banking institutions about Islamic principles relating to banking and finance.

This could be a turning point to save the humanity from the exploitation of usury besides helping establish non-usurious and fair banks and financial institutions globally. This may dispel misunderstandings of the non-Muslim world about Islamic eachings and last divine message for the entire mankind.

Traditional banks have either completely turned into Islamic banks or are establishing special departments for Islamic banking. So, what is the deference between a traditional bank and Islamic? Very briefly, the traditional banks are either lending money or borrowing money and either receiving interest or paying interest.

The conventional banks are not allowed to do trade whereas the Islamic banks do trade. They do not pay or receive interest, as it is unlawful in Shariah. Thus the Islamic banks receives deposits and invest them and after a year share profits with the depositors. No prefixed interest is available in Islamic banks. If there is no profit, bank gets nothing.

The Islamic banks share risks with the depositors. The Islamic banks act as agents for the depositors. The investments could be by way of Murabaha agreement.

There are various forms of Islamic investment and trade agreements i.e Mudarba (fund management), Musharakah (Partnership), Ijarah (leasing), Muraheba (sale profit), Istisna (financing manufacturing), Salam (a form of sale to supply goods, material and agricultural produce to a buyer in future at a discounted price paid up front).

Islamic finance and products are attractive trends of global financial markets. Sukuks- Islamic bonds are becoming popular all over the world. Islamic trade & finance agreement and products are now studied and practiced by the muslim and non-muslim bankers, scholars and lawyers alike.

The UAE rulers can play a vital and constructive role in this regard. Dubai is becoming a global financial centre, hence can provide more central role under the world’s favourite and wise UAE rulers.

Islamic currency of dinar or dirham may be established with the value of one barrel of oil at current price. This value may be fixed at 1 dinar or dirham per barrel. the value of 1 dinar or dirham may be valued at the equal of current price of one barrel paid in dollars and euros.●