What is an ideal Islamic bank

What is an ideal Islamic bank


What are the expected tenets, products and services of a true Islamic Bank


In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

Islamic finance and Economics is not an abstract concept rather an integral fundamental tenet of Islam. The Sahabah Radhiyyallahhu Anhum actively traded among themselves and became the wealthiest traders in Arabia at the time. Rasullullah Sallallahu Alayhi Wa Sallam himself assisted Hazrath Khadeejah Radhiyyallahu Anha in her trading activities in the Levant (present day Syria, Palestine, Jordan and Lebanon). In fact, Hazrat Abdul Rahman Bin Auf Radhiyyallahu Anhu had left behind an enormous treasure superseding the value of the wealthiest of today’s times. The concept of Shariah Auditing and Governance (Hisbah) existed during the era of the illustrious companions (Sahabah) Radhiyallahu Anhum and is further illustrated in the auditing activities of Hazrath Umar Radhiyallahi Anhu in which he would regulate the trading activities of the traders in the markets of Madeenah Munawarrah. Moreover the Ahadith and Qur’an are replete with tremendous guidance on Islamic Business, finance and economics. The Hadith compendium titled “al-Jami al-Saheeh” of Imam Bukhari Rahmatullahi Alayhi notes an approximation of 472 Ahadith or prophetic traditions on this very subject. 

The contemporary scholars have devised a system of Shariah Compliant financial solutions offered by financial institutions and banks. These scholars have developed such solutions as a viable alternative to conventional interest based banking and finance. These scholars have also adopted certain governance and auditing mechanisms via which they are able to ensure strict compliance of the rules pertaining to such transactions and solutions. These scholars have devised this mechanism of regulating the Islamic Finance sector. The intention to eradicate Riba and interest based banking is indeed noble and commendable. 

In general, an Islamic financial institution receives deposits from shareholders or depositors as liabilities and invests the deposits in Shariah compliant assets such as debt/equity based transactions such as Murabaha, Ijarah, Musharakah, etc. The financial institution may also engage in general fee based activities such as the issuance of documentary paper and facilitating payments or servicing forex clients through currency exchange/forex services. Most current Islamic financial institutions have adopted debt based complex financial structures which have been adopted due to the need of the time. However such institutions and scholars need to consider the adoption of more shariah aligned risk based financing such as Mudarabah and Musharakah to achieve the true objectives of Shariah (Masalih and Maqasid) in achieving justice, balance and equitable wealth distribution for the masses. Shariah economics is premised on the fundamentals of dissolving the absolute concentration of wealth in the hands of a few and maintaining an equitable distribution of wealth. It is understood that that the top elite 1% of the wealthiest individuals in the world currently control 44.8% of the World’s total wealth. Moreover the world’s 26 richest individuals in 2018 controlled a net worth equivalent to that of some 3.8 billion people. These are statistics according to an official Oxfam report produced. We advise for the proponents of modern day Islamic banking and finance to conduct an audit of their activities in aligning the Islamic Finance sector to these fundamentals. I have delivered several papers in this regard at several conferences in Malta, UAE, Saudi Arabia and Botswana with the intention of re-aligning the focus of the Islamic finance sector to a more comprehensive all-inclusive Islamic financial system. 

The Islamic Financial institution should ensure strict shariah governance and auditing mechanisms to ensure the fundamental tenets of Shariah business, finance and economics are maintained strictly. Moreover the institution should engage the services of a reputable board of Shariah experts in Islamic finance, banking and economics. These scholars should ensure strict shariah compliance and also seek to adopt a shariah ethos and mind set within the financial institution. A shariah audit report should be produced backed by a proper audit and governance system with proper reporting structures.

Lastly, the ideal Islamic financial institution should ensure that the back office activities including the treasury services are one hundred percent shariah compliant. We have noticed and witnessed first-hand reports of certain Islamic banks neglecting their duties and responsibilities in this regard which renders the solutions offered non-shariah compliant. 

We advise you to seek a more comprehensive study of this vast and immersive subject via the expert tutelage of well researched scholars in this field. One such scholar well versed in this subject is Hazrat Shaikhul Islam, Mufti Muhammed Taqi Usmani Saheb (Damat Barakatuhum) who has authored several books on this subject including “An Introduction to Islamic Finance”.
You can also download a copy of my book called “Your Brief Guide to Islamic Finance” via the website: www.shariahbusiness.com. This book is a series of lectures and notes delivered to various students of Islamic Finance, banking and economics and the forward has been documented by great luminary scholars including our respected Hazrat Mufti Ebrahim Desai Saheb Rahmatullahi Alayhi. 

We have also commenced a special Masters Programme for graduate financial/business professionals and Ulema in Islamic Finance, Banking and Economics. The programme is well attended with students from 32 countries and the summary of certain special lectures will be published and uploaded to www.shariahbusiness.com and our online network of websites. You can review such lectures for your learning and general information. 

You can also listen to a weekly programme called “Shariah Compliant Business Campaign” which addresses contemporary business matters on Channel Islam International to learn more here: http://ciiradio.com/listen-live/

You are welcome to contact us directly at the Darul Iftaa for any advice to provide specific guidance on structuring an Islamic financial institution at: https://www.shariahbusiness.com/about-us/ask-a-question/

We make Du’aa that Allah Subhanahu Wa Ta’ala allow your noble intentions to see the day of light with the establishment of a truly “Islamic” financial institution. 

and Allah Ta'ala Knows Best

(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee
Darul Iftaa, Durban, South Africa

Disclaimer The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.

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