|
|
 النظام المصرفي والتمويل في البنوك الاسلامية واهميتها في عصر العولمة بحث اكاديمي
|
لقد قمت باعداد هذا البحث اكاديمي عن نظم الاستثمار والتمويل الاسلامية اثناء دراستي للماجستير في مدرسة القانون جامعة تمبل بمدينة فلادلفيا ولاية بنسلفانيا الولايات المتحدة الامريكية لاهمية الموضوع وللفائدة العامة للاخوة العاملين في هذا المجال الحيوي
: النظام المصرفي والتمويل في البنوك الاسلامية واهميتها في عصر العولمة بحث اكاديمي
[Islamic Banking and Finance: Its Operation and the Necessity of its Accommodation in the Global Economy.”]
للاسف لم استطع اظهار المراجع والهوامش
“references”في البوست
--------------------------------------------------------------------------------
ISLAMIC BANKING AND FINANCE:
ITS OPERATION AND THE NECESSITY FOR
ITS ACCOMMODATION IN THE GLOBAL ECONOMY
By: Elwaleed M Ahmed
The recent phenomenon of Islamic banking and financial institutin
started in Egypt in the 1960s. These banks, which neither charged nor paid interest,
functioned essentially as a saving investment institution rather than commercia
banks, by engaging in trade and industry, directly or in partnership with others, and
shared the profit and loss with their customers and depositors. These banks systems
functioned under the mandates of “shari’a,” Islamic law that prohibits usury and
interest. Thus Islamic finance is based on the principle of profit and loss sharing.
Since then there have been growing demands from Muslims everywhere to have
their finance managed according to Islamic laws. Therefore, in the 1970s, Islamic
financial institutions really took off, due at least in part to the new oil wealth in
the gulf. Since then, “Islamic banking in the Middle East is growing and becoming
important in mobilizing local and regional saving, as well as providing an important
source of capital.”
Contributing to the growth of Islamic banking in the Middle East was the
establishment of the Islamic Development Bank by the “Islamic Organization
Conference” in the early 1970s. The Islamic Development Bank serves as a “World
Bank” for Muslim countries, with the aim to facilitate the expansion of the Islamic
banking and financial institutions in the Muslim countries and world wide. As a result,
the annual growth of the Islamic financial institutions has been an estimated almost 15%
worldwide over the last decades. To understand the principle on which the Islamic
banking and finance is based, It is essential to have some an overview of the Islamic
law and its sources and jurisprudence.
Therefore, to assess the importance of the Islamic banking and
finance in meeting the Muslims community financial need, this article will explain how
the Islamic banking and finance works and the justification of the prohibition of “Riba”
interest in the Islamic law. Moreover, it will explain how the major allowed types of
Islamic financial services work and recommend the best way for Islamic financial
institutions to improve and get acceptance globally by nationally and globally unified
sharia board. Sharia board decides what type of finance is expected in the Islamic law
and recommends the unified accounting and regulatory standard body to
govern the Islamic banking and finance operation in national and global basis. The paper
also recommends the establishment of liquidity markets to handle the operation of the
Islamic banking and financial institutions. Moreover, the paper will recommend how to
accommodate the Islamic banking and finance systems in a global economy, especially in
the non-Islamic countries so as to meets the need of the growing Islamic communities.
In Part I, the paper will purpose that to understand the justification of the
Islamic prohibition of Riba: “Interest” and how the Islamic banking and finance works
some knowledge about Islamic law, its sources and jurisprudence is necessary. Therefore,
include the sources and jurisprudence of the Islamic law: "Figh," such as “Qur’an:”
which is the God “Allah's” word and instruction to his Prophet Mohamed (peace upon
him.) “Sunna:” the prophet’s words and deeds Ijtihad: "Refer to the formulation of the
law by the individual's struggle for proper understanding," Ijm'a: " Consensus of
opinion and Quiyas: " analogical-deduction." And finally, Madahib: "the different
schools of Islamic law Jurisprudence" approach to the issues of Islamic Finance and the
prohibitions of the “Riba” Interest. Part II, includes the types and definition of Riba:
the Islamic jurisprudence divine Riba in two types: “Riba Al-fadil” and Riba: “Al’
Nasia.” The paper will offer the justification of the prohibition of Riba in the Islamic
law and how the financial affairs are addressed in the Islamic law. Furthermore, the
paper will explain how the Islamic faith is a way of life as well as a religion. Muslims
whenever they have been they always have to adhered to the Islamic principle.
Part III, will include how the Islamic banking and financial institutions operate
and will describe the most common types of the permissible Islamic financial methods,
and how they work and the justification of accepting interest according to the principle
of loss and profit sharing. The expected types of Islamic finance include,
Mudraba: “Trust Financing,” Igra wa-igtin: “Lease/hire-purchase,” Murabaha: “Cost-plus
Financing,” Musharaka: “Venture Capital,” Bai’salam Transaction. Further types include:
“Manazile scheme:” Islamic mortgage housing, property finance a Istisna contract: “is a
contract to manufacture,” Bai’ bi thamin ajil: “sale by deferred payment,” Al-wadiah:
“non-fund transaction” and Qurde-Hasan: “ Benevolent financing.”
Part IV, will include a comparison between the Islamic banking and finance
systems and the conventional banking systems: "Western banks" and the major criticism
of the Islamic banking and finance.
Part V, the final section of this paper will include recommendations.
(I): How to improve the operation and effectiveness of the Islamic banking and finance
system by :
A: The necessity of the existence of the unified Sharia board in the national and global
based so as to unify the decision on what are permissible types of Islamic financial
globally.
B: The necessity of the unified accounting and regulatory standard body to govern the
Islamic banking and finance nationally and globally. For the Islamic financial
institution to succeed and to achieve global acceptability and continue its rapid
expansion it needs to establish universally accepted accounting, auditing and regulatory
standard.
C: One of the major challenges to Islamic financial institutions remains how to
handle their liquidity. Therefore, there is a necessity of the establishment of
liquidity markets to handle the operation of the Islamic banking and financial
institutions.
(II): How to accommodate the Islamic banking and finance systems in global
economy especially in the non-Islamic countries so as to meets the need of the
growing Islamic communities including:
A: Since the Islamic law did not require the banks to be Islamic bank or all its
resources to be Halal “permitted,” then the conventional institution can have
subsidiaries offer Islamic finance to Muslim and non Muslim alike as an alternative to
the interest-finance. Therefore, there is a possibility of establishing Islamic
financial institution in the US as a subsidiary for the conventional banks.
B: The possibilities of opening non- banking Islamic financial Institution dealing
mainly in providing the basic Islamic financial services in the non – Islamic countries.
Part I: The Source and Jurisprudence of the Islamic law: “Figh:”
The science of Figh is directed no less toward understanding and analyzing the
deeds and sayings of the prophet Mohamed (Peace upon him), as toward the written
word of the God’s ‘Allah’ Mandates, and to find and collect the different norms of
Islamic law.
In order to understand the justification of the Islamic prohibition of “Riba”
interest and how the Islamic banking and finance works you have to have some
knowledge about Islamic law its sources and jurisprudence what follows are some
illustration:
A: Qur’ an: “the holy book of the Islamic faith,” The Qur’an is understood by
Muslims to be the infallible words of God “Allah” and contain instruction in both
religious and daily aspects of life. Thus the Qur’an consists of the revelation made by
God “Allah” to the prophet Mohamed (Peace upon him) and lays down the fundamentals
of the Islamic faith including beliefs and all aspects of the Islamic way of life.
Therefore, the scholars have treated the holy Qur’an as a text that contain the general
principle by which all matter should be regulated. And where the meaning of the holy
Qur’an was imprecise they sought clarification from the “Sunna Hadeath.”
B: Sunna: “Tradition of Prophet Mohamed” (Peace upon him). Because God
“Allah” was “revealed to the prophet Mohamed, his actions and sayings were and are
believed to be the best possible interpretation to God’s commandments contained in the
Qur’an.” Thus Sunna is the teaching of the Islamic principle by the prophet
“Mohamed,” recorded only after having been deemed valid by religious scholars in
decades after the death of the prophet “Mohamed.”
C: Ijtihad: refers to formulations of the law reached via the individual’s
strugglefor proper understanding, using reason and judgement to determine a course of
action in keeping with the spirit of the holy Qur’an and Sunna. Thus, Ijtihad “means
the independent interpretation of law by one who has learned to solve a situation that
is new or for which there is no precedent or authority or pronouncement in other sources
of Figh.” Ijtihad was based on the linguistic and religious knowledge and was
conducted piously and in good faith. The “Mujtahid,” the one who conducted the Ijtihad,
didn’t have to fear retribution from God “Allah.”
D: Ijm’a: “ consensus of opinion,” is the informed consensus of the community
of scholars, and was established not for matter of faith or fundamental observances,
which were agreed upon, but on the application of the shari’a law to world’s affair.
E: Qiyas: “ Analogical deduction” or analogy from established law mean that by
comparing two things one may be evaluated in the light of the other.
F: Madahib: refers to “schools of thoughts in the Islamic law.” There are two
major schools of law in the Islamic jurisprudence: “Shia” and “Sunna.”
I: Shia, which has various sub –section is predominate in Iran Iraq, India and
many of the Gulf states. There are considerable doctrinal differences between Shia and
Sunni in terms of who is permitted to interpret the Islamic law. The shia believe the
living religious scholar, known as “Mujtahids, have an equal right to interpret the
divine law as the eminent jurist of the past and their judgement replaces the Sunni
source of deduction by analogy, Qiyas.”
II: Sunni, The majority of Muslims follow Sunni school of thoughts. Sunni legal
doctrine has four main schools of thoughts, each with its own system of theory and
application of law. However, they all recognize the legitimacy of all the others. In
Sunni the four schools of thoughts are Hanafi “Rationalist,” Malki “Traditionalist,”
Hunbali “Fundamentalist” and the Shafii “Moderate.” Furthermore, these four schools of
law give different emphasis to the source of law, but all are anonymous in requiring
that Islamic law be God “ Allah,” is not man's creation and the holy Qur’an and Sunna
are fully binding. The other sources of authorities are in one way or another justified
by reference to these two basic laws. These schools of jurisprudence differ in their
interpretation of the importance of the Ijtihad, the component of the Ijtihad and
Ijma’a, and the importance of how certain individuals can interpret almost all-religious
issue. Individuals are given much freedom in choosing the particular of the law they
wish to follow.
Part II: The Types and Definition of “Riba” the Justification of its Prohibition in the
Islamic Law and How the Financial Affair Addressed in Islamic Law:
(I): The definition of the “Riba” in Islamic law:
Riba is defined as any increase over the nominal value of the sum lent.
Moreover, according to the Qur’an, “Riba” is neither a sale nor voluntary charitable
act, “it is an equitable exchange destructive to and out of place in fair economic
order.” Thus, he definition of Riba as usury includes interest and other forms of profit
or gain that are not earned from work efforts. “Islamic law prohibits any profiting
from supply of capital without any personal engagement or exposure to financial risk.”
Therefore, Riba prohibits any predetermined fixed positive return to the
loan as a reward for the delay. Also, considered Riba is any ‘excess to exchange of two
or more commodities of the same type taking place in the spot market. “This prohibition
aims to ensure that no legal trick or device will be used as back-door to Riba,
associated with deferred transaction.” Furthermore, the purchase of the government
bonds and firm securities with fixed rate of return are considered Riba and hence
prohibited.
(II): Islamic Jurisprudence Divides Riba into Two Types:
A: Riba Al-fadl: “excess on exchange” defined as Riba arising out of barter or
sale. Riba Al-fadl involves an exchange of unequal quantities and qualities of the same
commodity simultaneously .
B: Riba Al-nasia: “excess on loan” defined as Riba arising out of money
exchanges “Loan.” “Riba Al-nasia involves the non- simultaneous exchange of equal
qualities and quantities of the same commodity.”
(III): The justification of why the Islamic law prohibits the Riba:
The prohibitions of Riba in Islam seek to prevent usurious condition in exchange
and loan, because “the Islam’s economic ideal is one of legal fairness, of mercy, and
leniency in times of hardship.” By prohibiting certain classes of interest in either
trade or loan, Islam seeks to correct the usurious practice which is a desirable
result, because Riba is a raise from an unequal unfair exchange, namely an increase
over the principle a mount lent or the quantity traded.
Thus, Riba is prohibited because “it is a contract that contains certainty,
while real life is not certain.” Riba is an unearned profit without expected normal
business risk. Moreover, “the practice of Riba enrich the class of money lenders and
usurers who accumulate wealth by impoverishing those who are forced to borrow money or
commodities from them for mere consumption, basic necessities, or for limited
production purposes.” Such lenders do so by charging interest or making uneven trades in
their favor. Furthermore, Riba was an unearned income in the sense that the owner of
the capital who loaned his capital for an increment without contributing any productive
activities, collects profits that are considered illegitimate, because they didn’t give
any equivalent recompense return or counter value “Iwad” to other party.
The prohibition of Riba extends to any and all forms of interest and there is no
difference between interest bearing funds for purposes of consumption or
investment. Furthermore, interest as a predetermined cost of production can contribute
to unemployment and those interest charges can exacerbate business cycles and cause
international monetary crises. Because “interest involves a transfer of property without
counter value those who live on interest have little incentive to work and where
lenders are richer than borrowers interest result in increasing inequality and social
frictions.”
Thus, the Islamic text does not distinguish between borrower and lender, and
supports the idea that the prohibition’s purpose is not redistribution of wealth but to
the assurance of fair economic exchange while allowing return of capital profit and
services charges. It is contrary to Islamic law to make money out of money and that
wealth should accumulate from trade and ownership of real asset.
The reasoning that justifies the prohibition of the Riba is rooted in four
different verses in the holy Qur’an. The first of these verses emphasizes that interest
deprives wealth of God blessing. The second condemns it, “placing interest in
juxtaposition with the wrongful appropriation of property belonging to others.” The
third verses enjoins Muslims to stay clear of interest for the sake of their own
welfare. Finally, the fourth “establishes a clear distinction between interest and
trade, urging Muslims first to take only the principle sum and second to forgo even this
sum if the borrower is unable to repay.” Moreover, Prophet Mohamed (peace up on him)
condemns, the one who takes the Riba, the one who pays it, and the one who writes the
agreement for it and the one who witness to the agreement.
Riba is prohibited in holy Qur’an: Chapter II verse 275 from holy Qur’an state:
Those who devour [riba]
Will not stand except
As stand one whom
The Evil one by his touch
Hath driven to madness
That is because they say:
“[Sale] is like usury [(riba)].”
But Allah hath permitted [Sale]
And forbidden [riba].
And the Qur’an further warns:
O ye who believe!
Fear Allah, and give up
What remain of your demand
For [Riba], if ye are
Indeed believers.
If ye do it not,
Take notice of war
From Allah and his Messenger:
But if ye turn back,
Ye shall have
Your capital sums.
Deal not unjustly,
And ye shall not
Be dealt with unjustly.
(IV): How Financial Affairs are addressed in Islamic law:
Under most schools of Islamic law an Islamic financial system would comply
with at a minimum the following principle: (1): the prohibition of Riba. (2): Risk –
sharing. (3): Prohibition of speculative behavior. (4): Sanctity of contract. (5):
Activity that conforms to Sharia . Because man is an agent, not an original owner, he is
not a free agent in his exploitation of resources and must use methods and means within
a frame work given to him in the satisfaction of his economic means. And the guiding
principle of economic activity is the over all good of the society and nature. Moreover,
individual man being part of the over all fabric, must be given consideration for his
wellbeing. Also, “equitable reward must be given to man according to his effort, to all
people according to their efforts, and from all according to their abilities.”
Therefore, Islam permits the development of wealth, but through socially
conscious means. Successful enterprises that earn a profit are laudable, but the
practitioner must not forget that Islamic principles direct that financial resources
should be utilized for bettering the condition and well being of other. Furthermore,
while Islam permits the individual’s rights to seek his economic well being, Islam makes
a clear distinction between the “Halal:” what is lawful and “Haram:” what is forbidden
in pursuit of such economic activity. In broad terms, Islam forbids all forms of
economic activity, which are morally or socially, injurious.
Part III: Operation of Islamic banking and financial institutions and the types and
justification of the allowed Islamic finance:
(I): Operation of the Islamic banking and financial institutions:
On the surface, Islamic banking systems differ greatly from all Western banking
systems. Imagine being able to borrow money without paying interest and having the
financial institutions assume half the risk; this is a common transaction in the
rapidly growing world of Islamic banking.
All Islamic banks or financial institutions have a religious supervisory board
(RSB), consisting of an Islamic scholar, who acts as advisory council to the official of
the Islamic institutions. The “RSB” is set up as permanent institutions located and
financed by the Islamic financial institution “IFI”. The “SRB” oversees the Islamic
financial institution activities according to Islamic law and publishes its opinion in
the Islamic financial institutions annual reports. Thus, the business section of the
Islamic banks works in connection with the supervisory board of religious “SBR” to
review proposed financial transactions to conform to Islamic principle.
The fundamental principle underlying the Sharia approach to finance is that
no one wishing to earn a return on money has any rights to retain the initial sum
intact; in order to earn profit in Islamic finance, it is necessary to take risk.
Moreover, the foundation of the Islamic banking is asset management. Although, Islamic
finance rests on two main principles: (1): the main financed asset must exist. (
2): “the financier must bear the risk associated with this asset for some period of
time, and that what will justify a rate of return on the basis of this risk exposure.”
Investment agencies in the Islamic financial systems work according to a
contract, in which an agent invests funds on behalf of the principal in exchange for a
fixed wage or share in profit. “The principal owns the invested fund, therefore is
entitled to the profit of the investment and liable for its losses, while the agent is
entitled to a fixed wage if the agency stipulates that.”
Furthermore, Islamic-banking systems are based on sales agreements; “Islamic
bank sells you the money, making a profit on that sale. On the other hand, the
depositors in the Islamic banking systems do not earn any return on their deposit while
those holding ‘investment accounts’ earn a shared of the profit and exposed to potential
losses.” In project finance, Islamic banks will lend against the title of a key parts of
given project. Technically it is not a loan, but a purchase and sale agreement.
Moreover, the Islamic bank can pursue sale by order such as “Salam and Istisna”
financing, and then can buy the non- existent goods at a discount such as “ the salam
and Istisan price” and sell the goods later on delivery at retail price.
(II): The Types and Justification of the Allowed Islamic Finance:
The basic role of all Islamic finance is that there must be profit and loss
sharing between the financier and the entrepreneur to justify the interest collected
from any financing operation under Islamic law. Therefore, there has to be some kind of
risk sharing to justify any Islamic finance. Here are some types of the most accepted
methods of Islamic finance:
A: For the Islamic financial institution to succeed in obtaining profit they
concentrate in some specific types of finance, which is easy for them to control the
operation of the financed services so as to minimize the risk of losses. What follows
is the most Frequently used type of Islamic finance:
1:Mudraba: “Trust Financing” is financing transaction equivalent to
“venture capitalism.” It allows the entrepreneur with a business plan to make use of
investor’s capital . Therefore, “Mudraba, in turn is a profit sharing agreement between
two parties in which one provides the finance and the other provides entrepreneurial
and management skill. The profit in this finance is divided on a pre-determined ratio
and the loss borne by the provider of the capital.” In contrast, the bank can’t require
any guarantee such as security or collateral to secure his capital against any loss in
the transaction. But “if there is any negligence or mismanagement or any action beyond
those originally provided for in the contract from the entrepreneur, the entrepreneur
will be responsible for the financial loss and may be obligated to reimburse the
financier.” This financial transaction is permitted because of the risk sharing
involved: the investor risks loss of his capital while the entrepreneur risks his time
and effort.
2: Murabaha: “Cost-plus financing” is one of the most familiar and commonly
used finance transactions, mostly in trade and commodity finance. “This finance
transaction involves the purchase of goods by the bank as requested by its client.
Therefore, it is a sale contract between the bank and its client for sale of goods for
price that include profit margin for both parties.” The bank should have the custody of
the goods before signing the sales contract with the client and the bank also should not
seek any collateral that may make the client committed in any way towards the
bank. “The bank in Murabaha bears the risk during the period between the purchasing of
the goods and reselling of it to the customer,” also by the risk of allowing the client
to refuse to accept the goods procured on their behalf by the bank. Thus those risks are
what justify this transaction .
3: Igra wa-igtin: “Lease/hire-purchase.” In this transaction if the client requests
“the banks to purchase the equipment or goods and resell them to him, the bank will be
the owner of these items and the client pay a fixed amount for its use.” “If the
client is committed to purchase the equipment from the bank at the end of the rental
period, the price is determined in advance and thus the installment payment would
include both the rental price and the purchase fee of the equipment.” The fund on these
financials is secure, because in order to obtain the fund the investor must offer
collateral .
Furthermore, the bank in this finance transaction bears the risk throughout the life of
the lease contract . Therefore, the bank takes the owner obligation and that will
justify its return in accordance with Islamic law.
4: Musharaka: “Venture Capital” “is an equity participation arrangement and
equivalent to a partnership arrangement. In this finance arrangement all partners share
in finance and management, and the profits are distributed according to pre-agreement
ratio, but losses are shared on the basis of equity participant.” “This a true
partnership where investor and the agent have a joint profit and loss –sharing and
decision making.”
Furthermore, this involves active participation from both the financial
institutions and its client since all of them depend on the revenue sharing in the form
of the percentage of the net profit rather than the interest. And this will encourage
close scrutiny and assessment of the viability and the implementation of the their
investment. On the other hand since the client also contributes capital and becomes
partner, he will be eager for the success of the investment.
B: In the following types of Islamic finance, the risk of loss is high because the
Islamic financial institution has no very effective procedure to monitor the operation
of the financed services, therefore, the following financial services are not
frequently followed:
1: Bai’salam Transaction: “In this finance transaction the goods purchased are
paid for in advance at the time of the execution of the contract, but the delivery of
the goods is delayed until a later date.” In order for this contract to be valid all
conditions associated with the contract such as price, quality and quantity of the goods
have to be determined when the contract is signed. Hence, “this Salam contract is
considered as an exception to the general role of the Islamic law which prohibits the
sale against advance payment for future delivery of the goods, in order to meet the
instant need for the farmer’s sale,” and to serve the public need. Therefore, this
contract should be applied to goods transactions and not to the transaction of
currencies.
2:Manzile Scheme: “Islamic Mortgage and Housing property finance:” This
finance is based on Musharaka and Ijra wa’ Igtina “lease and partnership” concept and
requires the financier and the client to participate in the joint ownership of the
property. “The share of the financier is divided into a number of units, and the client
is able to purchase those units one by one periodically.” Therefore, “in the Islamic
mortgage, the repayments were based on the implicit rental value of the property rather
than on the basis of the interest. And that will provide a fixed repayment mortgages for
homebuyers and investors in private property.”
3: Istisna contract: “a contract to manufacture” is a new concept in Islamic
finance. “In this finance transaction the manufacturer agrees to produce, build and to
deliver a well described good at given price on a given date in the future and the price
does not need to be paid in advance. It may be paid in installments while the job is
being completed or the asset being manufactured or constructed.” “In this contract it
should be ensured that the goods subject to the contract are manufactured and not in
their raw status. Therefore, the Istisna contract is not applicable to grain millet and
rude oil.”
4: Bai’ bi thamin ajil: “sale by deferred payment:” This finance involves the
bank purchasing the asset, equipment or goods desired by its client to whom it then
resells the items for an agreed of cost-plus profit. Therefore, this transaction
involves purchase and resale of property for a higher price on delayed basis . I
justifies that because of the risk the bank had if the client refused to take the goods
after the bank purchased the good.
5:Al-wadiah: “non-fund transaction:” This is similar to a saving or investment
account in a conventional bank. “In these accounts the bank does not give interest and
they are in essence a safe keeping arrangement between the depositor and the bank. They
allows the depositors to withdraw their money at any time and to permits the bank to use
the depositor’s money.”
6: Qurde-Hasan: “Benevolent financing:” This finance falls under the charitable
activities of these Islamic financial institutions. “It happens when the financial
institutions provide loans free of charge, basically with intent to provide financial
assistance to failing institutions or humanitarian assistance to individuals. Therefore,
for the financial institutions to make sure it is repaid they may require from the
customer to provide collateral and those institutions may charge a small fee to cover
their administration fee.”
Part IV: Comparison to criticism of the Islamic financial institution:
A: The Comparison between the Islamic Banking System and Conventional Banking
System:
There are some basic differences between the Islamic banking system and the
Western banking systems “the conventional banks.” First Islamic banking systems do not
charge or pay interest and they will not invest in enterprises they believe to be
immoral, where the banker shares in the management of the borrowed fund during the life
of the loan. Moreover, Islamic banks, unlike their counterpart “conventional banks”
have to share in the risk of their transaction.
“In capitalist society, the ability for one to reap profit from investment is
the most valued concept of the economics and interest is a pivotal concept. Therefore,
The capitalist motivational system is market oriented with particular emphasis on profit
motive. On the other hand, in the Islamic finance, the motivation is profit but guided
by moral and spiritual concerns rather than market concern. Furthermore, it is accepted
that “the capitalist system uses profit not as a means but as an end that will satisfy
the individual, while the Islamic system uses profit as a mean to achieve its spiritual
end.” In conventional banks the client is obligated to repay the bank, the principle
amount of the loan, plus a set rate of interest over a term of monthly installments.”
Thus, the conventional banks is based on borrowing and lending and Islamic bank is
based on selling. Furthermore, Islamic finance is asset –based, or based on “money for a
sset,” opposite to “money for money” in the conventional banks.
In contrast, there are differences between a conventional leasing and ajara in
Islamic finance. “In Islamic finance, a lease/hire begins the date the asset is
delivered to the client not the date the contract is signed as in the conventional
banks. In Islamic finance, the lessee is not liable for the full rent if the asset is
destroyed and the factors in the cost of insurance at the time the rent is fixed.
Moreover, the purchase in Islamic finance at the end of the contract can not be made
binding.” Furthermore, what distinguishes “Mudaraba:” cost plus finance from traditional
interest based –finance that the recognition of the risk that assumed by the banks as a
titleholder of the goods in “Mudaraba:” cost plus finance transaction.
B: Criticism of Islamic banking and finance:
It would seem that a banking system that is based on the moral and spiritual
principle could have no critics, but this not the case. In Islamic banking and finance,
loans tend to have a complicated buy and lease instruction and the interest-free
financing carries numerous services and finance charges that can make the cost equal to
fund advanced from the conventional banks. This is true despite the fact that the
Islamic model of finance in some cases seems to guarantee a fixed rate of return, and
in reality no risk is shared by the financier with entrepreneur.
Furthermore, the inflexible interpretation of Riba imposes on the borrower the
need to hire a legal advisor to instruct them on complex finances methods. On
the other hand, “the fee charged on the profit sharing simply replaces in form of
thought not in name the interest charges.” Moreover, when Riba is interpreted broadly
to include all interest, the Islamic financial institution used the methods of trust
financing, equity participation and leasing to circumscribe the Riba’s problems.
In consequence, Islamic financial institution is exposed to greater liability
under national and international law, because it assumes the ownership responsibilities.
These include not only the risk of the losses or damages to the asset being funded but
also any liability arising out of the use of the asset. Therefore, “the Islamic banking
and financial systems can not survive and grow solely on the basis of committed ethical
depositors or investors.” On the other hand, Since the risk costs are shared in the
Islamic banking and finance systems, as a result their products and services can be
competitive. “The US government criticizes the Islamic banking systems as being a soft
touch for money laundress and terrorism financier.” On the other hand, the Islamic
banking and finance supporters argue that, money laundering is hard through Islamic
banking systems, because the element of risk sharing means there is “a closer know-your
customer” approach, and that may deter the money laundering. Moreover, “high
transaction cost and low-level of capital will keep the Islamic bank from being
competitive with conventional banks.”
Part V: Recommendation and Conclusion:
(I): How to improve the operation and effectiveness of the Islamic banking and finance system:
A: The necessity of the existence of the unified Sharia board in the national and
International levels in deciding what types of financial services are conforming to the
Islamic law:
There is a need for setting up Sharia board at global and central banks level,
so as expedite and perhaps assist in developing some standard guidelines for conducting
Islamic financial transaction. Sharia board at individual banks actually defines what
is and is not Islamic banking. Thus, transaction will be interpreted differently and
that will lead to uncertainty about what is the acceptable way to do business in Islamic
banking and finance systems, which in turn will complicate the assessment of risk for
both the financial institution and its customer.
B: Necessity of the unified accounting and regulatory standard body to govern the
Islamic banking and finance nationally and globally:
For an Islamic financial institution to succeed it needs to establish
universally accepted accounting, auditing and regulatory standard in order to achieve
global acceptability and continue its rapid expansion. Therefore, “there is a need to
develop uniform accounting and reporting structures among Islamic financial
institutions.
Furthermore, the Islamic financial institution needs to recognize the responsibilities
of regulators to apply national supervisory principle to all Islamic financial
institutions especially the effective liquidity management, the definition of a deposit
and the standardization of accounting and disclosure.” The lack of a thorough
comprehensive,and consistent a counting standard and the lack of the effective
regulation is vital for Islamic banking to continue grow is to overcome those problems.
Therefore, there is a need for unified Islamic accounting standard covering
areas such as the presentation of financial statement and disclosure in the Islamic
financial institutions. Thus, the Islamic accounting standard must seek to comply with
international accounting standard.
C: Necessity of the existence of liquidity markets to handle the operation of the
Islamic banking and financial institutions:
“One of the major challenges to Islamic financial institutions remains how to
handle their liquidity, because those banks have been more successful in attracting
deposit than in identifying funding opportunities.” Thus, liquidity has always been the
most critical issue for Islamic financial institutions, because there are only small
secondary market that exist to enable the Islamic financial institutions to manage
their liquidity, because the Islamic banks asset generally not saleable in any secondary
market. Therefore, “the establishment of genuine inter-bank markets would be a
significant step towards providing Islamic financial institutions with the ability to
maintain an adequate liquidity without holding excessive amount of very short-term
asset.” There is a need to establish international Islamic financial market “IIFM” to
facilitate the development of the an international Islamic money market and to
harmonize the standard regulation and the practices in the Islamic financial industry.
(II): How to accommodate the Islamic banking and finances systems in global economy
especially in the non-Islamic countries so as to meets the need of the growing Islamic
communities:
A: Possibilities of establishing Islamic financial institution in the US:
The US remains relatively closed to Islamic financial institution, because the
federal banking law bars banks in US from holding stakes in their cooperate borrower,
and Islamic banks share in the management risk of any operation they finance. On the
other hand, the Islamic law doesn’t require that the seller of the product be Muslim or
that his own income be “halal” permitted, but the relationship with the seller must be
in line with the sharia but the seller relationship with other parties is not the \
responsibilities of the purchaser. Therefore, the conventional banks “ interest-based
banks can offer sharia compliant financial services to both Muslims and non-Muslims
customers as alternative to the interest- based finance.
Furthermore, the advantage of using Islamic finance affiliated with
Multinational institutions, is in their substantial size, perceived solidity and the
possibilities of cross selling Islamic services to existing Muslim clients. Moreover,
the wealth of the in-house expertise available and the efficiency with which they
provide their services.
Some conventional banks both within and outside the Muslim world have started to offer
Islamic financial services as an alternative to the interest –based finance. Thus, City
Bank became the first major US bank to venture into Islamic banking, by opening a
subsidiary in Bahrain. Furthermore, several big international financial institutions
set –up Islamic financial subsidiaries such as HSBC’s “Amanah” Islamic financial
institutions, and the UBS’s Noriba had Islamic financial subsidiaries targeting Islamic
mortgages and car finance. Moreover, the Dow Jones established stock market of sharia
compliant companies.
B: Possibilities of Opening Non- Banking Islamic Financial Institution Dealing
Mainly in Providing the Basic Islamic Financial Services to the Muslim Communities in
Non – Islamic Countries:
Since sharia permits using the conventional market as a benchmark or as standard
to Islamic financial services, some Islamic financial services could exist to the
Muslim communities in the US. “Amana Vehicle finance” for example could use a fixed
payment scheme that is competitive with conventional vehicle loans available in the
market.
Conclusion:
Since the Cold-War era, there has been a massive Islamic movement within the
Islamic countries and the minorities Muslims communities around the glob. This
movement has demanded that the Islamic law governs all aspects of their life from
political, economic and daily life according to the Islamic principle.
Therefore, the need to expand the Islamic financial institutions services to
accommodate the Islamic communities needs will continue to grow rapidly in the near
future. There is need for collective efforts from the bankers, economists and the
Islamic legal scholars to develop financial solution that meet the religious requirement
to the Muslim’s communities. Moreover, “the Islamic financial community must accept
that their institutions have to be regulated and supervised to meet the international
standard. Ultimately their ability to grow and compete will depend on international
acceptance of the regulatory regime.”
There is need for universally accepted principal governing Islamic financial
dealing, before the system can be accepted internationally, because the weakness of the
Islamic financial market has also resulted from the lack of the common Islamic
accounting and legal framework governing the Islamic financial market. Since the
Islamic law does not require the banks to be Islamic banks or all its resources to be
Halal “permitted” then the conventional institution could have subsidiaries offer
Islamic finance to Muslim and non-Muslim alike as an alternative to the interest-
finance. This might be used mainly to offer the most needed financial services such as
mortgages and car financing to the minorities’ Muslim community in the non-Islamic
countries. Such efforts are needed to meet the needs of an ever-growing Muslims
communities trying to live their lives according to their beliefs.
(عدل بواسطة Elwaleed M. Ahmed on 01-10-2007, 06:27 PM)
(عدل بواسطة Elwaleed M. Ahmed on 01-10-2007, 06:34 PM)
(عدل بواسطة Elwaleed M. Ahmed on 01-10-2007, 06:46 PM)
|
|
 
|
|
|
|
Elwaleed M. Ahmed
فيس بوك
تويتر
انستقرام
يوتيوب
بنتيريست