Describe the evolution of Islamic banking in different countries Essay

Chapter 5 Execution of IB

In order to acquire a better position of IB, several states are chosen in order to show the development of IB.

  1. United arab republic

Egypt is a state which includes 94 % of MC and the staying 6 % includes Christian and other community. It was in Egypt where the first IB was introduced viz. Mit Ghamr.

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Mit Ghamr was set in 1963 by Ahmed Al Najjar and subsequently stop its operations in 1973 as it was liquidated by the Egyptian authorities. The latter wanted to run IB in Egypt by following the German salvaging theoretical account. To do this undertaking successful, the German were besides ready to assist and eventually Ahmed Al Najjar acquire the official permission from the authorities of Egypt.

The latter did non take Islam as mention fearing that the undertaking will be refused. Therefore, the province and the populace of Egypt was non cognizant of the creative activity behind the bank which was an IB.

Harmonizing to Henry et, al. , 2004, neither the province nor the populace was cognizant that the purpose behind this set up of the bank was an IB but still Mit Ghamr Bank is known as the first IB which encouraged other Muslim states to set up Islamic system.

Henry continue to reason that there is a difference between the First IBs and the IBs of today. The purpose of the first IB is to make full spread in societal and economic life and to back up the hapless by increasing the population consciousness of salvaging and by mobilising their resource. The IBs of today seem to be based on the thought that all other Bankss that is CBs are illicit and to be replaced by IBs. ( Henry et al, 2004 )

Subsequently on, two other Bankss started runing in Egypt which was the International Bank for Investment and Development ( IIBID ) and the Egyptian Saudi Investment Bank ( ESIB ) . The two Bankss was known as the private IBs but the province played a major function in the creative activity and publicity of IB but this creates confusion on the traditional system which is the involvement system. ( Henry 2004 ) .

For Warde in 2000, Egypt is one of the few Islamic states where the top spiritual constitution has approved of involvement based loaning but still as many other states Egypt is one where the authorities doubts the IBS as the province fright that this new system can destabilise the province ( Warde,2000 ) .

Subsequently on CBs in Egypt introduced so called IB subdivisions. This techniques was adapted by 11 comercial bank in eqypt. Their purposes was to vie and weaken the IBs but harmonizing to Ray in 1995 this issue will travel an Islamisation of the banking system. Harmonizing to Henry, IB has non in prctice been the monopoly of the Islamic movemnt nor the monopoly of its laminitiss. Most of the people involved in IB concern are a politcal and some of them move back between IB and CB ( Henry et, al.. , 2004 )

  1. Dutch east indies

Indonesia is another MC where the population size is 238 million and includes of different community 88 % of Muslim, 8 % of Christian, 2 % of Hindu, 1 % of Buddhist and 1 % belong to other community.

The bulk of the population was Muslim in Indonesia yet this state was non ready for IBS. Later on, this IBS was introduce in Indonesia and was used to equilibrate the delicate cultural, spiritual, political and economic state of affairs.

In 1990, the most powerful Muslim authorization in Indonesia set up the involvement loose based system across the state. After 2 old ages, and IB was introduced viz. the Bank Muamalat Indonesia ( BMI ) . The purpose of this bank is to assist the authorities in the procedure of the national economic state of affairs including the little and average graduated table entrepreneurship. It is besides to be noted that the bulk of the stockholders of BMI was belong to the Non MC. ( Warde,2000 )

  1. Persia

Iran with a population of 69 million where 89 % belong to the Shia Muslim, 9 % to the Sunni Muslim and the staying 2 % to the other community.

The war between Iran and Iraq so had a negative impact on the economic system. The urban economic system was weakening since there was tricycle for months which slow down many undertakings like supplying natural stuff and deficit in intermediary trade goods. Therefore many proprietors and directors of big houses decided to go forth the state every bit good as private Bankss and insurance companies. The banking system of Iran was confronting many jobs in 1978 as there was a immense sum of backdown and this caused heavy debt owed by big houses to the Bankss.

In 1983 the jurisprudence of Interest free based banking system was approved by the parliament of Iran. Therefore, under this jurisprudence bank was allowed to run in the net income sharing understanding and can accept involvement free sedimentations and term investing sedimentations.

The term investings deposits that was available can either be short-run that is for three months or can be on long term footing that is for one twelvemonth. Thus bank use their resources in this undertakings and sharing the net income and loss from the depositors financess.

In 1979, Iran started using the Interest based System. To present this system, the state foremost was nationalized of the banking system where commercial Bankss and specialised Bankss were merged and all their operations was supervised by the authorities. In 1980, all foreign Bankss stopped all their activities in Iran and so go on to run subsequently with restricted activities. In add-on the Persian governments started to program set up jurisprudence for the banking system so as to avoid struggles between Bankss.

Between 1982 and 1986, statute law was set up in order to follow IB and so in 1983, the parliament approved of the IBS. Within 1 twelvemonth the authorization was successful to do the bank to change over their sedimentations harmonizing to SL.From 1986 boulder clay now the banking system form portion on the Muslim Government.

  1. Jordan

Jordan has a population of 5.6 million among which 92 % belong to the Sunni Muslim, 6 % Christian and the staying 2 % belong to other community. The construct of Islamism was introduced in 1970 in Jordan, therefore IBS was celebrated in the Arab universe and in Jordan.

When the civil war ended in 1967, the MC had chosen the monarch’s side and had hence received a good position in the state and this consequence to the set up of many health care, charitable and educational establishments. Thus the thought of Islamic construct was proposed.

Islamist in Jordan was followed by the Pakistani Islamist and the first IB in the universe viz. the Mit Ghamr found in the Egypt. Harmonizing to Henry every bit shortly as the Islamic Development Bank and the Dubai IB were introduced in 1975, this motivate the Jordanian Islamist to utilize the construct Islamic as an alternate system. ( Henry et. al. , 2004 ) .

The thought of IBS was non interested for the taking bank in Jordan but subsequently on Sami Hamoud a Jordonian economic expert was successful to demo that an Islamic is of import in Jordan since the latter was certain that that an involvement free system will execute more expeditiously than a CB.

In 1978, the first IB was set up in Jordan viz. the Jordan IB ( JIB ) and after old ages there was the debut of the Arab IB. But harmonizing to Henry the Arab IB was set up by a CB and is less Islamic than the first 1 that is the Jordan IB ( Henry,2004 ) .

Henrymentioned that the support of the Islamist was so really of import for the constitution of the JIB as they provide both fiscal aid and Islamic legitimacy But Islamists was afraid of deficiency of direction and invention which was called to be unprofessional. Henry continues to reason that the critic might be unjust and descend from unrealistic outlooks of Islamists ( Henry et. al. , 2004 ) .

  1. Kuwait

Kuwait with a population of 2.26 million where the bulk are of MC which represents of 85 % and the staying to other community like Christian, Hindu and Parsi.

The Kuwait Finance House ( KFH ) was established in 1977 and is one of the most celebrated, successful and affluent Islamic Institution.Kuwait is the lone state where the authorities provides all their support to KFH and held approximately 49 % of portion in the organisation. KFH is one of the largest IB as it holds big sum of assets, $ 48 billion in 2011.

KFH provides nest eggs histories to their CUSTOMER instead to current histories and is known as the first Islamic commercial bank at national degree since it held approximately 15 % of the Kuwaiti market. In order to follow the Islamic rules, it was a spot tough for the KFH to put these fund in Kuwait therefore KFH invests in the sector of cars, existent estate and other merchandises. Finally the KFH was successful in converting the Kuwait population on IB where subsequently on Law on Islamic Baking was implemented in the state. ( Henry et. al. , 2004 ) .

Saeed mentioned that harmonizing to Kuwait Commercial codification involvement is acceptable in commercial loans but harmonizing to the Kuwait Civil Code it was mentioned that loans must be based on involvement free footing. ( Saeed, 1996 ) .Normally it is the Finance Ministry who slots of problem. ( Warde,2000 ) .

  1. Lebanon

Lebanon includes the bulk of Muslim population. The population size is 3.7 million and among which 59.7 % represents the MC, 39 % represent the Christian community and the 1.3 % other community.

In 2003, the first IB was set up in Lebanon viz. the Arab Finance House ( AFH ) and later on the there was the debut of the Finance Investment House which is the exclusive Investment Bank in Lebanon. It did non take clip for the AFH to be one among the successful IB since it started with a capital of USD 60 Million.

It is critical for and IB to hold a lower limit of $ 100 million in order to obtain the IB licence ( Khatib, 2004, Interview ) .

  1. Malaya

Malaysia is a state where faith plays a major function. The population size is 23.5 million and includes faith like Muslim, Buddhist, Hindu, Christian and others.

There is a double banking system that is it operates both type IB and CB system. Harmonizing to Warde, the construct of IB was motivated in Malaysia hence this system was practiced in Kuala Lumpur and this allow Malaysia to vie with Singapore and Hong Kong ( Warde, 2000 ) .

IBS was used to develop the economic system and for the enlargement of the industry. In 1982, an IB Act was implemented and the first IB viz. the Islam Malaysia Berhad was set up.In 1993, the cardinal bank of Malaysia allowed the CB to offer Islamic merchandises to the population so as to originate competition. ( Archer et. Al. , 2002 ; Warde, 2000 ; Al-Omar , 1996 ) .

Malaysia bank offer a assortment of Islamic merchandises and harmonizing to wade latest method and engineering was used so as to advance IB activities but the latter besides mentioned that all factors which are against Islamic regulations as evidently restricted under Islamic Law. ( Warde, 2000 ) .


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