Shari’a, Banking and Revolution

[Omar1984]

Shari’a, Banking and Revolution

The suggestion of using Islamic banking and finance as a tool for social reform has added relevance to the countries in the Middle East, which are facing political turmoil and the collapse of many well-established regimes. In countries such as Pakistan, which faces the humongous task of a war on terror and a potential revolution in making, Islamic banking and finance can be used to promote moderation in social behaviour and the modernisation of financial relations.

Islamic financial products: In the last three decades, a number of new Islamic financial products have been developed primarily by applying Islamic nominate contracts in new ways to achieve the economic profiles of conventional products, so as to allow Muslims to have access to financial services in ways that are not contradictory with their belief. This was indeed a mammoth effort in which different stakeholders, including governments, international regulatory bodies, law firms, Shari’a scholars, accountants and many more played instrumental roles. Consequently, there is now a wide range of Islamic financial products available, which offer the economic benefits of conventional products in a Shari’a compliant way. This process may be termed as conversion of conventional products into Islamic. Some industry experts such as Professor Volker Neinhaus of Germany, however, argue that this is at the same time conventionalisation of Islamic banking and finance as well, because this process of conversion of conventional products brings the economic profiles of conventional products into Islamic banking. This is perhaps a valid argument.

Product development: The question that arises is whether Islamic banking and finance should continue with this kind of product development or attempt to develop a new system comprising institutions and products, which are distinctly different from conventional financial institutions and the products they offer. In other words: what kind of innovation is required to develop a financial model for Muslims (and possibly for others who may share the underpinning values of that model/system), which offers real benefits to the communities and not mere financial sophistication.

Many industry observers and proponents of Islamic banking and finance argue that it must have distinct social objectives for it to survive and sustain in otherwise fiercely competitive financial markets. So far the real value proposition of Islamic banking and finance is in terms of Shari’a compliancy. It is now time to start thinking about topping up its value proposition in terms of its contribution to social responsibility and commitment to the communities it attempts to serve.

Social objectives: Islamic banking and finance must have social objectives, which must attempt to bring social reforms by way of promoting good economic agents. It should come up with a notion of a good economic agent and allow only such agents (individuals and institutions) to be part of the Islamic banking and finance practice and movement. One way of defining good economic agents is in terms of efficiency, ethics, responsibility, and charity. Thus, an economic agent is good if it is efficient (e.g., does things well and quickly), ethical (e.g., honest, transparent and just), socially responsible, and charitable. A certain threshold level of efficiency, ethics, social responsibility and charitable giving must be set for accepting an economic agent in the Islamic financial services industry, as a user or as a provider of such services, including the service providers to the suppliers. This is something very different from the current practice of Islamic banking and finance.

Rhetoric rather than reality: Islamic finance at present emphasises upon rhetoric more than its current reality. The current reality is that Islamic banking and finance is competing with its conventional counterpart and has yet to develop its own niche. This is reflected by a huge emphasis in Islamic banking and finance on the maintenance of profit equalisation reserves and investment risk reserves, and the relevance of what is known as a commercial displacement risk. All of these concepts and practices are used to ensure that Islamic banking and finance remains as close to conventional banking as possible. In fact, in the countries where Islamic banking and finance is being provided a level-playing field, treatment of Islamic banking products is exactly the same as their conventional counterparts for the purpose of tax neutrality. While measures such as tax neutrality are helpful for the practice of Islamic banking and finance, these are documented proofs that Islamic financial products are indeed no different from their conventional counterparts in terms of their economic effects. It must be emphasised here that the author is not arguing that the current Islamic financial products are not Shari’a compliant; he is just referring to the fact that they offer similar economic benefits to conventional products. This is indeed the time for Islamic banking and finance to pause and think for a while what future path it would like to take. Many industry observers believe that Islamic banking and finance must find its niche, which according to them is not in the mainstream. Once it has identified its niche, it must also identify what type of Islamic banking and finance its potential users would like to see developing.

Market for Islamic finance: Admittedly, the market for Islamic banking & finance is limited. Only about 1/4 of Muslims are interested in Islamic banking & finance. This means that out of an estimated global population of 1.6 billion Muslims, 400 million are interested in Islamic banking and finance. Although per capita income ranges from less than $500 per annum to over $50,000 per annum in the countries where Islamic banking and finance exists, the incidence of Islamic banking is biased in favour of higher per capita environments. If we choose $1,000 per capita as a conservative estimate of the annual income of those who are interested in Islamic banking and finance, then an additional annual $400 billion is available for Islamic banks and financial institutions to draw their business from.

Expanding horizons: However to go from the present size of $1.14 trillion (as reported in the Global Islamic Finance Report 2011) to the forecasted $1.6 trillion (as projected by the Islamic Financial Services Board for 2012), will be difficult if Western and local conventional financial institutions do not inject their money into Islamic banking & finance. One way of doing so is for Muslim governments and political parties (e.g., Pakistan Tehrik-e-Insaf and Pakistan Muslim League (N)) to adopt Islamic banking as a tool for social reform, which could serve as an important part of the revolution brewing in the Muslim world in general and Pakistan in particular.


Shari

 

[Omar1984]

Quaid-i-Azam's Speech
On the occasion of the Opening Ceremony of
The State Bank of Pakistan on 1st July, 1948.

"Mr. Governor, Directors of State Bank, Ladies and Gentlemen.

The opening of the State Bank of Pakistan symbolises the sovereignty of our State in the financial sphere and I am very glad to be here today to perform the opening ceremony. It was not considered feasible to start a Bank of our own simultaneously with the coming into being of Pakistan in August last year. A good deal of preparatory work must precede the inauguration of an institution responsible for such technical and delicate work as note issue and banking. To allow for this preparation, it was provided, under the Pakistan Monetary System and Reserve Bank Order, 1947, that the Reserve Bank of India should continue to be the currency and banking authority of Pakistan till the 30th September, 1948. Later on it was felt that it would be in the best interests of our State if the Reserve Bank of India were relieved of its functions in Pakistan, as early as possible. The State of transfer of these functions to a Pakistan agency was consequently advanced by three months in agreement with the Government of India and the Reserve Bank. It was at the same time decided to establish a Central Bank of Pakistan in preference to any other agency for managing our currency and banking. This decision left very little time for the small band of trained personnel in this field in Pakistan to complete the preliminaries and they have by their untiring effort and hard work completed their task by the due date which is very creditable to them, and I wish to record a note of our appreciation of their labours.

As you have observed, Mr. Governor in undivided India banking was kept a close preserve of non-Muslims and their migration from Western Pakistan has caused a good deal of dislocation in the economic life of our young State. In order that the wheels of commerce and industry should run smoothly, it is imperative that the vacuum caused by the exodus of non-Muslims should be filled without delay. I am glad to note that schemes for training Pakistan nationals in banking are in hand. I will watch their progress with interest and I am confident that the State Bank will receive the co-operation of all concerned including the banks and Universities in pushing them forward. Banking will provide a new and wide field in which the genius of our young men can find full play. I am sure that they will come forward in large numbers to take advantage of the training facilities which are proposed to be provided. While doing so, they will not only be benefiting themselves but also contributing to the well-being of our State.

I need hardly dilate on the important role that the State Bank will have to play in regulating the economic life of our country. The monetary policy of the bank will have a direct bearing on our trade and commerce, both inside Pakistan as well as with the outside world and it is only to be desired that your policy should encourage maximum production and a free flow of trade. The monetary policy pursued during the war years contributed, in no small measure, to our present day economic problems. The abnormal rise in the cost of living has hit the poorer sections of society including those with fixed incomes very hard indeed and is responsible to a great extent for the prevailing unrest in the country. The policy of the Pakistan Government is to stabilise prices at a level that would be fair to the producer, as well as the consumer. I hope your efforts will be directed in the same direction in order to tackle this crucial problem with success.

I shall watch with keenness the work of your Research Organization in evolving banking practices compatible with Islamic ideas of social and economic life. The economic system of the West has created almost insoluble problems for humanity and to many of us it appears that only a miracle can save it from disaster that is not facing the world. It has failed to do justice between man and man and to eradicate friction from the international field. On the contrary, it was largely responsible for the two world wars in the last half century. The Western world, in spite of its advantages, of mechanization and industrial efficiency is today in a worse mess than ever before in history. The adoption of Western economic theory and practice will not help us in achieving our goal of creating a happy and contended people. We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace which alone can save it and secure the welfare, happiness and prosperity of mankind.

May the Sate Bank of Pakistan prosper and fulfil the high ideals which have been set as its goal.

In the end I thank you, Mr. Governor, for the warm welcome given to me by you and your colleagues, and the distinguished guests who have graced this occasion as a mark of their good wishes and the honour your have done me in inviting me to perform this historic opening ceremony of the State Bank which I feel will develop into one of our greatest national institutions and play its part fully throughout the world."


Quaid-i-Azam Muhammad Ali Jinnah
1st July, 1948

State Bank of Pakistan

 

[FKPcamper]

no offense but having worked in finance and dealt with sharia bonds... i cant help but feel like its just a work around solution...

in reality there is really interest being paid... my 2 cents

 

[BelligerentPacifist]

^Many current solutions are workarounds and many are simply cover-ups for interest, unfortunately.

 

[FKPcamper]

^Many current solutions are workarounds and many are simply cover-ups for interest, unfortunately.

if you agree that it is a workaround then dont u feel it would just be better to follow the international system.

your financing channels are opened up to a much wider base... allowing you to be more competitive.

 

[Zarvan]

Islamic Banking is not completely free from Ribah and Interest but still it is far better than conventional Banking but Ulema should see how to improve it more but still many European countries are now starting Islamic Banking because it is far more safe than conventional Banking

 

[FKPcamper]

Islamic Banking is not completely free from Ribah and Interest but still it is far better than conventional Banking but Ulema should see how to improve it more but still many European countries are now starting Islamic Banking because it is far more safe than conventional Banking

how is it safer?

and with regards to european countries starting islamic banking - source please?

 

[Omar1984]

SCB opens new Islamic Banking branch

KARACHI – As part of Standard Chartered’s commitment to provide high quality Shariah-compliant banking products and services to its customers, the Bank inaugurated its Islamic Banking (Saadiq) branch at Khayaban-e-Hafiz, DHA, Karachi, says a press release.

This branch provides a comprehensive value-added Islamic Banking customer value proposition recently launched for its customers. This key proposition offers its customers a similar range of products, quality of service, and access to the same, extensive distribution channels that the conventional customers are accustomed to.

This branch also offers its unique Islamic Priority Banking offering through a dedicated Priority Banking Centre for its customers.

Present at the occasion were the Bank’s valued customers, Mohsin Nathani, Chief Executive, Standard Chartered Pakistan, Afaq Khan, Global CEO of Islamic Banking, Raheel Ahmed, Global Head of Distribution and other senior executives of the Bank.

Saadiq, which means ‘truthful’, is Standard Chartered’s global Islamic Banking brand. Under the Saadiq brand Standard Chartered offers Current & Savings accounts, Term Deposits, the first Shariah compliant credit card, Takaful, Home Financing, Employee Banking and SME Trade & Finance facilities.


SCB opens new Islamic Banking branch | The Nation

 

[Xestan]

Folks, take out some time and watch this video.. "Time Multiple Counter Loan (TMCL)! worth watching and understanding if you've studied accounting.

 

[Mughal1]

Dear brothers and sisters, if you have read my posts you would have come to realise what islam is all about. I would try and condense that just for reminder.

Islam is al about turning us all from worst than animals to humans for our own good.

Just search for meaning of word islam. It means peace, peace in what sense ie what defines this word? The quran and what is quran? The divine constitution for islam=peace and prosperity of mankind to form a human society on its basis as a one single family working hard for all of its members so that it is at peace within itself.

The question is, what is definition of a constitution or what purpose it is supposed to serve and how it is structured or laid out and what it ought to contain?

We know islam means peace ie Allah set for us a purpose in life and that purpose is living in peace and ensuring others too are living in peace. Since peace cannot be achieved by an individual on his own therefore need for inviting everyone to come and join. This is struggle for peace and this is jihad for peace=islam.

Now if people come together on basis of peace or for the purpose of peace then they need to organise into a community or society. If that is the case then we will need terms and conditions for unity and rules and regulations as well as rights and responsibilities so that we each who have joined this big human organisation for creating peace in the world could keep our relationships with each other on equal and understood footing so that there is peace between ourselves to begin with. We cannot have peace in the world if we are fighting between ourselves as to what islam is or what is part of islam and what is not. Therefore such an important basis or foundation could not be left out of the quran to people because people would not know what to do, especially 15 centuries back. Though quran tells us God told people same message right from the start. So people who think quran is mullahs mumbo jumbo need to wake up because how do you explain the very concept promoted by the quran that the constitution is supreme? This is why law and order and economic and everything related is discused in the quran within quranic context. Our problem is that we do not bother to read the quran for understanding but for useless point scoring against each other trying to show we are superior to each other just like kids fighting in the playground. Unless we realise that we must read the quran to see what it might have to tell us we are just not going to get its message rather we are going to see in it what we want.

Regardless if we want to be a community then we also need an administration so that all of us and our resources are managed in such a way by this administration that it helps us achieve our set out goal ie peace. Moreover peace is not possible unless we meet our all essential needs and additional desires within set limits of human progress and prosperity.

This means we need each other's cooperation, help and support and so our organisation is a kind of supportive network for us whereof we should be able to derive our strength as a one big family working very, very for betterment and development of each other.


Now read the so called DROOD verse in the quran 33/56.

It is telling us that Allah and the administration=authorised people support the prophet in his divine mission=goal so you too the believers in the mission support the prophet as you ought to.


Can you see what the quran is telling us? It is not about sitting idle doing nothing useful just uttering some magic words and thinking you have done a lot of help to the mission of the prophet. This is how ignorant and arrogant enemies of islam have turned us into useless people. We have become just zabaani kalaami muslims ie mazhabi muslims, who think islam is all about saying some words and that is it.

Please try to understand the actual message of the quran by making some effort towards it. The quran's main stress is that it is constitution for organising people into a good community that is peaceful, progressive and prosperous.

This means quran ought to be a book of goals, rights and responsibilities, rules and regulations, procedures for setting up administration and running it and changing it etc etc. This is what I find in the quran which our mullahs have covered up for obvious reasons that if islam is taken as ruler in form of laws then all people will be under the law ie living by same standard for all. This is why kings and their mullahs changed islam in to mumbo jumbo and if anyone stood in their way, they killed him ie try and understand killing of grandsons of the prophet so soon after his death.

So quran clearly states aims and objectives, terms and conditions, rules and regulations, rights and responsibilities, systems, structures and procedures and practices etc etc regarding forming communities and administrations so we have nothing essential left out of the quran to fight over.

You ask any molvi sb tell us how to organise and run our organisation according to quran, he will tell you there is nothing in the quran about it. This is because either molvi is a mullah type or has not yet thought about it. He is just following what he learned from his childhood and remains childish. The quran is not for babies but for grown up people ie people who enable themselves to be able to understand its message. A street map is only useful for people who can read the map. You cannot give it to a baby and ask him to guide with it himself and others. The very same is situation with mullahs, they are bunch of uneducated people trying to control others like bully kids do to other kids in the playground.

So wake up! wake up! my dear brothers and sisters and start thinking that if quran does not tell you how to organise as a human society then what purpose does it really serve? Nothing because human organisation is the fundamental problem for humanity and if the quran had ignored this very essential part then it would be a useless book not a book of wisdom from the all knowing.

This is where in come people like sir syed, iqbal, jinnah, parwez and many others. It is educated peoples' understanding of the quran versus uneducated peoples understanding of the quran.

The difference is obvious that whereas educated muslims try to unite people in the name of islam, the mullahs are busy dividing them.

This is why we need education and not weapons for islamic imperialism. Jihad in islam is all about promoting islam and defending it. It is not at all about killing and destruction of humanity but to make man see his rightful place in this world of Allah as his servant who lives to serve fellow human beings in his name.

So islamic economic system is based upon this concept and it is discussed in the quran throughout ie man is not allowed to take over anything at all as his but as a servant of Allah all Allah has created belong to him if he uses it for the betterment of the whole mankind. In other words Allah allowed people only the use of things for people for their own good and not at all for use and abuse of each other. This is termed in the quran as BAEE and RIBAA and one is opposite of others. Allah allows trade not in sense of business for profit but exchanging things for the benefit of each other. If it is business for the profit then it comes under unlawful because it is the basic intention of benefiting others is missing as main incentive in there is profit not the sense of trying to provide something for someone because it will be good for him/her.

The mullah created definition of profit and interest is totally wrong and out of context. Their mistake lies in their understanding of word trade. It simply means division of labour in muslim society like a family ie you do shopping for family, I clean the house for it, someone makes food for the family and someone looks after kids and someone does this and someone that. The administration has a job to do in order to keep family regulated and progressive and prosperous ensuing there is no disturbance of peace in the community.

So the ideas islam gives in the quran are very simple as well as very complex. It is people with harmful and destructive interests against humanity that deliberately fuel misinterpretations of the quran and misrepresent it and thereby take advantage of those who are uneducated or not sufficiently educated.

So if we want to stop bad elements of our human society then we need to join together and not let such mentally ill people do to us what they are doing by fooling us in the name of making world a better place. The quran clearly deals with such people right in the beginning by exposing them to us ie actions speak louder than word. They say we are peace makers but they end up creating wars. The quran tells us be careful regarding such devils.

The question is, how to change the system? Very easy ie educate people that they are one family ie brotherhood. If they accept they are one family then things can be initiated over night for change. So the difficult bit is to unity of humanity on a formula that is equally acceptable to all. So if we are not worst than animals then we should not go for anything that shows from our actions that we are worst than all creatures. It is because no other creature can be as destructive or as constructive as ourselves.

We all come from families therefore if we accept that we are a family then we already have a perfectly working model for us to design our systems and structures upon ie we need to do is to make it all inclusive.

regards and all the best.

 

[Sinnerman108]

This is all mumbo jumbo ..

Truth of the matter is, that BANKING can not by Islamic.

The very concept of "saving / storing" money breaks the idea of Islam.

 

[Sugarcane]

I don't know what kind of Islamic Banking System they have introduce in which you have to pay more interest/profit to bank than non-Islamic banking system.

 

[LaBong]

^ banks don't save store money(not more than cash reserve mandated by central banking authority), banks help money to flow through the economy and multiply in process.

 

[Sinnerman108]

^ banks don't save store money(not more than cash reserve mandated by central banking authority), banks help money to flow through the economy and multiply in process.

That is not correct, and you didn't understand what i was saying.

 

[Black Widow]

Barter system is better option....

Read this
‘Uncertified’ managers of Anna Hazare’s village give management lessons | PaGaLGuY.com - India's biggest website for MBA in India, International MBA, CAT, XAT, SNAP, MAT
In 1980, the Grain Bank was started by him at the temple, with the objective of providing food security to needful farmers during times of drought or crop failure. Rich farmers, or those with surplus grain production, could donate a quintal to the bank. In times of need, farmers could borrow the grain, but they had to return the same amount of grain they borrowed, plus an additional quintal as an interest. This ensured that nobody in the village ever went hungry or had to borrow money to buy grain. This also prevented distress sales of grain at lower prices at harvest time