Islamic banking is a banking system in accordance with the shariah principle. In Islam, money has no intrinsic value – money, therefore, cannot be sold at a profit and is permitted to be used as per Shariah only. The Islamic Law prohibits paying any fee for renting of money (called riba) for specific periods of time. It also prohibits any sort of investment in businesses that are considered against the principles of Islam. It is largely believed that these principles have been derived from the Qur’an and have been in practice since then. Islamic banking is also known in some places as “Ethical banking”, “Alternate Banking”, “Interest-free Banking”. There are some conventional banks that operate under these names and much appreciated for their differences aimed at achieving a just and fair economic model in banking.
All over the world Islamic banks operate under a Shariah Board or Shariah Council in addition to the conventional Board of Directors or equivalent. These boards consist of qualified and well-known Islamic scholars who specialise in Fiqh Al Maumilat (Economic Jurisprudence).Islamic banking was first introduced in Bangladesh way in 1983 by foreign investors from Saudi Arabia and Kuwait. Currently, eight full-fledged Islamic banks are operating in the country. During its inception, IBBL followed the Shariah principle, incurred losses. After that, the Islamic banks started their operation by making the Shariah rules flexible. Instead of risk-sharing of the asset, the banks started cost-plus profit lending. I have found out some rigorous aspects which are the drawbacks of Islamic banks in current perspective of our country. Those are:
• Islamic banks have their own Shariah boards but they have lack expertise.
• n our country most of the Linking banking to Islam is nothing but doing business by taking the advantage of religious illiteracy of the people.
• There is no proper regulatory framework for strict monitoring of Islamic banking in our country.
• Inspection and supervision of the Islamic banks are being done following the general guidelines of the Bangladesh Bank, which was actually adopted for conventional banks. The central bank does not even have a separate wing to deal with the Islamic banking. So, separate act should be implemented soon.
• The conventional banks can move the Artha Rin Adalat (money loan court), a specialised court for legal battle related to financial issues, there is the lack of separate section for Islamic banking.• From the IBBL’s experience during its inception, the bank provided financial services amid the risk in “Mudaraba and Musharaka.” The principles mainly deal with equity-based transactions and must be free from Riba (interest). Because of lack of integrity and honesty of the borrower was the only reason why they shown that their business is on loss. So, IBBL incurred losses for the consecutive years. Then IBBL made the Shariah rules flexible. I think when the ethical judgments are practiced by all the stakeholders; we will get the sweet fruit of Shariah-based banking. Otherwise it remains sour to us.
• Islamic Banks don’t have access to the money market from where the government may borrow only from conventional banks through treasury bills and bonds to finance development projects as there is no regulation for Islamic banks to finance the projects. The Islamic banks in Bangladesh have been facing excess liquidity problem, which is depriving them of being financiers in public projects.
Besides, we also keep in mind that Islamic banking as an industry is 50 years young. Compared to conventional banking which is 200 years old, Islamic banks have done much better, grown much faster and faced economic downturns with better resilience. There have been major controversies, gigantic frauds, disastrous bankruptcies, huge corruption and failures in conventional banking.
In summary, most Islamic banks are Islamic. If there are some deviations, erroneous decisions and mismanagement, these will eventually be rectified by public pressure or client protest. Islamic banks are subject to various audits by the Central Bank, Internal Audit, Shariah Audit at regular mandatory intervals. This is a major counter-balancing feature. Hopefully 100% compliance to Shariah will be achieved in time.
The writer is a freelancer.