Islamic Banking and Finance

Islamic Banking and Finance

New Perspectives on Profit Sharing and Risk

Edited by Munawar Iqbal and David T. Llewellyn

Islamic Banking and Finance discusses Islamic financial theory and practice, and focuses on the opportunities offered by Islamic finance as an alternative method of financial intermediation. Key features of profit-sharing (as opposed to debt-based) contracts are highlighted, and the ways in which they can facilitate improved efficiency and stability of a financial system are explored.

Chapter 10: The interface between Islamic and conventional banking

Rodney Wilson

Subjects: economics and finance, financial economics and regulation, islamic economics and finance, money and banking, social policy and sociology, migration

Extract

Rodney Wilson 1. INTRODUCTION The chapter will focus on the following issues: 1. Can conventional banks legitimately offer Islamic financing facilities given their involvement, at least in part, with riba-based finance? 2. Are Islamic and conventional banking practices converging or becoming increasingly distinct? 3. What lessons can Islamic banks learn from the experiences of conventional banks, and what can conventional banks learn from Islamic banks? 4. Where Islamic banks are involved in inter-bank transactions with conventional banks, what pitfalls should be avoided to ensure Shariºah compliance? 5. To what extent do national bank regulations designed for conventional banks pose problems for Islamic banks? 2. COMMERCIAL BANKS OFFERING ISLAMIC FACILITIES Since the late 1980s one significant development has been for commercial banks, both within and outside the Muslim world, to offer Islamic financing facilities to their clients as an alternative to riba dealings. In Egypt the National Bank and the Banque du Caire, leading state-owned banks, now offer Islamic services.1 In Saudi Arabia the National Commercial and Riyadh Banks provide similar facilities, as does the Saudi British Bank.2 The National Commercial Bank (NCB) is particularly committed to Islamic finance, with a specialist network of over 35 dedicated branches throughout Saudi Arabia by 1999 offering a range of the Shariºah-compatible products. This includes the NCB International Trade Fund, a low-risk, non-interestbearing investment fund, with clients’ money earmarked for the purchase of 196 Iqbal 03 chap 9 9/11/01 3:09 pm Page 197 Interface between Islamic and conventional banking 197 goods...

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