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Evolution
| Rationale
| Anatomy
| Literature:
Theory
Literature:
Practice | Conclusion
| Glossary
Appendix: Islamic Financial Institutions | References
Evolution
The first
modern experiment with Islamic banking was
undertaken in Egypt under cover, without projecting
an Islamic image, for fear of being seen as a
manifestation of Islamic fundamentalism which was
anathema to the political regime. The pioneering
effort, led by Ahmad El Najjar, took the form of a
savings bank based on profit-sharing in the Egyptian
town of Mit Ghamr in 1963. This experiment lasted
until 1967 (Ready 198l), by which time there were
nine such banks in the country. These banks, which
neither charged nor paid interest, invested mostly
by engaging in trade and industry, directly or in
partnership with others, and shared the profits with
their depositors (Siddiqi 1988). Thus, they
functioned essentially as saving investment
institutions rather than as commercial banks. The
Nasir Social Bank, established in Egypt in 197l, was
declared an interest-free commercial bank, although
its charter made no reference to Islam or Shariah
(Islamic law).
The IDB was
established in 1974 by the Organization of Islamic
Countries (OIC), but it was primarily an
intergovernmental bank aimed at providing funds for
development projects in member countries. The IDB
provides fee based financial services and
profit-sharing financial assistance to member
countries. The IDB operations are free of interest
and are explicitly based on Shariah
principles.
In the
seventies, changes took place in the political
climate of many Muslim countries so that there was
no longer any strong need to establish Islamic
financial institutions under cover. A number of
Islamic banks, both in letter and spirit, came into
existence in the Middle East, e.g., the Dubai
Islamic Bank (1975), the Faisal Islamic Bank of
Sudan (1977), the Faisal Islamic Bank of Egypt
(1977), and the Bahrain Islamic Bank (1979), to
mention a few.
The
Asia-Pacific region was not oblivious to the winds
of change. The Philippine Amanah Bank (PAB) was
established in 1973 by Presidential Decree as a
specialized banking institution without reference to
its Islamic character in the bank's charter. The
establishment of the PAB was a response by the
Philippines
Government to the Muslim rebellion in the south,
designed to serve the special banking needs of the
Muslim community. However, the primary task of the
PAB was to assist rehabilitation and reconstruction
in Mindanao, Sulu and Palawan in the south (Mastura
1988). The PAB has eight branches located in the
major cities of the southern Muslim provinces,
including one in Makati (Metro Manila), in addition
to the head office located at Zamboanga City in
Mindanao. The PAB, however, is not strictly an
Islamic bank, since interest-based operations
continue to coexist with the Islamic modes of
financing. It is indeed fascinating to observe that
the PAB operates two 'windows' for deposit
transactions, i.e., conventional and Islamic.
Nevertheless, efforts are underway to convert the
PAB into a full-fledged Islamic bank (Mastura 1988).
Islamic
banking made its debut in Malaysia in 1983, but not
without antecedents. The first Islamic financial
institution in Malaysia was the Muslim Pilgrims
Savings Corporation set up in 1963 to help people
save for performing hajj (pilgrimage to Mecca
and Medina). In 1969, this body evolved into the
Pilgrims Management and Fund Board or the Tabung
Haji as it is now popularly known. The Tabung Haji
has been acting as a finance company that invests
the savings of would-be pilgrims in accordance with
Shariah, but its role is rather limited, as it is a
non-bank financial institution. The success of the
Tabung Haji, however, provided the main impetus for
establishing Bank Islam Malaysia Berhad (BIMB) which
represents a full fledged Islamic commercial bank in
Malaysia. The Tabung Haji also con tributed l2.5 per
cent of BIMB's initial capital of M$80 million. BIMB
has a complement of fourteen branches in several
parts of the country. Plans are afoot to open six
new branches a year so that by 1990 the branch
network of BIMB will total thirty-three (Man 1988).
Reference
should also be made to some Islamic financial
institutions established in countries where Muslims
are a minority. There was a proliferation of
interest-free savings and loan societies in India
during the seventies (Siddiqi 1988). The Islamic
Banking System (now called Islamic Finance House),
established in Luxembourg in 1978, represents the
first attempt at Islamic banking in the Western
world. There is also an Islamic Bank International
of Denmark, in Copenhagen, and the Islamic
Investment Company has been set up in Melbourne,
Australia.
Courtesy
of Mohamed Ariff, University of Malaya
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