ISSUE 10 2014 / Islamic Banker ASIA / 73

FOTO

: GO

OG

LE.C

OM

BANKING IN ISLAM OR ISLAMIC BANKING - PART 3

By PROF. YOUSUF IBNUL HASAN

BAIT-AL-MAAL CONCEPT

In Islam, the idea of institution for keeping goods and money came after the death of Prophet Mohammed (Peace be upon Him). Omer Farooq (R.A.), the third Caliph of Islam introduce the concept of Bait-Al-Maal. The term Bait-Al-Maal means “Door of wealth.” To deliberate the matter one can imagine and visualise the activities that take place at the banks

140 Million Muslims. From 1977 to 1988, the state head asked economists, jurists, religious scholars and bankers to make joint efforts in the development of interest free economic system on priority basis. He appointed a commission of senior bankers and economists.

The members drafted the memorable and most authenticated documents on the subject and gave reasons, justifications and recommendation for the elimination of Riba from the monetary and economic affairs. To support the recommendation the then President of Pakistan in 1987, permitted Geneva based Pan Islamic financial group The Dar-Al-Maal Al Islami to open its first branch of their banking company, Massraf Faysal Al Islami Al Bahrain as milestone towards banking on the principles of Islam. The first attempt had proved the great success and with the passage of time, in between 1987 to 1995 the bank shown tremendous growth. In 1994 Massraf

which are not transparent at any part of the world. Islam emphases on the matters and activities pertain to finance and money to be pure and transparent between the parties of the transaction. So if the basic essence of Islamic teaching is not taken into consideration then there is no right of the institution to call itself as Islamic.

Keeping in view the concept of Bat-al-Maal we take the example of Pakistan, which has a population of

The Prophet (PBUH) said: “The truthful honest merchant is with the Prophets May peace

be upon him, as the truthful and martyr (in the Day of Judgment). Spending in good causes for the benefit and welfare of the

people and wastefulness and over and excess in pleasurable activities are prohibited.Upholding justice in all dealings and

transactions with both friends and enemies.” (Quran 4:29, 4:135)

ACADEMIC VIEWIslamic BankerASIA

Islamic BankerASIA

Islamic BankerASIA

Islamic BankerASIA

Islamic BankerASIA

Islamic BankerASIA

Islamic BankerASIA

ISSUE 10 2014 / Islamic Banker ASIA / 7574 / Islamic Banker ASIA / ISSUE 10 2014

Faysal Al Islami Al Bahrain change to Faysal Bank Limited by adopting all Riba products and practices under the new management, competent in conventional banking system and declaring the system as orthodox and non profitable.

The drafted recommendation went into unknown stores with the death of the then President and new rulers filed a suit against the implementation of Interest Free Banking in Pakistan. As a result four governments in Pakistan, headed by Muslim had to suffer downfalls and disgrace due to attempting against implementation of Riba free economic system.

Today conventional bankers are the authority by designing and then implementing their overnight-impaired system which is far beyond the Islamic teachings on Money Matters. Till today the applied Islamic Banking remain authenticated from those religious scholars who lack the economic, finance and wealth theories and practice.

The interest is treated as the alternate to Riba without realizing the fact that interest is formed by adopting any form of Riba. In the lending or borrowing transactions between the parties if there is any exploitation, cruelty, discrimination, or embezzlement or misuse of status in the transaction.

The present Islamic Banking System and the financial matters of the Islamic Finance Houses in Pakistan are not in accordance to the Islamic Economic System. So as the know how to the system lacks to the masses that keep the masses away from the system.

Malaysia took a vise decision by introducing the concept of Interest Free Financial System and it Instructions at the academic level. In short span of time, reasonable work-force develop on

the system who understand the soul and the life of the system.

SYSTEM AND BELIEF:

Massraf and system of Massraf follow the belief in the economy with certain conditions given below:a. RIBA is excluded from dealings in general and replaced by principles of participation. b. Country’s needs of financing are made through taxes or seeking sources of financing by foreign participation.c. Central bank of a country can-not participate in non-rationalized or non-

Massraf does not lend or borrow the funds as

the system does not justify the landing and borrowing as it leads

to the interest.

insurance or the social insurance the participation of Massraf is priority. k. These are classified priorities of Massraf as the essential spending to preserve the well- being of the country.l. Such spending leads to a welfare state and socio- economic development which is the main theme of the Islamic Economic. m. The principals of participation in the financing provide more chances of employment, operating of resources and directing money that give energy to the prospective of community which in reality, is the original function of money.

With the above facts the two systems which have their own principles differentiate the banking priorities. The difference is seen as:

CONVENTIONAL BANKS

a. Main purpose of conventional banks is to make earning on each transaction and services that they execute or provide.b. Their existence does serve positive role in economic development of the community.c.They also provide services to community as an ultimate goal or target to earn for the growth of the institutiond. Their materialisation is an individual passion to trade in funds and become wealthy through their customers and community. e. They only serve for the development in the best interest of their own institution at first and community as secondary.f. Economists have exposed after a great study on the business practice of conventional banks that they do render a great service as regards to finance requirements. g. Their finding concludes that owner

productive expenditure in Islamic State d. Massraf houses cannot participate with central bank in non-rationalised spending. e. No cooperation exists among individuals and banks in unproductive transaction.f. Massraf houses protect and disallow matter that causes inflation, increase of public dept, non-rationalised expenditure and the increase of quantity of money without cover to issuance.j. Increase in the government expenditure towards the returns having more chances of employment, more social services such as health, education, old age benefits, unemployment

ACADEMIC VIEW I BANKING IN ISLAM OR ISLAMIC BANKING - PART 3

Phot

o: w

ww.

Goo

gle.

com

ISSUE 10 2014 / Islamic Banker ASIA / 7574 / Islamic Banker ASIA / ISSUE 10 2014

of these banks emphasises on more wealth, more domination and extreme exploitation. h. The economists do not find a way to get rid of the bad effects because community could not avoid the bank’s services.j. It led to the elimination of such bad effects which accompany the existence of conventional bank k. Conventional banks moves resources and lend these resources on fixed return to those who need funds for their business or personal utilisation. l. The purpose of the lending remains only to generate income, rightly or wrongly. m. The objective is always to earn interest by purchasing & hiring funds.

MASSRAF HOUSES

a. Massraf Houses mobilise resources and invest by way of financing on profit and loss sharing basis with the aim to assist the user in healthy venture that serves the economic as well as socio-economic development for the community.b. The main purpose of financing is to give financial assistance with intentions of development of a communityc. To emphasise on curbing the inflationd. To produce commodities useful

the Riba based system because it is the belief of Massraf that, “No Islam exists in a place where there is Riba based system”.

Further to this fact it can be elaborated as, “Do not expect the prosperity for mankind in the declaration of war against Almighty Allah against Interest by men”. Dr.Ahmed Al Naggar, Pioneer member to the concept of Massraf as Banking, International Association of Islamic Banks.IBA

No such religion permits the

involvement of its name where there is a slight doubt of

misdeed in functions.

for mankind and significantly make reasonable profit that is gained without exploitations.e. The role of Massraf Houses is common and comprehensive. f. Their most advantageous goal is to establish the socio economy and the development of communities. That means that gaining profit is not a fundamental goal of their foundation.g. Massraf Houses operates on the principles of socio economics and determined on the economic development of the community without domination or exploitation.h. Honesty & Fair trade: (Thus, trade

manipulations & malpractices like hoardings, black marketing, cheating, profiteering, short-weighting, hiding the defective quality of merchandise and adulteration are all prohibited activities). All customers must be treated equally (e.g. when imposing charges and fixing profit – sharing ratios).i. The prohibition of Gambling and other risk related purely speculative activities based on mere luck (most derivatives are prohibited)

CONCLUSION

The bases of Massraf under Islamic thoughts have a conflict directly with

About the writer:

Yousuf Ibnul Hasan was borned on 21st July 1953 in Rawalpindi, Pakistan. In 1981, he received a scholarship to study in Central America where he completed his Masters in Industrial and Business Management from University of Wales Indies. In 1983, Yousuf was selected to study Islamic Banking and Finance for a newly established pan Islamic Financial Group Dar-Al-Maal-Islami Switzerland and completed his Post Graduate studies from International Institute of Islamic Banking and Islamic Economics, Egypt and Turkish Federat-ed State of Kibris. Yousuf joined IQRA University as Programme Consultant for Applied Finance and has trained over 10,000 students in Islamic Banking, Finance and Economics.including over 1000 non-Muslim students. At IQRA, Yousuf developed courses on Islamic Banking, Takaful, Economics & Finance, Commercial Banking Management, Islamic Jurisprudence and Media Law.