I had rather interesting conversation with a fellow who has no tolerance for anything labelled Islamic and it occurred to me that perhaps, his lack of tolerance stems from the fact that he is a tad ignorant. We were discussing the Islamic Bank phenomenon and I was going on and on about the advantages and the things I liked about it…needless to say, he accused me of being a false Christian (whatever that means) and promoting Islam. Anyway, he isn’t the focus of my write up. I feel it’s my civic responsibility to enlighten my friends and people around me about Islamic Banking.
Also, on the 30th of June, 2011 there was a protest by the Christian Association of Nigeria, CAN, Delta State Chapter to express their objection to the proposed establishment of Islamic banking by the Central Bank of Nigeria. In my opinion, they have absolutely no idea what Islamic Banking is all about…I think they just heard the Islamic part and flipped.
Islamic Banking is simply a system of banking that encourages interest free loans. This stems from the fact that Sharia forbids the acceptance or payment of usury (Riba) for loans. This banking system is simply based on the profit and loss sharing concept (Mudarabha).
After many conferences and meetings on establishing interest free banks, the Islamic Development Bank was established in 1975 with the aim of providing funding to projects in the member countries. Egypt was the first country to experiment with Islamic Banking and it took the form of a savings bank based on profit sharing.
Banking institutions that offer Islamic banking products and services are required to establish a Shariah Supervisory Board to ensure that their activities comply with the principles of Shariah.
The Vatican has also approved of Islamic banking as it believes that the principle of Islamic finance may represent a possible cure for ailing markets. (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOsOLE8uiNOg&refer=italy)
According to CIMB Group Holdings, Islamic finance is the fastest-growing segment of the global financial system and sales of Islamic bonds may rise by 24 per cent to $25 billion in 2010.
I know you would be wondering how this form of banking makes any sense. Well, the basic techniques employed include the following:
• Profit Sharing
• Joint Venture
• Cost Plus
It is pertinent to note that Islamic Banking excludes transactions involving alcohol, pork, gambling, smoking, pornography, etc. Also, Islamic Banking is not restricted to Muslims only!
I would like to refer my readers to a short article I read in The Economist a few weeks ago. It would help you understand Islamic Banking better and perhaps see that all along, we might have deprived Moslems in Nigeria the privilege of having a banking system that conforms to their religious beliefs.