American Journal of Islam and Society (Apr 1998)
Islamic Economics, Banking and Finance
Abstract
The course was organized by the Islamic Development U.K., in cooperation with the Islamic Development Bank, Jeddah, Saudi Arabia, and Loughborough University, Loughborough, U.K. More than 100 guest speakers, organizers, and participants attended. The participants were very active in panel discussions. The topics included Islamic banking and fm ance, Islamic economics, economic development from the Islamic perspective, the creation of money, the rationale of prohibiting interest and its prohibition in western literature, debt, equity, Islamic fund management, the role of zakat in the eradication of poverty, Islamic finance in the West, and the new halal investment company in Europe. As a starting point, Dr. Umer Chapra presented a paper on the present state of Islamic economics. He emphasized the importance of economics in explaining the fall of Muslim power. He also pointed out the effect of Islamic values and institutions, including zakat and the abolition of interest. He added that now it is time to solve the practical problems that the Muslim countries are facing and also to show ways of realizing the Islamic vision of a society where development is taking place with justice. Dr. Monawar Iqbal talked about the rationale of Islamic banking and the services that people are in need of, e.g., investment in the form of mudarabah, musharakah, and murabah. Attention was juid to the following features of Islamic banking: risk sharing, productivity as compared to credit worthiness, moral dimension, equity, efficiency, stability, and growth. The experience of Islamic banking in Pakistan, Iran, and Sudan was discussed. In addition, there was a discussion on multinational entities (e.g., Islamic Development Bank). Dr. Iqbal emphasized the major problems facing Islamic banking such as lack of profit sharing on the asset side, adverse selection, moral hazard, lack of project appraisal machinery, lack of project monitering, defaulters and the issue of penalties, illogicality of the Islamic financial market, short-term asset structure, excess liquidity, short-term placement of funds, lack of a lender of last resort, difficulties in issuing letters of guarantee, and taxation. Despite these problems, 192 Islamic banks were operating by the end of 1996. An analysis of 166 of these banks was made by Dr. Samir Shaikh, who described their current profile and showed that their net profit in 1996 was $1,683,648. On the suggestion of Dr. Tarigullah Khan the principles of Islamic finance were grouped into the following categories: benevolence, sharing principle, deferred sale-principle, and sharing-cum-deferred sale ...