Book Review by
New Horizon, No.77 (July 1998)
(Institute of
Islamic Banking and Insurance, London)
Participatory Financing
through Investment Banks and Commercial Banks
and
Interest-free Commercial
Banking
By
A.L.M. Abdul
Gafoor
(Published by Apptec
Publications, Groningen, The Netherlands)
These two books are part of a
series of books by the same author, which provide a practical perspective to
interest-free Islamic banking. The books are a timely contribution to the
development of interest-free banking. Although various publications and
articles have appeared on the theoretical aspect of interest-free Islamic
banking, very little has been produced on its operation within the framework of
the conventional financial system. The books provide solutions to the
challenges, posed by the conventional financial system, to the operation of
interest-free banking.
Participatory
Financing through Investment banks and Commercial Banks, 1996, xii+96 pages.
This book explores the possibility
of banks accommodating Muslim depositors whose primary aim is to use capital to
earn an income. It is duly concerned with ways of earning income from
surplus fund without contravening the Islamic prohibition of interest on
money. To this end, the book focusses on investment in one-man
businesses, partnership with one or more others, and in Mudaraba-type
participation in investment where the investor is a sleeping partner.
The book, in chapter 2, develops a
general financing scheme model. It applies basic interest-free concepts
to commercial banks' credit creation activities. Concepts and mechanisms,
which are universally applicable to all situations, are developed. Attention is
drawn to the objections raised against Islamic banks, that its assets are tied
up in investment without any guarantee as to the capital or the return.
Chapter 3 concentrates on how large
and small investors may be matched with [different] investment options, and how
to utilize the participatory financing scheme [in the different
circumstances]. The writer advocates the financing of 'social' projects
that cater to the basic needs of the population. This he considers as
being particularly important to Muslims in third world countries.
Chapter 4 examines the potential of
the participatory financing scheme and the problems that may arise from its
application. It also demonstrates that investment companies also offer
the scheme.
Chapter 5 deals with the effects of
inflation on participatory financing. It gives an understanding of how
and where the effects of inflation are felt in participatory financing and
evaluates the extent of the damage. It is also able to show that
inflation has no worse effect on capital in a participatory finance scheme than
it may have on capital deposited in an interest-free account.
The book presents a single scheme
with several options for bringing capital and entrepreneur together, through
banks and investment companies, in a manner which complies with the Islamic
prohibition of Riba and mutually beneficial to all the parties.
The write has in these two books
created a work which, despite its brevity, is of considerable importance for
the development of banking services which comply with Islamic principles.
The books have been lucidly written in simple English. They are ideal for
practitioners involved in the world of finance while are also suitable for
academics.
Interest-free
Commercial Banking, 1995, xii+86 pages
The aim of this book is to examine
modern banking practice with a view to finding ways of eliminating Riba and
maintaining a viable operation. It investigates, through the study of
Islamic banking and basic banking principles, means of developing interest-free
commercial banking.
Chapter 2 of the book presents a
general model of commercial bank lending operation. It analyses the cost
of borrowing from a commercial bank and the role of cost component in
commercial bank lending. The writer demonstrates how interest may be
eliminated from the bank's lending operation and consequently from the whole
banking sector.
Chapter 3 presents a complete
interest-free commercial banking system, which requires no legal reform or
changes in commercial banking practice. The proposed system interest-free
commercial bank leaves out the unacceptable elements in the conventional and
Islamic systems. It combines the two systems to provide an efficient
commercial banking system that guarantees depositors' capital and enables
Muslims to engage in interest-free banking transactions.
Chapter 4 consists of an analysis
of Islamic banking -- its historical development, operation and associated
problems. The writer demonstrates that the Islamic-banking operation can
be modified to offer a clean and efficient interest-free banking system.
the modified system will offer the following banking services: loans with a
service charge, and Mudaraba participatory financing. The resulting
banking system is essentially the same as the proposed interest-free commercial
banking system.
The book concludes that it is possible
to completely eliminate interest from the banking system without taking any
drastic measure, keeping it fully viable and compatible with conventional
banking practices.
Mansur A. Noibi