Islamic Banking Development History History of IBAF Barter

Islamic Banking Development History

History of IBAF – Barter trade was common – Al-sarf (money exchange) • Lack of standardization – for e. g. , 10 grams of gold in coin form = 15 grams of gold in bracelet form – Institutionalization of riba – Widespread gharar – Monopoly, fraud and economic injustice was common

History of IBAF • With the advent of Islam, – Eradication of riba institutions and practices – Eradication of gharar transactions – Institutionalization of fair and equitable markets • No monopoly, fraud • Standardization of money and commodity exchanges

History of IBAF – Islamization of many business organizations and institutions • Mudarabah, Musharikah – New organizations and institutions were introduced • Zakah, waqf and • Baitul-mal

History of IBAF The first attempt to establish IB was in the 1950’s – in the rural area of Pakistan -Pious landowners deposits their funds without interest rewards -Credit was advanced to other poorer landowners for agricultural improvements -Although there was no shortage of borrowers, for the depositors, it was a once and for all effort -Depositors took considerable interest on how the money was loaned out.

History of IBAF • 25 th July 1963 – February 1967 Mit ghamr Islamic Savings Bank started in Egypt by El-Naggar -Purpose to mobilize the idle savings of the majority of Muslim within the Shariah and to provide halal returns on their saving as well. -El-Naggar was an academic himself -Managed the staff

The role of the bank (El-Naggar, 1974) a) An efficient intermediary between the supply and demand of capital. b) Act as one educational center for economic efficiency, saving education and banking habit, and c) Set a dynamic factor in mobilizing the idle capital for investment, reducing hoarding and the problem of capital formation.

History of IBAF • Islamic banking and finance (IBF) is relatively new compared to conventional banking and finance • Earliest Islamic financial institution can be traced to a savings institution based on profit sharing in Mit Ghamr, Egypt in 1963 • Oil boom in the 1970 s triggered a rapid growth of Islamic financial institutions

History of IBAF • Establishment of the first Islamic bank (Dubai Islamic Bank in the UAE) in 1975, as well as the Islamic Development Bank (IDB) in Saudi Arabia • First attempt in the West to establish Islamic banking was in Luxembourg in 1978

Islamic Banking Today • Latest World Islamic Banking Competitiveness report, shows the assets of Islamic banks grew at an average rate of 17% per year between 2008 and 2014. This is two to three times faster than the rate at which conventional banks grew over the same period, due in part to the global financial crisis.

Islamic Banking Today – Countries embraced Islamic banking as a national policy concurrently with conventional banking and finance (dual track banking) • Bahrain, Brunei, Indonesia, Kuwait, Malaysia, Turkey, UAE, Saudi Arabia, Qatar, Bangladesh and Pakistan.

Islamic Banking Today • Total Assets : As of 2014 total assets of around $2000 billion were shariacompliant. • “According to some estimates, the total asset value of Islamic banks will touch $3, 400 billion in 2018”, • Total IFIs : 600 in 75 countries.