‘Islamic Banking Not For Political Campaign’

Banking and finance experts yesterday agreed that non-interest banking was not designed for political campaigns and hotel financing.

The banking model, they said, can finance manufacturing, leasing, beneficence loans, deferred payment, prepaid purchases, amongst others.

Those that made presentations at the ongoing seminar of the Central Bank of Nigeria (CBN) on non-interest banking in Nigeria included Abubakar Sadiq Abdulkarim, head, non-interest banking, Keystone Bank, who said the banking model would not finance political campaigns due to their speculative nature, just as it was not designed to finance Casinos, hotels or businesses that have to do with pornography.

In his paper entitled “Sources and Application of Funds in Non-Interest Banking Regime”, Abdulkarim said that the concept of Islamic banking, though a new phenomenon in Nigeria, is expected to grow with the recent licensing of Jaiz Bank, a full-fledged non-interest bank and Stanbic IBTC to operate a window of non-interest banking with some other banks that have shown interest to operate the model.

He said: “Islamic banks get their deposits by offering current, savings or investment deposit products that are compliant with Islamic jurisprudence. Besides their own capital and equity, Islamic banks rely on two main sources of funds – a transaction deposit, which is risk-free but yields no return, and investment deposits, which carry the risks of capital loss for the promise of variable.

He listed the types of accounts under the model to include current account and savings account where deposits are collected under various principles, namely, Al-Wadiah – similar to current account except that it does not have any cheques facility; Al-Wadiah and Mudharabah, alternative to Al-Wadiah savings – where the bank is not supposed to give any returns; a hybrid of Al-Wadiah and Mudharabah (profit and loss sharing principle) deposit product was introduced.

He explained that Mudharabah is a type of savings account where the investor would be entitled to some profits based on agreed profit-sharing ratio pre-determined on placement of the funds.

Other types of account are general investment account, an investment account with pre-determined profit sharing ratio and maturity period, and the specific investment account, which he described as a unique investment product where depositors will be advised on where the funds would be invested, the minimum amount that they can invest, projected returns and attendant risk.

Relating his United Kingdom experience, Omar Sheikh of Islamic Finance Council, Glasgow, said Islamic banking has fared relatively well in the midst of the global financial crisis across the world due to their non-exposure to speculative ventures.

He disclosed that the banking model, which is based on the principle of ethical screen and non-interest, is asset-backed and prevents speculation and uncertainty, and informed that it has attracted billions of pounds in investment from the Arab states to the United Kingdom.

While calling for continuous stakeholder engagement, Sheikh said that “acquiring knowledge of the banking model will take at least a decade , given its dynamic nature in different parts of the world”. He, however, warned that Islamic banking was undergoing imitation and adaptation instead of innovation based on Islamic principles.

The 16th CBN Seminar for Finance Correspondents and Business Editors is taking place in Yola, Adamawa State.

 

http://leadership.ng/nga/articles/5980/2011/10/03/%E2%80%98islamic_banking_not_political_campaign%E2%80%99.html

KERALA TO LEAD BE ROLE MODEL IN ISLAMIC FINANCE CM Oommen Chandy accepts ICIF memorandum announces to approach Govt of India

The efforts to set up an Interest-Free Financial Institution in Kerala received a boost when Chief Minister Oommen Chandy announced that the Government of Kerala would extend all support to the setting up of Interest-Free Institutional Mechanism for Banking and Finance in the State initiated by the previous LDF government.

Inaugurating a national seminar on Interest-Free Mechanism at Trivandrum on July 4, the Chief Minister said his Government would move the papers for getting RBI’s permission to launch Interest-Free Banking in the country. He said the setting up of such an institution will attract investments from within and outside Kerala which will be utilised for infrastructure projects in the State.

Industries Minister PK Kunhalikutty, in his presidential address, said, “The main hurdle for several projects is Interest. The introduction of interest-free mechanism can lead to financing huge projects”.

He pointed out how Europe has undertaken financing massive infrastructure projects using interest-free finance concept and it is the right time for India to adopt this concept, particularly in Kerala.

Dr P Mohamad Ali, Chairman Al Baraka Financial Services, Former Finance Minister Dr TM Thomas Isaac, former Member of Planning Board CP John, Additional Chief Secretary T Balakrishnan (IAS),  Alternative Investments and Credits Limited Director T Arifali, chief of Sign Human Resources Centre Munawarali Shihab Thangal, and Rabitha Educational Committee Regional Coordinator Dr Husain Madavoor, also spoke.

Before the commencement of the seminar,   H Abdur Raqeeb, General Secretary, Indian Centre for Islamic Finance (ICIF) presented a memorandum to the Chief Minister and appealed to him to lead a delegation of all MPs of Kerala jointly to UPA Chairperson Sonia Gandhi, Prime Minister Dr. Manmohan Singh and Finance Minister Pranab Mukherji to accommodate Interest-Free Islamic Finance and to provide a level playing field along with the conventional finance and banking either by an executive order of FinMin or amending the banking regulations as done in several countries.

Chief Minister Chandy responded, in his speech, that he would definitely prevail upon the Central Government to pave the way to accommodate the interest-free finance for infrastructure development of the state and be a role model to the whole country.

The seminar was jointly organised by Department of Islamic Studies in the University of Kerala, Thiruvananthapuram Chamber of Commerce, Indian Centre for Islamic Finance (ICIF), Indian Association for Islamic Economics, Al Barakah Financial Services Limited, Secura Investment and Management India Private Ltd, the Ecotech Builders and Alternative Investments and Credits Ltd.