من: Abdullah AlShahrani [firstname.lastname@example.org]
تاريخ الإرسال: 29 آب, 2008 03:21 م
إلى: Dr. Samer Kantakji
الموضوع: RE: Calculation of profit and interest
Dr. Samer Kantakji
Alsalam Aleekm Warahamat Allah
I already received Mr. Ikram comments and reply to him my points. Please send my reply within your group. I am honored to join your site and group.
Abdullah M. Alshahrani
I've been CCed with the following letter written by Mr. IKram commenting on my opinion over the Islamic Banking. I would like to thank Mr. Ikram for sharing me his valuable views. In extend to Mr. Ikram's statement, I would like to point out the following points:
I wrote my opinion based on my experience with the Islamic Banks and Companies in Saudi Arabia.
Mr. Ikram stated his main argument that even though Islamic and Conventional banks use different Interest (Murabaha) rate, they come up with the same out comes (profit). Say that, if an Islamic bank charges Flat Rate (4%), then, the Conventional bank in the same time charges 8-9%. The argument is fully conceivable if it is true in reality. Several years ago, Alrajhi Bank, the only Islamic bank in Saudi Arabia that time, was charging its customers up to 8-11% on a car (murabaha) loan without insurance. Up to date, with more Islamic players (new or transmitted) get into the market, the rate has plunged down to 5%. Some banks who changed their face mask to be Islamic in order to get a part of the pie are not greedy too much and happy with 3.75% flat rate. That yields in a 7% real rate if the loan is for 3 years. On the other hand, the conventional banks' rate is about 6-7% as published on most of their websites (see the attached copy). One can compare its profit with the Islamic loan profit and see the difference. Ignore the rate and compare the profit (Interest) for each loan.
Mr. Ikram argues that people are not fool to be abused by Islamic bank. Unfortunately, they are as they are brainwashed that they have to deal with the Islamic bank even it costs them higher. Up to date, there are Installment (Taqseet) companies that charge up to 13% flat rate, just because they are owned by religious figures and are not named Banks. Many Western financial institutions figured out the idea and caught it without delay. It does not cost them nothing but paper work, good PR campaigns, and a Sharieah Committee filled by religious men, who are in the same time members of other tens committees. With such committee, imagine how strict is the Islamic monitoring.
Mr. Ikram says that 'the Islamic banks abide by the moral values of Islam and committed to do exactly what they promise their customers and to the best of my knowledge they do what they say'. I think that the Islamic Banks abide by their shareholders' interests not moral values of Islam. No Islamic Bank grants a Hsanah loan (free loan) as Islam instructs wealthy Muslims to do so. No Islamic Bank involved in social or charitable activities higher than any other conventional bank. No Islamic Bank lends money with higher risk than any other conventional one. In the case of fulfilling their promise, I doubt such statement based on many actual cases, and in the best case, the Islamic Banks are in the same level of the conventional ones.
In conclusion, regardless the different terminologies, banks be Islamic or conventional are financial institutions. They barrow money and lend money with interest (murabaha). Murabaha or Torrwq or other mask applications are just on the paper and do not make the Islamic bank merchants who ,as I believe, are the only one allowed by Sharieah to charge interest on their installment sales. Risk is a major reason for prohibiting Ribba. Islamic Banks bear risk on their loan just as much as Conventional Banks do. So, why do they charge their costumers more?
Last and important note, I am talking about my experience with the Islamic Banks in Saudi Arabia. Thus, I expect that Mr. Ikram's Islamic Institution is different. I will be happy to confirm that in any form.
Thanks for all
Download the Excel file of loan calculation:
فضيلة الأستاذ عبد الله التاهسي الشهراني
السلام عليكم ورحمة الله وبركاته
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Dr. Samer Kantakji
The Moderator of Islamic Business Researches Center
School of Islamic Economics Chairman - Pebble Hills University, Europe
Mobile: +963 944 273 000
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السلام عليكم ورحمة الله وبركاته
A mail was circulated some days earlier with the attached Excel file. The document has been prepared by someone Mr. Abdullah al Shahrani who is a Financial Analyst. Mr. Shahrani tried in his document to demonstrate the difference between Islamic and Conventional banks showing how maliciously Islamic banks are exploiting their customers. I agree with him to the extent that the Islamic Banks should not take the advantage of sacred Islamic feelings of their customers rather they should practice in a very transparent manner. However, the way he proved his litigation is very funny and interesting particularly his hypothetical view describing the reason for converting the Western banks into Islamic ones.
..................... وهذا في رأيي سبب لان تتحول البنوك الغربية إلى دجاجة البنك الاسلامي التي تبيض ذهباً
I’m sure if Mr. Shahrani could have even the preliminary knowledge about general banking practice never would have come up with the result he shown in his document. His whole analysis is fictitious and far away from the reality. This is only because he couldn’t identify the difference between flat and reducing balance rates which are the principles for such kindly of calculations. If you lay down the first stone wrongly, the whole construction will go the same way.
تا ثريا مي رود ديوار كج
Generally, Islamic banks use the flat rate for the calculation of their profit on Murabaha and Tawarruq while the conventional banks adopt the reducing balance rate on the given loans. If any Islamic bank offers, say, its profit on Murabaha finance at 4% flat rate, the conventional bank will offer the loan at least at 8 or 9% interest rate on reducing balance that ultimately comes equal to the flat rate offered by the Islamic bank. I don’t know any conventional bank that offers its loan at 4% reducing balance as the calculation of Mr. Shahrani reveals. Really, it will be very interesting to know if such a bank exists in the market. In fact, for the customers, that bank will be the Hen of laying golden eggs (دجاجة التي تبيض ذهباً). Mr. Shahrani’s calculation is also a substantial proof of his lack of information about the market practice and competitive advantages. Can anybody imagine that working in the same industry, two different banks can have so huge variation in their pricing i.e 50% as Mr. Shahrani’s fake allegation states? Customers are not fools Mr. Shahrani! Nowadays they are more responsive and conscious than they could have been in the past. No Islamic bank can survive in the market even for single day dealing as unfairly as you wish to prove. All banks, be the Islamic or Conventional, are pricing the same with a little and negligible variation but the ways are different which result in almost the similar. Moreover, the Islamic banks abide by the moral values of Islam and committed to do exactly what they promise their customers and to the best of my knowledge they do what they say. I would like to request Mr. Shahrani to review his following statements:
القروض الاسلامية او مايسمى قروض 'التورق' تحسب فائدتها بطريقة مجحفة وغير عادلة.
هذه ليست دعوة ضد اسلمة التمويل ،، وانما مطالبة عادلة تقول: اوقفوا جشع البنوك وشركات التقسيط
It was better if Mr. Shahrani could acquire proper knowledge about Islamic Financial products before to accuse the Islamic financial institutions for their mall practicing. Further, the terminologies he used in respect to Islamic finance like الاقراض والاقتراض والفائدة are totally irrelevant to the Islamic financial practice.
I again attach his document for the review of the group members and will appreciate if Dr. Sameer will put his personal comment on it. I also surprised not see any remarks on the document from any member of the group.
May Allah guide us to the right path and keep away from all the wrong doings.
والسلام عليكم ورحمة الله وبركاته
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