The moral standard of Islamic banking

The history of banking is as old as the human civilisation. But the modern banking system flourished in Europe after the Renaissance and expanded across the globe including the Muslim world just after the political victory achieved in Europe. At the time the Muslims failed to uphold the trend of welfare and development economy culture they had practised for thousands of years. Long after the failure the Economist, a reputed financial magazine, predicted that the Islamic banking system might be accepted by the western world. Primarily, the Islamic banking system was limited to hypothecation and theory. During the forties and fifties, hopes and aspirations for establishing Shariah-based Islamic economy and banking system in newly-independent Muslim countries got momentum. In the sixties, the first ever modern Islamic bank was established in Egypt.
More than twenty Islamic banks were established in different countries within five years after the Islamic Development Bank (IDB) commenced its journey in the late seventies. The Dubai Islami Bank was established in 1975. The Faisal Islamic Bank was established in Egypt and Sudan in 1977. Sheikh Ahmed Ba'zi Al Yeasin established the Kuwait Finance House in Kuwait. Islamic banks were also established in western countries including Denmark, Switzerland and the United Kingdom during the period.
During the late eighties, more than 100 Islamic banks were established in different countries of the world and the number of branches of those exceeded ten thousand. In nineties, bankers and economists across the world developed a positive perception of Islamic banks. More than three hundred Islamic banks and financial institutions emerged during the late twentieth century. Mutual relations and cooperation among the Islamic banks were strengthened at that time under the initiative of 'International Association of Banks'.
Islamic banking achieved a tremendous success in the first decade of the 21st century. The number of banks and financial institutions in more than seventy-five countries has already reached 450. Giant multinational banks, not only in Muslim countries but also in western countries, have introduced Islamic banking products. It had been reported that global Islamic banking assets crossed the $ 1.8 trillion mark in 2013. The Islamic banking industry continues to record a robust growth-the top 20 Islamic banks registered a growth of 16 per cent in the last three years.
Islamic banking started functioning in Bangladesh in 1983 with the inception of Islami Bank Bangladesh Limited. Eight full-fledged Islami banks are operating in the country. Besides, seven conventional banks through their 18 branches and six more public and private banks through separate windows at their 24 branches are conducting Islamic banking in the country. The total deposits and investments of eight Islami banks in the country were Tk 112,588 million and Tk 970,764 million respectively in 2013 and the market share of Islami banks stood at around 30 per cent.
The objective of Islamic banking system is to establish Islamic economic and financial principles in the banking sector. It is a system of financial intermediary that avoids receipt and payment of interest in any of its transactions and conducts its operations in a way that helps achieve the objectives of Islamic economy. Alternatively, this is a banking system that functions based on Islamic principles of transaction. Profit and loss sharing (PLS) is a major feature of it. It ensures justice and equity in the economy. Islamic banks work for eradicating discrimination in the financial sector in order to establish financial justice, developing socio-economic infrastructure and creating employment facilities.
An Islamic bank conducts its operations by following the ordinary financial transactional practices. The distinctiveness of Islamic banking in comparison with the conventional banks is not merely hypothetical. Interest-free transaction is not only its uniqueness. The aim, objective, policy and work strategy of this banking system are dedicated for the wellbeing of a wider section of people. This banking system does not attach preference to making only profit to satiate the greed of a few individuals. Rather, it gives priority to fulfilling the basic needs of all people in the society.
Islamic banks work to establish the socio-economic justice in the society. Trading in actual goods and commodities instead of merely currency buying and selling as part of financial transactions, participatory mutual cooperation and a caring environment for human resource management are the common features of Islamic banking. Responsibilities towards the underprivileged and poor, reining in inflation, eradicating unemployment and creating employment opportunities are also included in the work strategies under Islamic banking.
Islamic banks follow a unique method in collecting deposits and making investments. Islamic banks present the deposit policy before the depositors so that they can realise that they are not only benefiting from depositing money, but also carrying out their social responsibilities by doing it. Islamic banks not only give importance to big deposits but also to small deposits.
One of their basic investment policies is the areas of investment and investment modes must be legitimate and Shariah-permitted. Investment areas should be selected in a way that the basic needs of the society could be met on a priority basis. Islamic banks put emphasis on the investment size, investment sector, economic objective and the geographical location of investment.
Once pious people thought no banking was possible without interest. Islamic banks and financial institutions have been able to prove that banking business is possible without interest and participatory business is possible based on profit-loss sharing. Empowerment of deprived people through financial inclusion is an important achievement of Islamic banking. Islamic banks have introduced different services to bring the un-banked people under the banking umbrella. They play a significant role in creating employment opportunities and supporting small and medium enterprises (SMEs) by investing in the SME sector, dubbed the engine of growth.
Islamic banking means green banking, which always gives priority to good policies and welfare in all activities. Such banks have not made any investment in production of tobacco or narcotic items or any other sector detrimental to environment as well as public health. The banks work for empowering women by making them solvent.
Islamic banking had expanded rapidly in Bangladesh during the last three decades. The scope of cooperation among all Islamic banks and other conventional banks conducting Islamic banking operations has expanded with the innovation of new banking products in this particular area and the structural development that happened. Now all concerned should work collectively to present the theoretical and hypothetical issues of Islamic banking to the people easily. The humanistic financial system can be promoted to a great extent by upholding the trend of successful Islamic banking.
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