This is the 2 nd of 4 series on the topic Islamic Banking Interest-Free Banking Read the 1 st, 3 rd and 4 th of the series 1 / 5
Since the mid 70s Islamic banking and finance has expanded to about 70 countries encompassing most of the Muslim world; about 55 developing and emerging market countries and 13 other locations around the world, including Australia, Bahamas, Canada, Cayman Islands, UK and Switzerland. Early experiments with Islamic Banking took place in Malaysia in the mid 1940s, in Pakistan in the late 1950s and Egypt s Mit Ghamr Savings Bank (1963) and Nasser Social Bank (1971). In the Arab world the 1st modern experiment with Islamic banking was undertaken in Mit Ghamr, Egypt in 1963. The experiment combined the idea of German Savings banks with the principle of rural cooperative banking within the general framework of Islamic financing, to cater for those unwilling, for religious reasons, to deal with the conventional banks. It however operated invariably undercover for fear of being labelled as Islamic Fundamentalism which 2 / 5
would have been anathema to the political reign. Infact, in 1976, Mit Ghamr Savings bank was closed and its operation taken over by the Natioanl Bank of Egypt and made interest based. Nine other such banks were taken over within the same period in Egypt. Similar political antagonism to Islamic financial institutions, occurred elsewhere in the Muslim world; Iraq, Oman, Syria and even Saudi Arabia. Two institutions that however survived this early period were the Nasser Social Bank established in 1971 in Egypt and Tabung Hajj, established in 1963 in Malaysia. Nasser Social Bank operated as a public authourity with autonomous status but without specific reference to Islam in its Charter while Tabung Hajj was set up in 1963 initially as The Muslim Pilgrims Savings Corporation to help would-be pilgrims save towards Hajj - it gradually evolved into a non-bank financial institution, the success of which provided the needed impetus for establishing a full-fledged Islamic bank in Malaysia:- Bank Islam Berhad (BIMB) was thus established in 1983. From the mid 70s a new era was witnessed in the history of Islamic Banking in the wake of oil wealth. Energy price rises provided the financial capital to support an expansion of both conventional and Islamic Banks and oil resources enabled a wide range of institutions to participate in the social and economic development of Muslim countries, the result was a change in the political climate in many Muslim countries hence largely dispensing the need to operate Islamic financial institutions under cover. A visible achievement arising from oil-related resource boosting is the establishment of the Islamic Development Bank (IDB) in 1975.IDB was established by Saudi Arabia and other Organisation of Islamic Conference (OIC) member countries, with the objective of fostering the economic development and social progress of the member countries and Muslim communities individually as well as jointly in accordance with the principle of Sharia. Despite it s multilateral origins, it gave momentum to the Islamic Banking movement generally, being followed soon afterwards by both private and government Islamic institutions; for instance, Dubai Islamic Bank established in 1975; Faisal Islamic Bank, Egypt established in 1977 and Bahrain Islamic Bank established in 1979. An important development in the 80s is the restructuring of the whole financial system of Iran, Sudan and Pakistan to accord with Islamic precepts:- Iran in March 1984, Sudan in July 1984 and Pakistan a gradual transition from 1977. Another important development in the 80s is the establishment of two groups of companies; Dar 3 / 5
al-maal al-islam in 1981 and Al-Baraka group in 1982. Dar al-maal al-islam was founded in Bahamas, headquartered in Geneva and operates 10 Islamic banks, 7 Islamic investment companies, 7 trading companies and 3 Takaful (Islamic Insurance) companies in 15 countries around the world while Al-Baraka group was established in Saudi Arabia in 1982 and currently has activities in 43 countries. It has over 2000 companies including 15 Islamic banks and several Islamic insurance companies. The expansion of Islamic banking has basically taken two forms: - Restructuring of the whole financial system of the country to accord with Islamic precepts as obtain in Iran, Sudan and Pakistan. - Islamic financial institutions operating alongside conventional financial institutions either autonomously or as window within the conventional set up. In this respect, a number of financial institutions have located at international level both within and outside of the Muslim countries. This is the case with banks such as Citibank (U.S.A), ANZ (Australia), ABN Amro (Netherlands), Goldman Sachs (USA), HSBC (UK), Deutsche Bank (Germany), Societe-Generale (France), Saudi-American Bank (U.S.A Saudi), Saudi-British Bank (UK-Saudi). As it were, there are to date, over 200 Islamic financial institutions in over 70 countries around the world with total asset base in excess of US$230billion. Saidat.A.Otiti has an MSc in Islamic Economics, Banking and Finance from Loughborough University, UK. She had worked in Chartered Bank (now StanbicIBTC) and left at a Senior Management Level in 1999. She is currently the MD/CEO of Baytuzzeenah Ltd. http://www.baytuzzeenah.com 4 / 5
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