At the beginning of last June, the European Central Bank issued a decision to reduce the deposit rate to below zero — a first for the bank. This fell within the framework of a package of economic incentives. The decision aimed at reducing the deposit rate to -0.10%. This means that the depositor will not obtain the interest on the deposited funds, but rather the bank will obtain returns on deposits made with the institution. According to some analysts, the idea draws inspiration from the concept of zakat in Islam to prevent accumulation of wealth by imposing a certain percentage on capitals that remain intact for one year.
However, the differences are clear. First, the zakat in Islam is imposed on the individual within the scope of his religious duties, while the step taken by the European Central Bank targets banks who offer deposits. Second, zakat has well-known and specific allocations, while the step taken by the European Central Bank aims at encouraging the channeling of funds toward economic activities rather than investing them and depositing them in banks. The philosophy behind this step may be viewed as in line with the values of Islam, where wealth is perceived as a means that must be spent for higher purposes and must not be amassed.
Indeed, regardless of the link between this policy and the concept of zakat, Western societies and institutions increasingly look to Islamic financial regulations in their desire to renew themselves and use what they see as useful, one way or another. This is also due to the existence of social blocks unwilling to charge interest. Therefore, it is no longer strange to see major Western banking institutions such as Citibank, Chase Manhattan and HSBC dealing in accordance with the provisions of Sharia in terms of financial products such as murabaha, mudaraba and musharaka (joint venture). Moreover, the headquarters of five Islamic banks exist in London, and 50 countries around the world allow the practice of various types of Islamic banking.
Islamic bonds are issued and managed in accordance with the provisions of Sharia, prohibiting the trading of forbidden projects, goods and services, and involving the client in the profits and losses according to his share. These sukuk [Islamic bonds] are now attractive in light of their significant market growth, which is estimated to exceed $1.5 trillion. It is also estimated that the market for Islamic bonds registers an annual growth of around 15% and that a large proportion of them are indeed sold to non-Muslims.
Moreover, it was anticipated that the value of the Islamic bonds issued during the first quarter of this year would exceed the threshold of $30 billion. This urged London to attempt to become the first Western capital to attract Islamic banking activities. Late last year, British Prime Minister David Cameron addressed the participants of the Islamic Economic Forum, announcing that the UK Treasury plans to issue sukuk worth approximately 200 million pounds [$326 million]. This was a modest amount compared to the value of the other instruments issued in this field. However, the fact that the issuance is made in London gives it an additional value. This transaction is expected to be completed during the next few weeks.
Four months ago, the parliament of Hong Kong — an island enjoying some executive and legislative autonomy despite its subordination to China — completed the laws and regulations allowing it to issue sukuk. It is planned that the value of the first issuance will amount to $500 million.
The phenomenon of Islamic banking dates back to the sixties. It began in Egypt with a number of savings banks. Then, during the following decade, it started to spread when the Sudanese Islamists allied with former Sudanese President Jaafar Nimeiri and managed to convince him (in the late seventies) to allow the establishment of the first Islamic bank subject to the provisions of Sharia, Faysal Bank. The bank was exempted from several procedures and conditions, and thus it achieved profits that were then forwarded to support the political action of Islamists by providing soft loans to the members of Islamist organizations. This provided them with a funding possibility that was not available to others and contributed to the emergence of a new social class of Islamist businessmen.
The experience expanded. Other [Islamic] banks and companies were established in the field of trade, insurance, etc., which provided strong support for the Islamist political structure. This made the Islamic banks part of the conflict within the political process. Islamists always replied to those who criticized their financial practices of monopoly or discrimination in the provision of loans that their criticism was directed at Islam and not at specific practices that could be rectified. It is strange that at the time when Islamic banks, led by Faysal Bank, spread into Sudan, Egypt and other countries, they were banned from operating in Saudi Arabia.
Some believe the reason behind this was that the banking system in Saudi Arabia functioned initially on the guidance of Sharia. Allowing a certain bank to raise the Islamic banner could have implied that the rest of the banks were not Islamic. However, when the “Islamic Awakenings” emerged in the 1990s, the Islamic banks found their appropriate path after al-Rajhi Group, while operating in exchange, was allowed to establish a bank according to Islamic foundations. The rest of the banks then rushed to provide financial products under the Islamic banner.
After decades of practice, certain negative aspects of Islamic banks began to emerge. They were often called Islamic usury banks and accused of creating an Islamic illusion for usury practices, with simple name adjustments. The Islamic banks were mainly criticized by politicians on the basis of their personal interests and political programs.
In Sudan’s experience, these kinds of banks contributed to moving the Islamists in the country from being a small party to the third electoral rank, in addition to having significant financial powers compared to their competitors. This allowed them to spend money on media and membership, as well as paving the way to the coup led by current President Omar al-Bashir. Not to mention they were capable of staying in power for a quarter of a century, which no other political authority was able to accomplish in Sudan before.
Due to this political dimension of Islamic banks’ activity, it became difficult to criticize their path, as is the case with the murabaha mode, as the banks do not take any kind of risks. The agent has to pay the Islamic bank double what he usually pays the usury banks. These banks operate under the auspices of supervision committees who control their financial operations according to Sharia. However, the members of these committees are designated by the banks’ administration, which makes their independence questionable. They often include traditional sheikhs who are not up to date with the modern economic mechanisms and functions, which makes them incompetent. This criticism came from within groups that could not be accused of opposing the experience from a political aspect — for example, Sheikh Saleh Kamel, head of Saudi Dallah Group, which has been working in Islamic banks for over three decades and whose al-Baraka Bank has branches in several countries.
According to Sheikh Saleh, these banks were busy making money and ignored the process that led them to this situation, as well as all the guidance of Sharia. These banks also suffer the difficulties of liquidity planning. Their relationship with depositors was never a partnership, which is probably due to them starting off as traditional banks instead of as investment companies. Saleh suggested calling them Abrahamic banks instead of Islamic, based on the fact that all three monotheistic religions (Islam, Christianity and Judaism) forbid usury.
The lack of a central authority that could establish the required policies and regulations for Islamic banks’ activity played a role in not allowing them to achieve the objectives they were initially established for, despite them being gathered under one union that organizes their operations.
On the other hand, the Islamic banks’ experience could push Islam toward a prominent role in the political, economic and social mobilization in Qatar. The fact that this experience appeals to the depositors’ religious and emotional side has helped its expansion. This has attracted the attention of foreign institutions and societies, which aim at having access and taking advantage of a large range of unexploited capital.
The experience might have been modest at first in Sudan and Jordan, but it was effectively launched in Malaysia, since it sympathizes with Islamic propositions. During the 1980s and the 1990s, many of the Malaysian government’s institutions in all domains were privatized, which provided the opportunity to activate Islamic finance. The financial boom in the countries of the Gulf, specifically after 2005, provided great financial resources, which aimed at finding new financial instruments. They found it in sukuk, which attracted the attention of international markets that sought to open the doors for any practice that would help them face these [2008 financial] crises within the scope of capitalist traditions for innovation and new intake.
Thus, the Islamic finance experience can be seen as a humane financial and banking jurisprudence, which can be criticized and reviewed, as well as distanced from politics. Perhaps this experience will contribute in providing a solution for the complex economic situation, instead of the vicious cycle of violence that has marked the conflict between Islamists and their opponents on the political scene.