By Phar Kim Beng
Next month Birmingham, the home of one of the United Kingdom's largest Muslim communities, will become the headquarters of the Islamic Bank of Britain; in London, there is already an Islamic stock brokerage. The spread of Islamic banking and finance throughout the world may not provide the exciting headlines that result from extremist Islamist terrorism, but it is arguably of farther-reaching importance - and enjoys the support of the Koran itself.
Islamic banking operations now exist in about 100 countries, with an estimated US$300 billion in assets, and are growing at 10-15% a year, according to Gohar Bilal, a former visiting scholar at the Islamic Legal Studies program of Harvard Law School.
Like any bank that complies with Islamic law, the new bank in Birmingham will not pay or charge interest on its transactions. Naturally, it will also appeal for its business primarily to European Muslims, who number nearly 2 million in Britain alone.
This is not to say that non-Muslim banks are ignoring this market. For example, Hong Kong and Shanghai Banking Corp (HSBC) in England already offers pension and home-loan schemes and a stockbroking service that comply with Islamic law (Sharia).
Still, the introduction of Islamic banking in Europe is tentative at the moment, meaning that it will at first focus on high-net-worth customers so as to recoup investments as soon as possible. In the long run, however, given the growth of the Muslim community in Europe, and the fact that non-Muslims will not be excluded from these services, Islamic banking and finance could turn out to be a useful bridge across societal gaps.
The growth of Islamic banking might seem remarkable in the context of the current image of Islam as an atavistic religion of terror and violence, a condition aggravated by the attacks of September 11, 2001, when the world watched in horror the acts perpetrated by the extremists. Indeed, Muslims themselves have for decades ignored the advances in Islamic banking, distracted by ideologues bent on creating Sharia-compliant states.
Yet Islamic banking is no less important than Islamic law at the state level, as it was mentioned in the Koran in four different revelations. According to Professor Muhammad Ariff of the Malaysia Institute of Economic Research (MIER): "The first revelation emphasizes that interest deprives wealth of God's blessings. The second revelation condemns it, placing interest in juxtaposition with wrongful appropriation of property belonging to others. The third revelation enjoins Muslims to stay clear of interest for the sake of their own welfare. The fourth revelation establishes a clear distinction between interest and trade, urging Muslims to take only the principal sum and to forgo even this sum if the borrower is unable to repay. It is further declared in the Koran that those who disregard the prohibition of interest are at war with God and His Prophet."
A pioneering effort led by Ahmad El Najjar took the form of a savings bank based on profit-sharing in the Egyptian town of Mit Ghamr in 1963. This experiment lasted until 1967, by which time there were nine such banks in the country. These banks, which neither charged nor paid interest, invested mostly by engaging in trade and industry, directly or in partnership with others, and shared the profits with their depositors. Thus they functioned in essence as saving-investment institutions rather than as commercial banks. The Nasir Social Bank, established in Egypt in 1971, was declared an interest-free commercial bank, although its charter made no reference to Islam or Sharia.
Islamic banking has been adopted at the national level in Pakistan, Sudan and Iran, and those countries have decided to Islamize the whole of their banking systems. In Malaysia, where progressive Islamization is being carried out, total assets of the Islamic banking industry rose by $3.5 billion or 20.8% to $20.5 billion by the end of 2003.
Islamic banking is not restricted to Islamic institutions purely. In 1996 Citicorp set up CitiIslamic Investment Bank in Bahrain. Following this precedent, financial institutions ABN Amro, American Express, ANZ Grindlays Bank, Chase Manhattan, Deutsche Bank, Nomura Securities and Union Bank of Switzerland now all have in-house Islamic units.
In the past, Islamic banking has been held back by complacency - the tendency to sit back and wait for Muslim investors to walk in the front door. Recently, however, a number of institutions have aggressively developed the market, including Dar Al-Mal Al-Islami Trust, Islamic Development Bank, Al Rajhi Banking and Investment Corp, Al Baraka Group and Kuwait Finance House.
In predominantly Muslim countries, the central bank has a Sharia board, whereby panels of Islamic jurists seek to advise both the central bank governors and private commercial banks on what is legal and prohibited in Islam.
Yet despite the monumental advances in Islamic banking, one hardly hears any Islamic preachers, least of all extremists, calling for more of them, or acknowledging Islamic banking as a clear form of progress made in the name of Islam. Rather, they insist that implementing Islamic law and Islamic states constitute the two platforms of building "true" Islam.
Such a fixation is curious, if not pernicious. After all, while the Prophet Mohammed, whom all Islamic extremists insist Muslims must emulate, was a great law giver and statesman, facts that history does not dispute, he was also a merchant. In fact, prior to becoming the Prophet of Islam, he was known as an affable, able and honest trader by all the Arab tribes - two qualities that attracted Khadijah, a businesswoman of prominent standing, to make a marriage proposal to the Mohammed, to which he accepted.
In pursuing a form of puritanical Islam, Islamic extremists have sadly politicized the corporate memory and culture of Islam. They have also reduced the repertoire to which Islam could appeal to further its revival, such as through innovations in Islamic banking and finance.
