Islamic banking
by prof ghulam mohyuddin wani
Islamic banking is simple.Qruan forbibds fixed rates of INTEREST but acknowledges a banking or lending system which involes a sever planning and participation of the lender in a trade.He can be a sleeping partner and his share of profit or loss not fixed but estimated at the end of the year.Thus share selling of a bank may not be unislamic .It is the interest only which is forbidden.
This is a banking system in accordance with the law of SHARIA.
Histroy
During Islamic golden age Islamic banking and economy was in force.The bills of exchange,forms of partnerships called mufawada.ledgers,,mudraba,al-mal,nama-al-mal,cheques,loaning,promising note,trusts,waqf,assignments,Even the modern day business corporations existed independent of state in Islamic empire.Thus one conclud safely deduce tht ISLAMIC BANKING has a history and no matter has been the pioneering banking system innovation.
It has of late been overtaken by the interest bearning old Jewish system where the interest and it compound interest was making a real business loanee over burdened and the lender to enjoy without any risks. During the era a stable circulation system existed.The dinar was the currency.
MORDERN ISLAMIC BANKS
The first Islamic bank came in Egypt.Its founder was Ahmed el-naggar .This attempt has been in small town of Mit Ghamr.It was initiated in 1963 and lasted for few years upto 1967. exercise continued and succeeded in nine other branches and from 1972 this mit gramr saving has become a part of NASR SOCIAL BANK These axperiments led to the Islamic Development Bank and first modern Islamic bank is Dubai Islamic Bank opened in the 1975.Islamic Banking is on rise at @15% ANNUALLY .
On date we have 300 banks in 51 countries.A branch in Univerty of Michingan.In 2005 a total of 0.5% OF TOTAL WORLD assets are managed by Islamic Banking.The vetican too has recommended Islamic banking to undo failing markets.The loaning agaist mortgage is accepted and garuentee the repayment.The mortgage transactions are simple the bank values it and purchases it without any other penalities and liability and sells it to a prospective buyer .They facilite him the buyer with loans too.
THE SYSTEM CAN BE EXPLINED AS.
If you wish to have a loan from an Islamic Bank for the purchse of a vehicle.The vehicle cost with profit shall be evaluated b the bank and sold to the buyer.The amount so agreed upon shall be paid to bank in instalment aginst mortigaing this vehicle and the vehicle shall be in his name from day one..No monthly or annunl interest charges .He has to return the money in time or lose vehicle mortigaed which may be resold by the bank.May we accede here some of the extracts obtained from websites in original for general information of our viewers
“An innovative approach applied by some banks for home loans, called Musharaka al-Mutanaqisa, allows for a floating rate in the form of rental. The bank and borrower form a partnership entity, both providing capital at an agreed percentage to purchase the property. The partnership entity then rents out the property to the borrower and charges rent. The bank and the borrower will then share the proceeds from this rent based on the current equity share of the partnership. At the same time, the borrower in the partnership entity also buys the bank’s share of the property at agreed installments until the full equity is transferred to the borrower and the partnership is ended. If default occurs, both the bank and the borrower receive a proportion of the proceeds from the sale of the property based on each party’s current equity.
This method allows for floating rates according to the current market rate such as the BLR (base lending rate), especially in a dual-banking system like in Malaysia.” FLOATING INTEREST RATES. The Islamic bank can lend the money on floating interest rates.The companies raising money from Islamic bank pay rate of retuns and not a fixed rate at loaning.The difference between the the normal banking in vogue and Islamic banking is the participation of the technocrat s of the bank in the business management of the company and share profits and losses both.For sound global economy free of recession this Islamic banking is the only solution to undo recession tremers ruinig the global economy and forcing powerful to vage warsin Iraq or Iran or Afganistan to either divert attension of falling economy at home or simply to recover it through proxy by looting others resources.
The Islamic banks can not invest in wine,women,pork or im moralventures like gambling thus curing the mafia and underworld social erosions .This is thus going to bring morality in this immoral world ,where balck money rune rackets and is responsible for all evils of politics,administration and regime changes.The technical assessment as revealed by some in the web publication can be quoted as. “In theory, Islamic banking is an example of full –reserve banking with banks achieving a 100% reserve ratio.However, in practice, this is not the case, and no examples of 100 per cent reserve banking are observed” Islamic banks have grown recently in the Muslim world but are a very small share of the global banking system. Micro lending institutions founded byMuslims notably Gamen Bank of Bengladesh, use conventional lending practices and are popular in some Muslim nations, especially Bangladesh, but some do not consider them true Islamic banking. However, Muhammad Yunus, the founder of Grameen Bank and microfinance banking, and other supporters of microfinance, argue that the lack of collateral and lack of excessive interest in micro-lending is consistent with the Islamic prohibition of usury (riba).
Potential Drawbacks
While Islamic financial institutions have made rapid progress in the US in a relatively short time, to date most of the opportunities are only suited for wealthy or upper middle-class customers. Minimum investment for membership in MSI is $1000, while the marketing strategy of BMI Inc. is geared towards Muslims with a net worth of over $200,000. Muslims with middle to lower incomes, who most need assistance with major purchases, are largely unable to partake of such programs. MSI President Masood Ajazi explains the contradiction by pointing out that because there is no guaranteed profit in such transactions, only “low-risk” investors can be considered. Four years ago, he notes, there were no alternatives at all for Muslims in the US desiring interest-free transactions For more reading readers are requesyed to go through the following references. • World Database for Islamic Banking and Finance • Risk and Compliance Management in Islamic Banking – Kit • Islamic Banks and Financial Institutions Information • Islamic Financial Services Board • AIBIM – Association of Islamic Banking Institutions Malaysia • Accounting and Auditing Organization for Islamic Financial Institutions •
Reviewing Islamic Banking •
Muslim Investor:
A community site on Islamic investment, banking, finance and insurance • Value matter of Money – Unfair to Islamic Banking & Finance by Qazi Irfan • Riba and Islamic Banking •