Md. Mamunor Rashid :
Islamic Shariah are the foundations of Islamic banking. Islamic banking is responsible not only to avoid riba, but also to avoid unethical practices and participate actively in achieving the welfare goals in an Islamic economy. In Islamic law, Riba is totally prohibited in Islam because it has a lot of bad effects on society (Usmani, Muhammad Taqi -1996, An Introduction to Islamic Finance, Karachi).The Islamic Shariah and its various sources like the Holy Quran, Sunnah, Ijma and Qiyas are the basis for forming and running the Islamic banking system. It has been argued in the Islamic banking literature that the investment in Islamic financial system could really be helpful to economy that might enhance the businesses and welfare of the society.
In regard to the history of Islamic banking, 1950s and 1960s are seen as the decades of experiments, and 1970s is considered as the decade of establishment. Since the mid 70s Islamic banking and finance has expanded to over 70 countries encompassing most of the Muslim world; about 57 developing and emerging market countries and 13 other developed countries of the world (Otiti, Saidat. A.-2014, Evolution of Islamic Banking & Finance This is the 2nd of 4 series on the topic Islamic Banking- Interest-Free Banking). While Islamic banking may not be a totally new concept, the widespread expansion of this form of banking is certainly not a fairly old phenomenon that started mainly from mid1980s.
It is well-known that Shariah is the basis for Islamic banking. The rules and practices of Fiqh Muamalat are derived from the Holy Quran and the Sunnah, and other secondary sources of Islamic law such as opinions collectively agreed among Shariah scholars (Ijma’), analogy (Qiyas) and personal reasoning (Ijtihad). More specifically, two sources have been identified for Shariah: primary and secondary sources. Qur’an is the first primary source of Shariah where Sunnah is the second primary source. The secondary sources are Ijma, Qiyas and Istihad. Ijma means consensus of juristic opinions of the Scholars. Qiyas i.e. analogical reasoning, suggests an equality or close similarity between two things, one of which is taken as the criterion for evaluating the other. The Arabic word Ijtihad literally means an effort or exercise to arrive at one’s own judgment.
In Islamic banking and finance, Riba is totally prohibited which is the return derived from the loan/debt. The word ‘riba’ as appearing in the Holy Quran is translated in English as ‘usury’ or ‘interest’. Riba literally means an ‘increment’ or ‘excess’ but in essence it means unfair advantage or profiteering, which is prohibited in Islam. Thus, in some literature, attempts have been made to make distinction between Interest and Riba. However, according to most available literature and schools of thoughts, Interest is no different from Riba and is prohibited in Islam. Transactions must also avoid uncertainty (Gharar), or anything that could lead to the unjust enrichment or unfair exploitation of one of the parties to a contract (Dusuki A.W.-ed.-Islamic Financial System: Principles & Operations, International Shari’ah Research Academy of Islamic Finance, Kuala Lumpur, 2011).
Another kind of activity which banks have to avoid is gambling/games of chance. Moreover, transaction cannot be made that involve prohibited products or activities, such as alcohol, illicit drugs and tobacco because Islam wants to develop an ethical and friendly environment in the society. Thus, based on the Islamic laws and prohibitions, some key principles can be derived for the Islamic banking activities.
However, Islamic banking in Bangladesh is facing several problems or challenges. First, they have not yet been successful in devising an interest-free mechanism to place their funds on a short-term basis. Studies conducted on Islamic banking in Bangladesh show that the future of Islamic banks hinges on their ability to find a viable alternative to interest for financing all types of loans. Islamic banks in Bangladesh should recognize the fact that their success in abolishing interest has been only partial and they have a long way to go in their search for a satisfactory alternative to interest. They face the same problem in financing consumer loans and government deficits. (Ahmad, A.U.F and Hassan, M. K. (2007), “Regulation and Performance of Islamic Banking in Bangladesh”, Thunder bird International Business Review, Vol. 49(2), pp. 251-277),
Second, the risk involved in profit-sharing and in operation seems to be so high that almost all of the Islamic banks in Bangladesh have resorted to those techniques of financing which bring them a fixed assured return.
Again, some people conceive that though the Islam prohibits interest banking, but in Bangladesh, the Islamic banks are in the mechanism interest. They think that the profit sharing activities is not clear according to the rules of Islamic banking and demanded that there is nothing but general banking. This portion of people commented such way due to some states: These may be the shortage of supportive institutions to confirm customers’ concern; the lack of skilled training figures; the absence of proper co-operation according to Islamic banking system; the shortage of field survey during making report for transaction mood when necessary.
In order to remove this perception, there must be concern about Shariah rules during banking another; there must be proper audit activities to confirm any transaction mood and the other; in order to ensure governance and Shariah based audit, there must be trained auditors who specializes correctly.
Finally, Islamic Financial System can bring out the most efficient banking system in Bangladesh if it gets support from the private and public bodies in terms of governance and direction.
(The writer is a Lecturer, Department of Islamic Studies, Leading University, Sylhet).
