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Islamic Bank in Suriname: Trustbank Amanah
“ Islamic bank has made its entry in Suriname with the approval of the Central Bank of Suriname (CBS) for Islamic products and services in the banking sector. The official opening of Trustbank Amanah, the first Islamic Bank in Suriname and the region, took place on Thursday 7th of December 2017 in the presence of the Islamic Corporation for the Development of the Private Sector (ICD). For this memorable fact, the Director Advisory Nida Raza and the Program Manager Islamic Financial Institutions Mohammed Mannai of the ICD came to Suriname.”
“ Suriname is after today in the row of countries like Malaysia, Indonesia and Saudi Arabia that their growth and development also thanks to the concept of Islamic Finance.”
Islamic Banking and Finance Guides
Microfinance
Microfinance is a concern for Muslims and shows great opportunity for growth for Islamic financial organizations. An estimated 72 percent of people living in Muslim-majority countries do not use formal financial services, often either because they are not available, and/or because potential customer believe conventional lending products incompatible with Islamic law.
According to the Islamic Microfinance Network website (as of circa 2013), (34) (35) there are more than 300 Islamic microfinance institutions in 32 countries. (36) but a number of studies have found that outreach has far to go.
One report (by Humayon Dar and coauthors) (37) found that Islamic microfinance made up less than 1 per cent of the global microfinance outreach, “despite the fact that almost half of the clients of microfinance live in Muslim countries and the demand for Islamic microfinance is very strong.”(35)
A 2008 study of 126 microfinance institutions in 14 Muslim countries[104] found Islamic microfinance had a total outreach of 380,000 (38) from estimated total population of 77 million — only 0.5% “of total microfinance outreach”. The largest Islamic microcredit outreach was Bangladesh, with over 100,000 clients and two active institutions, but this compared with nearly 8 million borrowers using conventional microfinance products (such as those of the Grameen Bank) leaving Islamic microfinance with only 1% of the Bangladesh microfinance market. (39). (The total outstanding loan portfolio for Islamic Microfinance institutions studied was about $198 million in 2006, with an average loan size of $54. (40)
(Muhammad Yunus, the founder of the Grameen Bank and microfinance banking, and other supporters of microfinance, though not part of the Islamic Banking movement, argue that the lack of collateral and lack of excessive interest in micro-lending is consistent with the Islamic prohibition of usury (riba).
Assessment and controversy Studies
One of the controversies with regard to Islamic finance is the connection between the percentage return on accounts in Islamic banks and in conventional banks — specifically how closely the results match each other. This is thought by Islamic banking skeptics to be a suspicious coincidence suggesting manipulation of returns, but an important way of satisfying Islamic banking customers worried about risk to their deposits but who want to be Islamically correct. A 2014 study using “the most recent econometric techniques” of the long-term relationship between Conventional Banks’ term-deposit rates (TDRs) and the TDR of “participation banks’” (i.e. Islamic Banks) in Turkey found three of four participation banks term-deposit rates “significantly cointegrated” with those of Conventional Banks, and “permanent causality” from Conventional to all Islamic Banks. (41)
Another study found “strong and consistent empirical evidence” that the development of Shariah-compliant Islamic banking in Muslim countries does not “crowd out” the conventional banking but leads to “higher banking sector development, as measured by the amount of private credit or bank deposits scaled to GDP.“(42)
Authenticity
In March 2009, Sheikh Muhammad Taqi Usmani of the Accounting and Auditing Organization for Islamic Finance Institutions (AAOIFI), a Bahrain-based regulatory institution that sets standards for the global Islamic Banking industry, declared that 85% of Sukuk, or Islamic bonds, were “un-Islamic”. Usmani has been called “the granddaddy of modern-day Islamic finance”.(43) According to another veteran of Islamic economics, Muhammad Akram Khan, criticizes Islamic banking as professing to have “put its business on a basis other than interest” but in practice devising “a whole host of ruses and subterfuges to conceal interest.” Mahmoud Amin El-Gamal, a professor of economics at Rice University (United States), has described modern Islamic finance as “Shari’a arbitrage” — i.e. what is prohibited in conventional finance becomes permissible when deemed “Shari’a compliant” despite having similar, if not the same, economic substance.(44)
In a 2006 dissertation Suliman Hamdan Albalawi concluded that the Islamic banking movement has “become main-stream,” and Islamic banks at least in Saudi Arabia and Egypt have “departed from using profit-loss-sharing (PLS) techniques as a core principle of Islamic banking“.(45) Islamic economist Muhammad Akram Khan also complained Islamic banking has evolved toward convergence with conventional banking “imitating conventional banks in product development” rather than establishing “a different type of banking which was aligned to fairness, equitable income distribution, and ethical modes of investment.”(46) According to Mohammad Najatuallah Siddiqui, “while theory aspired to prove Islamic finance was different from conventional one, practitioners were busy searching for ways to make it similar to it. … Starting sometime during nineteen eighties, Shariah advisors focused mainly on designing Shariah-compliant substitutes for financial products with which market was familiar.”(47)
Risk
Whether Islamic banking is more or less risky than conventional banking is disputed.
Zeti Akhtar Aziz, the head of the central bank of Malaysia maintains that sharia-compliant banks are “inherently more stable” than conventional peers and Speculation is forbidden. But according to the Economist magazine, “Dubai’s debt crisis in 2009 showed that sukuk [Islamic bonds] can help to inflate debt to unsustainable levels.”(48) According to one author (Mahmoud A. El-Gamal), while Islamic banks often avoid use of the word “customer” or “depositor” in favor of the term ‘partner’,
In these institutions, investment-account holders neither have the protection of being creditors of the Islamic financial institution, nor do they have the protection of being equity holders with representation on those institutions’ boards of directors. This introduces a host of other well-documented risk factors for the institution. (49)
Islamic banks are also criticized by some for not applying the principle of Mudarabah in an acceptable manner. Where Mudarabah stresses the sharing of risk, critics point out that these banks are eager to take part in profit-sharing but they have little tolerance for risk. To some in the Muslim community, these banks may be conforming to the strict legal interpretations of Sharia but avoid recognizing the intent that made the law necessary in the first place.
For example, the Malaysian bank RHB offers Islamic banking products, including vehicle loans. The product disclosure sheet, however, explains that in the event that the borrower defaults on the loan, the vehicle may be repossessed and any the borrower will be “responsible to settle any shortfall after your motor vehicles is auctioned off.” This is an obvious contradiction to claims of risk-sharing. But he have to bear in mind that there are some different contracts used in Islamic financing. The one used at the RHB in vehicle financing is AITAB which is not at the same level with Mudharabah contract in terms of risk-sharing.
Some Islamic banks charge for the time value of money, the common economic definition of interest (riba). These institutions are criticized in some quarters of the Muslim community for their lack of strict adherence to Sharia.
The concept of Ijarah is used by some Islamic Banks (the Islami Bank in Bangladesh, for example) to apply to the use of money instead of the more accepted application of supplying goods or services using money as a vehicle. A fixed fee is added to the amount of the loan that must be paid to the bank regardless if the loan generates a return on investment or not. The reasoning is that if the amount owed does not change over time, it is profit and not interest and therefore acceptable under Sharia.
According to the IMF, since Islamic banking forbids pure monetary speculation and stresses that deals should be based on real economic activity, it poses less risk than conventional banking to the stability of financial systems (50)
Non-Muslims influence
The majority of Islamic banking clients are found in the Gulf states and in developed countries. The majority of financial institutions that offer Islamic banking services are majority owned by Non-Muslims. With Muslims working within these organizations being employed in the marketing of these services and having little input into the actual day-to-day management, the veracity of these institutions and their services are viewed with suspicion. One Malaysian Bank offering Islamic based investment funds was found to have the majority of these funds invested in the gaming industry; the managers administering these funds were non-Muslim. (51) These types of stories contribute to the general impression within the Muslim populace that Islamic banking is simply another means for banks to increase profits through growth of deposits and that only the rich derive benefits from implementation of Islamic Banking principles.
Riba as interest being a “settled issue“
Islamic finance is based on the belief that “all forms of interest are riba and hence prohibited“.(28) When a minority member (i.e. one of the non-Muslim MNA—Member of the National Assembly—representing their religious group, rather than an electoral district) of the National Assembly of Pakistan questioned this in 2004, members of leading Islamist political party in Pakistan, the Muttahida Majlis-e-Amal (MMA) party, staged a walkout from the Assembly, protest what they termed derogatory remarks on interest banking:
Taking part in the budget debate, M.P. Bhindara, a minority MNA …referred to a decree by an Al-Azhar University‘s scholar that bank interest was not un-Islamic. He said without interest the country could not get foreign loans and could not achieve the desired progress. A pandemonium broke out in the house over his remarks as a number of MMA members…rose from their seats in protest and tried to respond to Mr Bhindara’s observations. However, they were not allowed to speak on a point of order that led to their walkout…. Later, the opposition members were persuaded by a team of ministers…to return to the house…the government team accepted the right of the MMA to respond to the minority member’s remarks…. Sahibzada Fazal Karim said the Council of Islamic ideology had decreed that interest in all its forms was haram in an Islamic society. Hence, he said, no member had the right to negate this settled issue. (51)
The decree notwithstanding, a minority of scholars (Muhammad Abduh, Rashid Rida, Mahmud Shaltut, Syed Ahmad Khan, Fazl al-Rahman, Muhammad Sayyid Tantawy and Yusuf al-Qaradawi) have questioned whether riba includes all interest payments. (52) Others (Muhammad Akran Khan) have questioned whether riba is a crime forbidden by sharia (Islamic law) and subject to punishment like murder and theft, or simply a sin to be preached against by human beings with the punishment left to God, since “neither the Prophet nor the first four caliphs nor any subsequent Islamic government ever enacted any law against riba.(53).
Notes/References
Islamic Microfinance News ::.”.imfn.org.
Khan, What Is Wrong with Islamic Economics?, 2013: p.301
Mughal, Muhammad Zubair. “Funding Sources for Islamic Microfinance Institutions”.alhudacibe.com. AlHuda Centre of Islamic Banking & Economics. Retrieved 6 August 2015.
Dar, Humayon A. Rizwan Rahman, Rizwan Malik and Asim Anwar Kamal, ed. 2012. Global Islamic finance report 2012. London: Edbiz Consulting.
These number exclude 80,000 cooperative members in Indonesia and anything in Iran).
Karim, Nimrah; Tarazi, Michael; Reilli., Zavier (August 2008). [url incorrect. site registered on Wikipedia’s blacklisthttps://www.c.gap.org/sites/default/files/CGAP-Focus-Note-Islamic-Microfinance-An-Emerging-Market-Niche-Aug-2008.pdf“Islamic microfinance: An emerging market niche.”] Check |url= value (help) (PDF). CGAP Focus Notes (Consultative Group to Assist the Poor) 49: 7.
Karim, Nimrah; Tarazi, Michael; Reilli., Zavier (August 2008). [url incorrect. site registered on Wikipedia’s blacklisthttps://www.c.gap.org/sites/default/files/CGAP-Focus-Note-Islamic-Microfinance-An-Emerging-Market-Niche-Aug-2008.pdf“Islamic microfinance: An emerging market niche.”] Check |url= value (help) (PDF). CGAP Focus Notes (Consultative Group to Assist the Poor) 49: 8
Zeren, Feyyaz; Saraç, Mehmet (2015). “The dependency of Islamic bank rates on conventional bank interest rates: further evidence from Turkey”. Applied Economics 47 (7): 669–679. doi:10.1080/00036846.2014.978076. Retrieved 27 April 2015.
Gheeraert, Laurent (July 2014). “Does Islamic finance spur banking sector development?”. Journal of Economic Behavior & Organization 103 (Supplement): S4–S20.
Foster, John (July 15, 2010). “The Failure of Islamic Finance”.muslimmatters.org. Retrieved 15 April 2015.
44.Hayat, Usman (18 February 2015). “Is the Islamic Finance Industry a Success or Failure?”. Enterprising Investor. CFA Institute. Retrieved 7 August 2015.
Albalawi, Suliman Hamdan (September 2006). “Banking System in Islamic Countries: Saudi Arabia and Egypt. A Dissertation Submitted to the School of Law and the Committee on Graduate Studies of Stanford University” (PDF).law.stanford.edu. Retrieved 10 April 2015.
Khan, What Is Wrong with Islamic Economics?2013: p.303
Siddiqi, M.N. 2006. Islamic banking and finance in theory and practice: A survey of the state of the art. Islamic Economic Studies 13 (2) February p.8
Bahru, Johor (Jan 5, 2013). “Banking on the ummah”. The Economist 406 (8817): 60. Retrieved 5 May 2015.
El-Gamal, Mahmoud A. (June 2006). “A Simple Fiqh-and-Economics Rationale for Mutualization in Islamic Financial Intermediation” (PDF).nubank.com. Retrieved 22 January 2015.
http://financialtribune.com/articles/economy-business-and-markets/20661/cbi%E2%80%99s-fiqh-council-reopening-new-mandate
Govt accused of fudging figures: Poverty reduction|dawn.com | June 17, 2004
Siddiqi, Riba, Bank Interest, 2004: p.55-56
Khan, What Is Wrong with Islamic Economics?2013: p.134-35