Shortage of Islamic banking personnel
Friday, 25 December 2009
A.K.M. Mizanur Rahman
IN Bangladesh, Islamic banking grew quickly since 1983, with the founding of Islamic Bank Bangladesh Limited. Now, Bangladesh has seven full-fledged Islamic banks. Besides, a number of local and foreign commercial banks have opened their Islamic banking windows to meet the growing demand for it. Furthermore, some more banks are also expected to open Islamic banking branches soon. A number of conventional local banks are considering the possibility of fully considering to Islamic banking.
The scenario speaks of a growing demand for Islamic banking in Bangladesh. But the question is whether there is enough trained personnel for opening more Islamic banks or branches. Not all those working with Islamic banks are conversant with Islamic banking.
Islamic banks are facing serious shortage of manpower, with proper Islamic banking knowledge, due to absence of an Islamic banking training institution. Islamic banks have no option but to recruit personnel from traditional commercial banks. As a result the Islamic banks cannot fully function as they should, following the Shariah. The non-compliance results from the personnel's lack of knowledge of Islamic banking, finance and economics.
Islamic banking differentiates between interest and profit and also between credit and investment. Inadequate knowledge about it is bound to create confusion in the minds of the clients about Islamic banking. The clients often say that there is no difference between interest and profit. They say that the Islamic banks are taking interest in different way, for which interest and profit are the same thing. The comments puzzle the personnel of Islamic banks, lacking the knowledge, cannot clarify how Islamic banking is different in this respect. What is interest? The balance between buying and selling is profit for a business transaction as well as Islamic banking. The people could understand the difference between interest and profit if it is explained to them.
Similarly an Islami banker has to explain the difference between credit, which is financing for a fixed predetermined rate of return without participation in ownership, and investment, which is financing as a partner (or under ownership). While the yield on loans at a fixed rate is interest, which Islam prohibits and the yield on investment could be either profit or loss.
In Islamic banking, the purview of investment is much wider than what it means under western banking system. Most financing by Islamic banks take place under the umbrella of investment. A small part of its financing could be credit, because Islamic banks cannot charge interest on loans. In Islamic banking this type of loan is allowed, usually for welfare purposes. Such loans are called Quard (e-hasana) on which nothing extra is charged on the principal from the borrowers, who need to pay back the principal amount only.
Between 'investment' as in Islamic banking and 'credit' of conventional banks, the dissimilarities are more and similarities, only a few. In conventional banking, investment means investment in shares and securities but in Islamic banking investment has a greater meaning. Financing a business as an owner of the venture to share profit or loss is investment. But financing at a fixed or predetermined rate of return, not as an owner, is credit. In case of credit, the financier, not an owner of the venture, does not share either profit or loss.
The misgivings about Islamic banking arise, mostly from the question whether an Islamic banks share the loss of a venture for which it employs its fund. The circumstances, in which an Islamic bank shares or does not share profit or loss, vary.
Normally, an Islamic bank finances, interalia, through:
a. Bai-MuajjaI, which is a contract between a buyer and a seller, in which there is no question of sharing profit or loss.
b. Bai-Murabaha, or contract between a buyer or a seller for the transaction of goods at a cost plus agreed profit, payable in cash or deferred payment.
c. Hire-Purchase under Shirkatul Melk (HPSM) in which the assets are procured under joint participation of the bank and its clients. Ownership of the assets to be procured lies proportionately with the bank and the client as per equity participation.
d. Mudaraba: In it, one party provides capital or fund to another party that receives the fund to operate and manage the business. The financier is called Sahib-Al-Maal and the receiver is called Mudarib. Here both of the parties agree that if the business earns profit they will share it at pre-agreed ratio, but if it makes loss, the losses will be borne only by the Sahib-Al-Maal that is, the financer, subject to the condition that the losses are genuine and not caused by lapses, incompetence or fraudulent act of the Mudarib, or the receiver of the fund.
e. Musharaka: In it, all the two or more parties involved contribute funds, according to their ability under an agreement. If the concern earns profit, it will be shared by them at a pre-agreed ratio. If the concern makes losses, it will be shared by all of the financiers as per capital participation ratio.
Islamic banks can finance under several other modes of funding including Bai-salam and Bai-Istisna which stipulate buying and selling.
The modes of investment can be categorised as: a. Profit-Loss share basis : Musharaka, Mudaraba; b. Mark-up basis: (i) Murabaha & (ii) Bai-Muajjal; and, c. Rental basis: HPSM.
The writer, a first vice president, Islamic Banking Division, Bank Asia Limited Corporate Office, Dhaka, can be reached at e-mail: mizan cmm yahoo.com
IN Bangladesh, Islamic banking grew quickly since 1983, with the founding of Islamic Bank Bangladesh Limited. Now, Bangladesh has seven full-fledged Islamic banks. Besides, a number of local and foreign commercial banks have opened their Islamic banking windows to meet the growing demand for it. Furthermore, some more banks are also expected to open Islamic banking branches soon. A number of conventional local banks are considering the possibility of fully considering to Islamic banking.
The scenario speaks of a growing demand for Islamic banking in Bangladesh. But the question is whether there is enough trained personnel for opening more Islamic banks or branches. Not all those working with Islamic banks are conversant with Islamic banking.
Islamic banks are facing serious shortage of manpower, with proper Islamic banking knowledge, due to absence of an Islamic banking training institution. Islamic banks have no option but to recruit personnel from traditional commercial banks. As a result the Islamic banks cannot fully function as they should, following the Shariah. The non-compliance results from the personnel's lack of knowledge of Islamic banking, finance and economics.
Islamic banking differentiates between interest and profit and also between credit and investment. Inadequate knowledge about it is bound to create confusion in the minds of the clients about Islamic banking. The clients often say that there is no difference between interest and profit. They say that the Islamic banks are taking interest in different way, for which interest and profit are the same thing. The comments puzzle the personnel of Islamic banks, lacking the knowledge, cannot clarify how Islamic banking is different in this respect. What is interest? The balance between buying and selling is profit for a business transaction as well as Islamic banking. The people could understand the difference between interest and profit if it is explained to them.
Similarly an Islami banker has to explain the difference between credit, which is financing for a fixed predetermined rate of return without participation in ownership, and investment, which is financing as a partner (or under ownership). While the yield on loans at a fixed rate is interest, which Islam prohibits and the yield on investment could be either profit or loss.
In Islamic banking, the purview of investment is much wider than what it means under western banking system. Most financing by Islamic banks take place under the umbrella of investment. A small part of its financing could be credit, because Islamic banks cannot charge interest on loans. In Islamic banking this type of loan is allowed, usually for welfare purposes. Such loans are called Quard (e-hasana) on which nothing extra is charged on the principal from the borrowers, who need to pay back the principal amount only.
Between 'investment' as in Islamic banking and 'credit' of conventional banks, the dissimilarities are more and similarities, only a few. In conventional banking, investment means investment in shares and securities but in Islamic banking investment has a greater meaning. Financing a business as an owner of the venture to share profit or loss is investment. But financing at a fixed or predetermined rate of return, not as an owner, is credit. In case of credit, the financier, not an owner of the venture, does not share either profit or loss.
The misgivings about Islamic banking arise, mostly from the question whether an Islamic banks share the loss of a venture for which it employs its fund. The circumstances, in which an Islamic bank shares or does not share profit or loss, vary.
Normally, an Islamic bank finances, interalia, through:
a. Bai-MuajjaI, which is a contract between a buyer and a seller, in which there is no question of sharing profit or loss.
b. Bai-Murabaha, or contract between a buyer or a seller for the transaction of goods at a cost plus agreed profit, payable in cash or deferred payment.
c. Hire-Purchase under Shirkatul Melk (HPSM) in which the assets are procured under joint participation of the bank and its clients. Ownership of the assets to be procured lies proportionately with the bank and the client as per equity participation.
d. Mudaraba: In it, one party provides capital or fund to another party that receives the fund to operate and manage the business. The financier is called Sahib-Al-Maal and the receiver is called Mudarib. Here both of the parties agree that if the business earns profit they will share it at pre-agreed ratio, but if it makes loss, the losses will be borne only by the Sahib-Al-Maal that is, the financer, subject to the condition that the losses are genuine and not caused by lapses, incompetence or fraudulent act of the Mudarib, or the receiver of the fund.
e. Musharaka: In it, all the two or more parties involved contribute funds, according to their ability under an agreement. If the concern earns profit, it will be shared by them at a pre-agreed ratio. If the concern makes losses, it will be shared by all of the financiers as per capital participation ratio.
Islamic banks can finance under several other modes of funding including Bai-salam and Bai-Istisna which stipulate buying and selling.
The modes of investment can be categorised as: a. Profit-Loss share basis : Musharaka, Mudaraba; b. Mark-up basis: (i) Murabaha & (ii) Bai-Muajjal; and, c. Rental basis: HPSM.
The writer, a first vice president, Islamic Banking Division, Bank Asia Limited Corporate Office, Dhaka, can be reached at e-mail: mizan cmm yahoo.com