Islamic banking … whats it about?
Wednesday, August 19, 2015
4:40 PM
I need to clarify my understanding on Islamic Banking , a concept that’s intriguing me over the past so many years. As a muslim its necessary that we try to understand our world and all the stuff that’s going on and its only with this spirit that I write thus, inviting your considered opinion and comment on the subject.
While not even attempting to cross learned ulama promoting islamic banking, this is an attempt to critique intellectually on the subject , in the hope that I can clarify my thoughts.
Not a feature in most muslim majority countries in significant number.
It's an observable fact on the ground that most muslim majority countries, haven't adopted the Islamic banking system and some have rejected the modern interpretation of it altogether. Egypt , Malaysia, Saudi, emirates, Pakistan, Bangladesh and Indonesia come to mind and some of these have rejected outright implementation of a non riba system and continue to operate under riba. Obviously, though muslims, they are all comfortable with the current operational riba model. So, how does one arrogate the right to call it " Islamic Banking " just because of terminology used ?
Growth of islamic banking as proof, not quite valid.
A recent argument I've heard , is that islamic banking is growing and that’s proof that its sound and acceptable. But that doesn’t make sense to me as riba is also growing alongside. The thing to look at is the fundamentals of islamic banking's growth. Is it because of a genuine desire to conform by muslims; is growth also due to non-muslims taking up sharia compliant banking; is it a desire by muslims to conform with reservations, but in the comfortable belief that they've just passed on the responsibility of riba ? is it a reflex rejection of the Wests intellectual and physical bombardment of muslims everywhere ?
Is IB just a marketing ploy ?
It could well mean that the whole thing is a marketing success, playing wittingly or unwittingly on muslims worldwide. In the wake of 9/11, more muslims have become assertive of their faith. With noble intentions to put their money in halal funds as they perceive it, drawing on fatwas from learned ulema that one bank or another of their choice is certified halal, certified sharia compliant. Doesn’t mean that the operations of islamic banking are correct. Could be that some islamic format is present and they are being observed in the breach, while in the normal course of a day's business, the riba system continues to play on in the islamic bank.
Claims of being a recent phenomenon are also invalid.
Claims by Islamic bankers when confronted with uncomfortable questions point out to defects in the current Islamic system are being rectified and that this whole islamic banking thing is just a couple of decades old and therefore need time and space to grow, these apologies ring hollow.
Islam has been around for a little longer. If it’s a perfect system given us, then the laws for monetary transactions must be in place , must have been in practice at some point before this.
To illustrate this last point , from the time of the prophet itself let me refresh up on history. On the eve of hijra , the situation in Medina was such that the Arabs, while owning the land, were actually totally under the financial control of Jews of medina . They were the money lenders to the Arabs of Medina. Trade also was in the hands of the Jews as was moneylending and arms manufacture.. Just like today, I guess.
Within two years, the Jews of Medina opted to leave the City, leave their transactions , leave their moneylending, and go live by themselves, somewhere else. A bunch of moneyless, asset less Emigrants met up in business with a bunch of previously indebted muslim community of Ansars of Medina , and turned things around. What happened ? Apart from the Help of Allah coming down in terms of Baraka, and this a quantum jump in Iman, the muslims got together, financed each other in terms of sharia compliant instruments, trusted each other, and succeeded.
Rate of returns in the selection of funding a project, hardly the benefit to society as a whole.
Another observable feature by this writer of the practise of islamic bankers in Colombo is the subtle Rate of Return, ( aka interest) agenda ; its not about the social returns of a project but the best returns to the investors of the bank. Of course this is an implicit consideration in their deliberations. If this isnt Riba, go figure !
Islamic banking is Risk taking not insurance covering !!
Main feature of Islamic banking dear brothers is the profit sharing feature that is distinct from Riba based bankers. Good in principle but near impossible to implement. Which investor of the bank in todays time will Risk his money to another ?
Composition of the I Banks investors, its shareholders. …
Most cash investors in Islamic banks are still Big Time business men and investors, having surplus money, who don’t have use for the monies they invest , greater than the projected returns on islamic bankers and that’s why they lend in the first instance; its not altruistic, believe me. They vast majority of stakeholders are not the general public but a select few millionaires who happen to also be businessmen. That’s awfully bad for another reason. True Islamic banking should comprise the entire general public and control and management of the functions of such an institution shouldn’t be in the hands of large corporates but selected teams from amongst the staff and the investors in general. But how is this selection going to be done is another process.
A question of legality here…
In any transaction involving common sense, there's something called legal consideration and forms the basis of a transaction. Now if we take Islamic banking as business that involves a partnership of sorts between bank and borrower where one has the money and no knowledge and the other knowledge buyt no money, why must the borrower come clean and tell the lender, the I Bank all the salient points of the business, especially as the ownership of the bank is in the hands of the select millionaire businessmen ?
Suppose , and its happened before, I, a convinced muslim , elect to tell the Islamic bank details of my unique project and its rejected by the bank as a bad proposal. I've now given my only asset, my knowledge, in exchange for absolutely nothing from the banks side !! How Islamic is that ? Now, with the transfer of My Knowledge to the Money Lender, the Bank has both of the Assets required for a business ie, money and my knowledge, and let's not forget who owns and manages the Islamic Bank. Let's not be altruistic either, here, we are talking to hard-nosed bankers and some among us borrowers are hard-nosed businessmen too. Something isn't right here, what ?
Islamic banks ought to be Risk taking but Prudent, Trade Knowledgeable Banks; they ought to have in their expertise, men and equally women, who are trade knowledgeable, bankers, accountants , the lot.. Few Bankers fit the bill in terms of Trade knowledge. Of course the Owners to the Banks are knowledgeable enough and they perhaps in their wisdom, are enough .
I believe that an over whelming majority of the Banks activities are in no way risk taking; they are but riba based banks in everything but name; grandiose terminology signifying that Riba exists in different names. Ask all the islamic banks in existence and you will find that most of their lending portfolio is in no way risk taking, profit sharing. What Islamic banking are we talking about ?
Perhaps the way forward is as follows:-
- A more broad based society owned bank rather than corporate owned.
- More of a society based bank than a commercial bank.
- Small and Big money participation with none of the Banks knowledge base to be disseminated outside. Tough call , this.
- More Grameen bank lending to cover all sections of society; giving of small loans ala the grameen method
- Branch Banks to have autonomy on controlling their monetary affairs and the de centralization of all banks in terms of their funding, as after all this is the true islamic method from the days of the rightly guided caliphs. . Won't happen under existing conditions as large capitalists will have little say thereafter. Local Governance was what muslim empires of yore do very successfully; centralized control brings about corruption. If a region has money, let them enjoy the fruits of their hard work, rather than giving a central government to have huge pointless expenditures etc etc.
- What's happening now is intellectual theft under cover of islamic principles, in a time period when Islam itself has been stolen.
That quantum leap in faith is what's missing in the world today. I don’t blame the Islamic bankers either for too many of them have been taken to the Cleaners ! Still, the Islamic banking model is etched in history and we need to implement it, but how?
Fayaz Moosin.
Colombo. Oct 2015.
