The Future of Islamic Banks

Majeed al-Shara

The Future of Islamic Banks
Majeed al-Shara     Al-Hayat     - 22/08/06//

In an economic viewpoint, Investment Associations & Saving banks are considered institutions that are specialized in savings and investment. Though traditional, this concept is the foundation on which the banking business is based, in terms of modern technology.

Traditional banks benefited from the available funds from savings and investment in various ways, without taking into account what is lawful and what is forbidden in these dealings from an Islamic viewpoint. Profit was their only strategic goal.

Some may ask: why should we care about the Islamic viewpoint? This will limit the freedom of transactions, especially as the majority of transactions and exchanges are with foreign banks. These foreign banks have nothing to do with the Islamic approach in this field. The answer is that these people do not have a clear view of the Islamic approach as regards to the circulation of wealth and financial transactions. The details of this issue may not be well known to many people.

In this regard, we are theorizing on Islam's philosophy of money and investment channels. This is irrelevant and needs detailed explanation. I will only present brief references to serve my viewpoint. There is a wide scope of lawfulness in Islam. Some Quranic verses assigned unlawfulness to certain conditions for humanitarian and social purposes. The following is an example from the Quran:

He has only forbidden you what dies of itself, and blood, and flesh of swine, and that over which any other (name) than (that of) Allah has been invoked
(Al-Maeda [The Table] Sura, from the Quran, Verse 5).

Islamic banks did not arise haphazardly nor were they based on the desire of some religious people to Islamicize the financial systems according to theories that mix religion with politics. The reasons are fundamentally different, as Islamic banks have made clear the necessity of investing money to serve society through projects that are developed to meet needs in a positive way. These banks tend to make positive dealings. While traditional banks find that investing cash to generate the greatest possible revenue made by the difference in interest a positive strategy, Islamic banks consider this a negative strategy, as they reject the concept of interest and seek effective participation in various ways. They consider the lawfulness of dealings which gives profiting an exquisite shape. This perspective may be related to the dimensions or meanings of the holy verse on money:

'Wealth and children are an adornment of the life of this world'
(Al-Kahf [The Cave] Sura, Verse 46)

This verse refers to the importance of money in life. It is the ornament of life, if it is properly utilized to serve useful ends. It is a kind of the Holy Quran's philosophy on stating and insinuating. In other words, this refers to utilizing money away from suspicion and sanctities which would tarnish the purity of this ornament. This is the logic of divine religions.
Recently, States have recognized the importance of the Islamic banks, the scope of their activities and their role in the banking industry. The number of these banks is now more than 170 worldwide. It is noteworthy here to refer to the latest steps taken in the field of Islamic banking. The United Kingdom (UK) established an Islamic Bank. It started its business in the first quarter of this year. A similar step was taken in Japan. The Japanese business newspaper 'Nihon Keizai' reported that the Japanese Bank for International Cooperation, a government financial institution, formed an advisory commission featuring four specialists from the Kingdom of Saudi Arabia, Malaysia and Pakistan. Major Japanese banks, such as 'Sumitomo Mitsui', 'Mizuho' and 'Tokyo Mitsubishi UFJ', participated in studying the financial rules applied in Islamic countries. This initiative falls within the framework of a Japanese government campaign to receive energy, particularly through promoting relations with oil and gas producing countries. The world's second greatest economy depends heavily on oil and gas.

The aforementioned points explain the importance of Islamic banks. Now, they have a significant role in banking dealings and the coverage of international financial transactions. These banks will have a promising future, and will be an ideal substitution for traditional banks, as they would bring about new investment channels, not previously known by traditional banks.