Islami Bank, Definition, History and Interest (Chapter 1)

The following definition of Islami Bank is approved by OIC's foreign Misters summit in Dakar in Senagal in 1978:

    " Islami Bank is a financial Institution, whose statutes, rules and procedures expressly state it's commitment to the Principals of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operation"

History of Islami Bank 

Earlier banking  meant only interest based capitalist system. But in the course of time, the failures of that system large loomed, and creates a disparity in the distribution of wealth. The system also creates recession in the economy. All the wealth merges to the rich only. thus damages social balance.

Under this backdrop, various research oriented books, journals on Islami Banking are written in thirties of twentieth century and later it began to flourish to a large scale. in this way, a corporation titled " Pilgrims Savings Corporation" was established in Malaysia.

The First Islamic Bank was established in Mitgamar of Egypt by Dr.Ahmed Al Naggar as " Savings Bank." in 1963. Officially first Islami Bank is set up in Malaysia as " Tabung Hagi"

Later Islamic Development Bank (IDB) charter was signed in 1974 in the finance ministers conference of OIC and IDB finally comes into being in 20th October, 1975. In Bangladesh, IBBL is the first islami Bank incorporated in 13th March, 1983 and starts its activities in 30th March of the same year. the First branch Local Office was inaugurated in 12th August in 1983.


Mission and Vision of IBBL

Mission: To establish Islamic Banking through the introduction of a welfare oriented banking system and also to ensure equity and justice in all economic activities, achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less developed areas of the country. To encourage the socio-economic development and financial services to the low-income community particularly in the rural areas.


Vision:

Our vision is to always strive to achieve superior financial performance, be considered a leading Islami Bank by reputation and performance : 

• Our goal is to establish and maintain the modern banking techniques, to ensure the soundness and development of the financial system based on Islamic Principles and to become the strong and efficient organisation with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial systems.
• We will try to encourage savings in the form of direct investment

we will try to encourage investment particularly in projects, which are more likely to lead to higher employment.

Riba: Interest

 Interest is any predetermined excess which is paid or received with the passage of time on principal of loan as a condition of loan and for which no counter value is paid or received and which is not related with the usage and result of loan.

Riba is of two kinds: Riba Nasia, related with loan and time as in defination

  Riba, Fadal, related with goods for exchanging hand to hand.

There are  verses regarding Riba in 4 Suras.
Sera Rome: 39
Sura Nisa-160 to 161
Surah Al Imran--130
Sura Bakara--275-81

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Difference between interest and profit:.
Some says profit and interest are the same. But actually they are quite different

Profit	Interest
1. Profit is earned through selling and buying  2.Profit is achieved by capital, merit, time and striving. 3. Profit is uncertain and undetermined. 4. Profit is charged only once, and does not increase with time. 5.Profit bears risk. 6. Profit is halal.	1.Interest is realized by loan in the passage of time. 2. Interest is taken only for giving loan. 3. Interest is certain and prefixed. 4. Interest is changed and increased in course of time. 5. Interest does not bear the risk of business. 6. Interest is haram.

Demerits of Interest:

1. Creates parsimony and greed.
2. Provokes grievances
3. Social degeneration
4. Creates "Julm"
5. Inflation
6. Makes depositors idle
7. Less investment

Common Shariah irregularities in Islami Banking
Common Lapses: No-sale buy, no cash memo,no LC authorisation, profit charged in various sequence of a same product, rent in gestation period. Now, detail of shariah lapses in differnt sectors

General Banking Related:

1. Account opened without necessary papers and proper approval from authority.
2. Cheque book issued but kept undelevered.
3. Depositors signatures not taken in deposit slip.
4. Cash limit exceeded
5. DD payable remain outstanding for long
6. Suspense Account and Sundry Deposit account found outstanding for long/awaiting reversal
7. Cutting, erasing found in the register which is strictly prohibited

Investment Related Lapses:
Lpses in Bai Murabaha-bai Muajjal

1. To extend cash facilities to client
2. Adjusting old investment by extending new investment
3. to take cash memo at client's name
4. No similarity between cash memo and disbursement
5. Client take goods from seller directly, not banks
6. Agreement remain blank and undated

Lapses in case of bai Salam

1. As soon as the price of bai salam is paid, profit is charged instantly and profit not determined in proper order.
2. Later banks officials do not receive the goods and delivery the same to client as bank's agent
3. No agreement signed with client for sales agent of bank
4. In bai salam agreement, no mention of the particulars of goods,delivery place, quantity-quality, place of delivery, date and buying price.
5. To give rebate to client if export value is realized earlier than due date.
6. Agreement blank and undated.

Hire purchase under under shirkatul melk (HPSM)

1. To take rent i ngestation period
2. No record of delivery of goods
3. Agreement remain blank and undated

Musharaka related lapses

1. No reflection of client's part in investment
2. No similarity of equity in document and actual
3. Estimate account in business
4. No survey of buying and selling of goods by banks officials

Mudaraba Related Lapses

1. No transparency in accounts of business
2. Submission of accounts based on inference
3. Interference by Shabib al Mal in business 

Lapses in Istisna

1. Existence of goods
2. absence of written deed