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Book Review:
Reviewed by Preeti Nair Financial institutions are
essential components of the present day world. Conventional commercial
banking as we find it today evolved over time and has since become a stable
institution with commonly understood practices accepted all over the world. But conventional banking
practices, due to its element of interest (riba), have been deemed as
un-Islamic. This being the current situation, can the un-Islamic elements be
removed from the current banking practices and thus be made acceptable in
Islam? First, what is un-Islamic in conventional banking? The author begins by saying that
conventional banking operations are primarily based on interest. It receives
and lends money on interest, which is prohibited in Islam. Since
interest-bearing instruments permeate all operations of the conventional
banking system, the whole banking system has become repugnant to Muslims. Yet
according to the author, they cannot make do without it. Hence, there have
been efforts to search for a banking system without interest. But can we
remove the elements of interest from the conventional system and still have a
system as good as the one we are accustomed to? The author explains that to remove
the elements of interest from the current commercial banking system, we must
first understand the precise role interest plays in the system. Only then can
we consider the effects of removing it from the current system and thereby
examine its viability. In the second chapter, the author
presents a general model of the conventional commercial bank's lending
operations. With that he has listed six components that make up the
"interest" that is being levied. These components include interest,
cost of service, cost of overheads, a risk premium, profit and compensation
for inflation. By so separating out the components, he is of the opinion that
it is possible to trace the role played by interest and thereafter remove it
from the lending operations, and consequently from the whole commercial
banking sector without resorting to any drastic measures. In the third chapter, the author
presents a complete interest-free commercial banking system that is devoid of
complicated and controversial concepts and theories. The system is
transparent, thus easy to explain, implement and operate. The author also
deliberates the practicability of this system in Muslim countries, as well as
in countries where there is a Muslim population. The author believes that the
implementation of the system requires no changes either in the laws of the
country or in that of the commercial banks. Therefore, the system can be
launched by any conventional commercial bank on its own initiative, almost
immediately. Or as a separate department within the conventional commercial
banking system without causing any disruption to its other businesses or
business practices. According to the author, the one
good thing about the new system is that it will either survive and prosper or
die a natural death due to its own merits. The book also deals with such
practical matters as letters of credit, treasury bills, inter-bank rate,
central banking, interest-free international banking, etc. These have proved
difficult in the context of Islamic banking, but this model provides simple
and convincing solutions. In the fourth chapter, the author
traces the history of Islamic banking and discusses its current practices. He
also explains the shortcomings faced by these practices whilst recommending
constructive solutions to overcome them. The resulting Islamic banking system
is essentially similar to the one presented in chapter three, but the latter
is backed by firm theoretical foundations. The author concludes with a
summary in chapter five. The book, written lucidly, is easy
to comprehend. It presents the main principles of Islamic banking without
excessive usage of complex Arabic terminology and hence it is suitable for
the general public. |
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