ISLAMIC BANKS: THEORY AND PRACTICE AND PROSPECTS
By Scholar of Shari’ah and Economics
Editor: Galal Mohammed Noman
Bahrain Centre for Studies and Research Scientific Publication
2008
Reviewed by KASHIF HASAN KHAN
The book is quite attractive, bilingual in terms of English and Arabic to keep the readers in view but the Arabic part has some additional articles which reflect factual information. The book consists of six brief articles with brief introduction by Mohammed J.K Alghatam with the aim of promoting the common good of Muslims all over the world, as well as highlighting the Islamic banking objectives and their operational practices and to focus on the key principles of Islamic banking, the Bahrain Centre for Studies and Research invited some Islamic scholars and experts from Arab and other Muslim countries to contribute to this book.
The book ends with a brief review of the book written by Rashid Khalid Alkhan ‘Islamic securitisation: a revolution in the banking industry’. The book was compiled in 2008 with focus on Bahrain which has become a financial focal point embracing the largest number of Islamic banking and financial institutions.
As far as chapter division is concerned, the introduction part is too brief and the author seems speaking in a heavy theological tune besides the whole lot of preface has been converted into a paper with first titled as introduction which reflects immature academic skills.
In the second paper ‘Islamic Banks from a Strategic Perspective’ the author discusses the reasons as to how Islamic banks have spread from Arab world to Europe and the United States of America and gives a current overview of the same. There is, however, no denying the fact that under the interest based system of banking or in a system not strictly based on the principles and spirit of Shari’ah, depositors as well as borrowers are being exploited in one form or the other. It is however significant to note that, as in the case of conventional banking, the depositors are being exploited most by banks and financial institutions operating in many Muslim countries under the banner of Islamic banking. The main reason for this is that Islamic banks are following the bench marks of interest based system.
In the third paper the author argues that the objective of elimination of injustices of the interest based system cannot be achieved if the Islamic banks and conventional banks in Muslim countries operated parallel to each other. These injustices can however be eliminated to some extent if Islamic banks become market leaders even in the parallel system. He further says, it would be possible only when the market share of Islamic banks in a Muslim country is raised to about 50% of total volume of the banking sector in that country. But this does not seem to be a possibility even in the next decade in most Islamic countries unless of course, these countries change their existing policies and strategies.
In the fourth paper ‘Corporate Social Responsibility (CSR) with in the realm of the Islamic financial institutions ecosystem’ the author tries to depict that Islamic philosophy is rich in precepts pertinent to CSR, while Islamic commerce emphasised social responsibility and justice in all transactions among the community members. However, earlier Islamic literature addressed CSR from theological side rather than eco and environmental perspective, recently, the Islamic CSR principles have been synthesised in protocols that can be followed by the IFIs. The principal objective of this chapter is to explore a wide range of literature from both western and Islamic sides to delimitate the concept and values are already embedded inside the structure of IFIS. The chapter presents the phenomenal growth in IFIs during the last decade and explains the reason behind this exceptional growth. Then, a conceptual framework of CSR will be presented to explain the core values of Islamic Shari’ah which are unity, accountability, equilibrium, freedom of choice. The core values are the foundation for Islamic business ethics and norms.
Further he puts forth his argument that the role of an organisation was frequently linked with political, social, economic roles. With the rally round of some renowned scholars of economics it is a hard fact indeed.
In the fifth paper titled ‘the case of Islamic hedge funds’. Treats different facts of Islamic hedge funds after defining the conventional hedge fund but the nomenclature used is a bit complicated with big jargons employed.
Presently a great deal of scepticism exists among investors in Arab/ Islamic countries regarding the structure of hedge funds and their apparent non-compatibility with Shari’ah laws. Hedge fund returns have been driven in a large part due to the use of leverage and associated short sales that are not permissible under Islamic finance rulings. The use of leverage under Shari’ah is extremely selective and is only allowed under conditions where assets are purchased on deferred payment basis or through the use of Islamic debt. Further he writes, in attempt to rectify this legal shortcoming and replicate conventional short sales, fund managers have opted to use Arbun contracts. Whereas, Islamic hedge funds are constrained with their inability to find appropriate instruments to manage risk, particularly long term risk exposure. However, till date, very few hedge funds can claim to have conformed to the highest Shari’ah standard possible.
The sixth paper sukuk: the future of Islamic finance, discuss the global trend and the growing pains of a sukuk market and the hazards for a sukuk investor.
He writes, the outlook for Islamic sukuk is promising with tremendous scope for innovation and variety. According to the Islamic finance information service, the first half of 2007 has gone registered almost $24.5 billion of new sukuk issues. Analysts project that this figure will reach the landmark $100 billion within next three to five years but the author has ignored the impediments pertaining to sukuk whether it is allowed in Islam or not because, still it is in long debate among different jurists. As for the future outlook of sukuk the author has also not discussed the hurdles which are on the way of sukuk market.
The seventh paper ‘Islamic banking in the kingdom of Bahrain’ a brief overview of Islamic banking is given on operating in the Kingdom of Bahrain but it does not shed light on the problem like risk management, despite the fact that Islamic banking industry entered the fourth decade in 1990s but intellectuals kept realising the shortcomings of the industry, especially when it came to a matter of competition with conventional banking industry, Globalisation of finance and the rapid integration of Islamic finance into mainstream, raise a number of challenges. The main challenge which needs to be addressed is risk management.
To make the book more useful and comprehensive in its benefits for non-Arabic speakers, the editor seems obsessed to add an English language section. But lacks proper positioning and equal contents in English version vis-a-vis Arabic. However, the current discourse on the whole work does not deserve to be ended with a pessimistic note as the book can prove a useful reading for the beginners and students of Islamic finance.