Islamic banks suffer increasing financial surplus

Adnan Hizam

Islamic banks suffer increasing financial surplus
By Adnan Hizam
Aug 26, 2006 - Vol. IX. Issue32
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It went on to say that the Islamic banks suffer from low-qualified workers who are unable to cope with the latest developments in the world banking sector. Research for the study was conducted by Assistant Professor of Economy in Sana’a University, Abdullah al-Tawqi.  Al-Tawqi highlights the problem involving the lack of awareness about the reality of the Islamic banks in Yemen as they reorganize the difference between ordinary banks and Islamic banks.

The latter receives profits from funding investment projects by mourabaha operations. The study shows that the Islamic banks try to diversify their funding plans by developing programs that eliminate mourabaha operations and extend their activities with careful speculation.  It was found in the study that the Islamic banks achieved success in different social and economic aspects as the funds for mourabaha operations reached approximately YR 158 million; funds of speculation were approximately YR 102 million.

The study revealed that the Central Bank of Yemen does not deal with Islamic banks according to the rules of Islamic banks.  This is especially true in fields of legal reserves as the central bank offers usurious profits, which the banks then distribute for poor people. According to the study, Islamic banks in Yemen depend mainly on mourabaha operations in most investment activities.  Investment projects funded by the banks through mourabaha operations were at a rate of 93%. The study clarified that the Islamic banks do not actively contribute in the economic and social development because they are unable to fund vital development projects.

“Islamic banks will play key role in reviving investment and reducing unemployment, if they manage to fund long term projects,” says the study. Research for the study shows that the merging of all Islamic banks in Yemen into one or two banks would raise their capitals and helps them compete with other foreign similar banks. A recommendation made in the study was drawing a joint investment package between Islamic banks to avoid risks of the speculation.

It also calls for the banks to pay further attention to the planning process, and conduct scientific studies for the economic advantages for the projects funded by the banks through speculation or sharing. Requests made in the study include asking for banks to fund and support studies and research that discuss obstacles facing Islamic banks and find solutions to improve funding plans of these banks in order to bring risks to a minimum level.

The study called for Islamic banks to work hard to set up International Islamic Bank which would play an active role in coordination and cooperation between the banks and resolve all problems. It is also recommended in the study for coordination between religious scholars and professors of economics to discuss the latest development from religious and economic angels to come to an acceptable solution for the treatment of the banks.   The research emphasized the importance of qualifying workers in the Islamic banks, and the importance in educating them about the new developments within the banking sector.

It also called for the banks to work to establish an Islamic-Arab committee such as the Pazal committee to deal with similar banks in the world in accordance with their rules and capabilities because the committee would offer protection for Islamic banks against any risks.  The study asked for the banks to encourage small industries and to allow easy access to loans in order to assist poor people and youths.

The research within this study aimed at reviewing the reality of the Islamic banks in Yemen and their role in the development process as well as pointing out the obstacles in the way of these banks.  Between 1995 and 1997, three Islamic banks were established; Islamic Tadamon Bank, Saba Islamic Bank and Yemen Bank for Investment and Fund.

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