Participatory Financing through Investment Banks and Commercial Banks - (English) - (PB)
This is the second of the series which taken together are expected to provide a comprehensive banking system that addresses the concerns and needs of Muslims today. Muslims are concerned that modern conventional banking system is essentially based on interest - dealing in which is prohibited by their religion. Concerning the same, this series provides valid solutions for the commercial banking system that can run without depending upon the element of interest.
This is the second of a series of three books which, taken together, are expected to provide a comprehensive banking system that addresses the concerns and needs of Muslims today. Muslims are concerned that modem conventional banking system is essentially based on interest it lends money on interest and pays interest on deposits dealing which is prohibited by their religion. But they cannot do without a banking system either. This problem is the subject of the first book Interest free Commercial Banking - which presents a banking system that is free of interest, and yet is fully viable and compatible with current practices in the conventional system.
In that system time and savings deposits will not bear any interest but the capital will be guaranteed. This is line if the depositor's main aim is to keep his savings safe. But what if his primary aim is to use this capital to earn an income? Islam prohibits interest earnings. He could en- gage himself in some trade which Islam permits on his own or in partnership with others, even as a sleeping partner - but it may not be possible for many for personal reasons or for reasons of the modem day environments. Exploring the possibilities of accommodating such capital holders through a bank is the subject of this book.
Studying the type and size of such capital and their owners' geographical distribution, and the type, size and distribution characteristics of investment opportunities, we present a single scheme with several options for bringing capital and entrepreneur together through banks in a mutually beneficial and responsible manner. The scheme can be offered through investment companies as well.
Inflation erodes the value of the depositor's savings as well as that of the bank's loans. This is a worrying phenomenon, especially in the developing world. The third book - Commercial Banking in the presence of inflation - studies this phenomenon and presents a way of counteracting the effects of inflation. The method is applicable irrespective of whether the bank is an interest-free one or a conventional one and therefore suitable for general adoption. But it is especially relevant to Muslims for two reasons: One, since most of them live in developing countries they are most affected by it. Two, whereas in a conventional system the depositors might be fully or partially compensated by the paid interest, in an interest-free system they will have to bear the full loss. Therefore an interest-free method of compensating for that loss becomes very necessary.
I wish to thank Professor Elmer Sterken and Dr A. Tourani Rad for reading through the draft and commenting on the contents. Also to Professor Jan Oorburg and Dr Fouad Koudjeti for their comments on the manuscript, and to Yasir Diab for the final reading. All errors and shortcomings are, of course, mine. I am indebted to my family and friends for their moral support.
Groningen, the Netherlands A.L.M. Abdul Gafoor
9 April 1996