Accountancy Forum

On some recent comments that present Islamic Banking System was not in consonance with Shariah, the Chief Spokesman of State Bank of Pakistan has come up with its usual clarification but its last lines are same shameless as had been its policy on other issues like increasing service charges, minimum balance requirement etc. The spokesman explain how the present SBP moinotiring policies are Shariah complinant, SBP Shariah Board comprises of very competent scholars, Shariah advisers are appointed on “strict merit, SBP has prepared Essentials Model Agreements” etc. But last and end shameful lines are that the low profit rates for depositors are industry phenomenon “common” for conventional and Islamic banks alike and that State Bank Governor has “STRESSED” upon the banks a number of time to share more of their profits with depositors. He adds that under Islamic baning profits earned on finances and investment are shared with account holders but Islamic Banks “often” at their own “DISCRETION” pass on profits to their accountholders.

A lot is read now a days about Islamic banking, Islamic funds and Islamic investment. Many banks and investment funds claim their system based on Sharia and allure the public through this tool. But the main point is, is there really any Islamic banking or can there be in near future. The answer is very simple “No” there is no Islamic banking available currently. Those who are keeping their savings in such labeled accounts in fact in my personal view are doing more haram than those like me who have accounts operated on normal interest based banking system.

I am not a scholar. I am a simple Muslim. I belong to no sect as in Islam neither one is Sunni nor Shia or what else. A Muslim is a Muslim. Islam has forbidden “interest”. Islam has rules near to the nature. Keeping in view that one may have wealth but no expertise and likewise one having expertise may not have money, Islam has allowed partnership in which both the sleeping and the active partners have equal, pro rata to one’s share, distribution of profits or losses. Presently the banking industry which has put a label of “Islam” is flourishing day and night by earning 30 to 50% profit but like the present day traditional banking to the sleeping partner it shares hardly 3 to 4%. This distribution in no way is near to pro rata. The active partner namely the Bank, its directors and its majority share holders/sponsors digest the main chunk. The traditional interest based banking is doing the same so at present there is no difference between the so called Islamic banking or traditional banking.

Under Islamic principles participating, cooperating, joining, supporting in any form an act whatsoever minor which is un-Islamic in itself is a sin. An educated or uneducated just using his average mind knows well, invariably inside of his heart that these so called Islamic banks anywhere in the world are not Islamic as they are not sharing profits judiciously, equally and pro rata with the other partner/party (Depositors) and are sharing the profit just on almost a fixed ratio or a fraction of actual profits earned. Hence despite knowing all this the depositors joining and depositing with such banks is nothing but deliberately joining an un-Islamic act which tantamout to a greater “sin”. And under Islamic theology it is “munafiqat” {saying something and doing contrary}.

Islamic Banking can well be practiced but under the present world situation it would not be. Banking is the biggest income industry. It is well known a fact today nations can no more be made slave through any East India Company but through “finance”. Multinationals, international financial institutions like world bank, IMF, capital blocks, GATT, world global village, all are the forms of slave making modern tools. If true Islamic banking in any part of the world once started and the partners ie Banks and the Depositors both started getting profits shared pro rata, the world would become mad and even the non Muslims would rush transferring their savings to such a true Islamic banking which will be death to today’s slave making financial policies. If a true Islamic banking started it should be taken as written on the wall that like demised BCCI it will be ruined soon under one label or the other eg it could be declared “Jihadi, extremist banking etc”. The reason is financial soundness in today’s world is only the right of the West similarly as West can have the nuclear technology but as soon as it comes to developing countries like Pakistan, Iran it becomes a threat to the so called global village. True Islamic banking is a real nuclear like threat to the traditional banking. Also take it even no Muslim investor/sponsor will ever embark on establishing a true Islamic banking as no body in this materialism likes to share his profits judiciously with others and would never like to kill a golden given hen by acting on true Islamic principles of business. Those who are participating in today so called Islamic banking in my view are helping in using the name of Islam. Joining the traditional banking I think under the situation is less a sin than joining the so called present Islamic banking,

Last but not the least the words of SBP need to read carefully. As SBP has practical interest with the silent majority and it remains sleeping on service charges, reducing profits etc on the plea that since today market is competitive hence the banks under so called Prudential Regulations can adopt their own policies. The wording of SBP is “it has EMPHASIED” on Islamic banking to share more profits. This word “emphasis” from the monitoring agency in itself speaks the intent, practical wish and its writ.

Islam has forbidden RIBA, and the present day intrest falls in the category of RIBA, things can't be so simply explained.

Being scholar is something different, I'm just a student having very little knowledge on this subject. However, my little knowledge makes me to belive that today's Islaming banking is not different from normal banking. Different means have been adopted to reach to same results. I'm not sure how can this constitute the difference between Halal and Haram.

You talked bout that Islamic Banking would be a blast in today's banking, however, you totally failed to explain HOw!!

As regards SBP's emphasis, its been long since SBP is empahsing rather directing the commercial bank to share more with the deposit holders (especially in present governers regime). But all this emphasis is to no avail.

@Shahnaz
Well, it really is crystal clear that no one can hold his savings (whether they be a huge saving or merely a small one) with himself for long, for the apparent reasons of security n' one surely has to deposite his saving in a bank. When the question of Islamic or conventional banking arises, not many ppl know, in the real sense, what is meant by Islamic banking n’ whoever is claiming to be the follower of Islamic guideline in this sector appeals much to an “average-knowledged” person.
U r of the view that when one knows that there is no Islamic banking in Pakistan n’ even in the whole world, its better to deposite one’s savings in a conventional banking rather than in a so-called Islamic bank n’ that depositing with such banks is nothing but deliberately joining an un-Islamic act which tantamount to a greater “sin”. Sorry, I disagree with u at this point. Coz the conventional banks openly confess that they work on the principles of interest n’ depositing one’s funds with them would surely be not a smaller mistake (or sin), in itself. U might have heard an Urdu maxim “Gunah wo bhi hai jo aik jahil karay aur wo bhi hai jo aik alim karay magar aik alim ki ghalti aik jahil ki ghalti se barri (big) hoti hai quin k wo tu andha hote huay quain (well) main gir gia aur ye ankhain hute huay bhi uss main ja gira”. The only reason to relate the maxim is that when one is 100% sure that the conventional banks operate on the only principle of interest n’ knowingly gets himself involved in the spreading and expansion of a system that is contradictory to the teachings of Islam, is obviously not serving Islam.
On the other hand, those who claim of Islamic banking “declare” it that they are working on the basic principle of “pro rata”. In case they aren’t, I think they themselves would be responsible for misleading others. Those who think them to be fair in their deeds would not be held responsible. Coz the banks would be misleading (or speaking more straightforwardly, befooling others) the general public in the name of Allah or Islam. Anyone with a little or no knowledge of Islamic banking would prefer them for the reason that they have the fear of Allah Almighty n’ Allah is well aware of everyone’s intentions n’ always awards His persons for their fair n’ honest intentions. So why not to play one’s own role towards a “fair game”???
Alternatively, one can open an account titled fixed deposite account (or something like that) which earns no interest. What about the authentication of this idea???

ISLAMIC BANKING – ACCOUNTANCY COME

Mr. Astute Accountant – you remarks that “you talked about Islamic banking would be a blast in today’s banking however your totally failed to explain HOw!!”


If a person is educated it does not necessarily means he is also literate. Reading anything a news item or a fiction in itself is to some extent an art. Every one can read the written word but it does not necessarily means the reader has understood what is written. A good reader’s eyes, for example, reading a news item also automatically catches the fine print naming news agency name, dateline, item picked up from what source and then makes a picture of the true content. This is he reason some newspapers are liked by serious readers like bureaucrats, bankers etc though same news is carried by all other newspapers. There is a way of saying anything.

If you go through that paragraph but condition is you read it keeping in mind your real personality and real name and forgetting completely that you are from today’s modern burger generation and an astute accountant, then you will find the answer. Then honestly evaluate if that true Islamic banking if any time of which though at least in our times there is no chance, ever came then same thing will happen what I have said. And I have not said any intellectual think. I have just spoken a normal thing just keeping in mind what we see in the society.


Another brother while submitting very sensibly his views has termed that joining the present day interest based accounts is more sin than Islamic banking as according to him Islamic banking claim they are Islamic but if they do not work on Islamic principles the sin for misguiding the public goes to them. I respect his views which I think have much weight. However I may respectfully correct him re his advice “Fixed Deposit Accounts”. Today there are no fixed deposit account schemes. They have changed the label as Term Deposit as has traditional accounts changed to PLS Accounts. The wine is the same but the labels are different.

I do not want to debate here at the moment that personally I do not believe our present day normal banking accounts (accounts of common man – real domestic savers) are interest based. The interest or profit earned on it is not that which Islam has haramed. This is another topic not here at the moment




Mr. TRUE WORDS SHOAIB

Thank you for your advising me to provide a link when posting news articles. You further add that unsupported threads or posts may be deleted in future.

Thank you for your advice and this non sense advice I have seen at some other Forums too . This advice means one can only pick up a topic from any newspaper/journal published article and not of his own. If this policy is adopted then this Forum will be limited to the reading material on news items or articles others have written and the Forum members present their views on those newspapers, statements etc. and they can not initiate any topic at their own. What a sense? A reader some time back on this Forum posted a idea, or a proposal on the topic that banks, electricity and phone companies should also pay the profits earned on the security deposit when refunding the security deposit. It was a peace making the public aware of their civic rights. From where the hell the member could had brought a link as this was an idea not ever seen published in any newspaper.

Sale of Nokia mobile and this and that what we often see on this Forum during the last one year have links?

Accountancy.com.pk and defence.pk are the only two Pakistani forums which so far are joined by serious readers so please let it remain so. There are hundreds of Pakistani Forum both based in Pakistan and abroad but read their contents. No doubt every thread on them have 50 to 100 comments/replies but just by those with half opened mouth chewgum in their mouths, burger type and style broken words, unrelated remarks in most third rate language. This Forum so far is limited with educated people and please let it remain so.

Dear Shahnaz,

While posting your comments, always bear in mind that you are audience does not necessarily share same frame of mind and thoughts. So until you properly explain or translate your thoughts into words no body will be able to understand. And I guess this is the case with your posts. You mentioned the reason that only intellectual people can grasp the main point, so they prefer intellectual pieces. But unfortunately for your intellectual post some not very intelligent audience (like me) are present. So until you won't clarify things will remain confused. Or you can write on the top of your post "Only for highly intellectual people".

However, the mistake that I found in your intellectual lines is that you quoted my lines making the reference to Astute Accountant and vice versa. However, both of your posts are unable to explain that how True Islamic Banking would be a blast in today’s banking. Mere words can't prove things; they are to be supported by concrete facts. And please don't bother your intellectual mind to decide who is serious and who is non-serious.

Regards
Shoaib

Dears,

Analysis of Shahnaz carries weightage and is not just ignorable. At least such posts provoke thoughts on important issues. We must not just try to prove that some one is lacking knowledge (in our opinion) in order to criticize his/her views. Anyways, this is not a matter of conflict. Every one's contribution to the forum is respectable and worthy for others.

Banks take deposits and monies on return and lend it to various projects on return. When bank take deposit on return, it pretends to be the active partner and the depositor is deemed to be the sleeping partner. This is what Shahnaz was saying in accordance with one of islamic modes of financing. Here bank becomes the active partner.

For a moment a question arises, where is it active? In which project or business or venture, it will invest this money to earn and share the return? Certainly bank itself does not engage in any venture. The only business whose credit it can take on its own shoulders is the investment in equity instruments made and monitored by the bank management. This can be to some extent called as islamically valid earning. In various banks, this venture does not make a very big part of total earnings. Total earnings mainly remain clustered around interest income or so called profit sharing (return) earning which of course is not emerged from any of bank’s own venture or project. Rather, it comes from earnings of others’ projects and business that have been financed by the bank and where does bank do nothing except for lending money. Here, in contrast, the bank becomes the sleeping partner and the respective project / business / venture that has been financed out by bank’s funds becomes the active partner. This is the biggest question which makes all the arguments vague.

Truly speaking, the banks become promisedly an active partner to conduct some venture when they take deposits (borrow money) and at the same time they turn into sleeping partner when they lend (finance) the same money to other ventures. This was the methodology which the banks were purposed for. In fact the term SPREAD means the difference between what is received and what is paid on money (to some extent on same money). SBP says that during the current year (2006-2007) the banks’ spread has remained historical ever highest. This could also be seen from the billions of Rs. Profits declared by banks after making all necessary provisions.

No where one can witness the Islamic system of financing in any Islamic banking operation or window currently operating. In my view this has to happen in infinity. Banks are trading money nd earning the interest. There is no exception any where. Just documents are made to give it a sharia compliance color. There are three basic elements of sharia compliant financings/banking. Firstly, there must be an expectation of earning loss as well as profit. Sharia does not allow to ensure fix amount of profit in advance. How one can foresee? Is it ILAM-UL-GHAIB? Projections are always surrounded by variances and actual results are always considered after adjusting the projections with variances. Secondly, division of whatever profit or loss through some predetermined (agreed) profit or loss sharing ratio is allowed but straightforwardly fixing a predetermined (even fluctuating) interest or profit rate as a percentage of deposit or finance amount is totally un-islamic. Thirdly, bank’s own involvement in any venture that is to be considered Islamic or sharia compliant, is a must. But what actually happens, bank even does not bother to procure the financed machinery/equipment or other manifest in its own name (through some invoice) and even never maintains the stock statements of whatever items have been financed by it to other active partners for earning profit or loss.

Islamic accounting standard can throw some light on these areas as well.

I understand that current Islamic operations of some banks are merely a mispainting effort of what actually is the islamic mode of financing.

This may not harm or blast the economy but eventually if we are muslims and we believe in God’s will then we cannot call it to be sharia compliant banking.

Best regards,

Kamran

@ Shahnaz
Dear Intellectual, You have quoted the words of Schuaeb making a reference to me. Please read other’s comments with open eyes and open-mindedness. (This is not to criticize you, though).
One more thing that I’d like to say; Please be receptive to ideas. Everyone can’t concur to a single idea n’ that’s a fact. I’m sure that Schuaeb won’t have meant to degrade you but until and unless you elaborate your sayings, none would ever be able to understand what you actually intend to mean. Dear intellectual you might have heard;
Courage is what it takes to stand up and speak. Courage is also what it takes to sit down and listen.
So please……

@ Schuaeb
Thanks brother for the clarification. I really appreciate it.

Dear Kamran,

In a nutshell you tried to say that any banking either labeled as Islamic Banking is not truly Islamic, atleast in Pakistan. In the light of what you said it can be assumed that the concept of Islamic Banking is not practically possible, as I wonder how the banks can be active partners according to your definition of active partner. Now is Interest Riba or not is another question. This never means to disagree with you, just tried to reinstate your concept.

Dear Shahnaz,

You just made a little mess which was much exaggerated by me and Astute. So, we can conclude that the world is not ready to oversee even small mistakes made by us.

Dear,

Plz note one thing, whereever only profit is ensured against a finance, it can never be islamic. You can see the cases, where entities wud be earning loss but paying mark-up (profit) to lenders (even under islamic financing) thus thereby increasing their loss on the cost of profit earned by the lender.

You can see the accounts Profit and Los Sharing (PLS) account. Had ever any bank transferred its loss to any of such account maintained by you in any bank. It's ridiculous. It's not islamic. It was Islamic by the conceptual framework of Zia-ul-Haq who also passed Modarba Comapnies (Floatation and control) Ordinance 1980, made its rules and established so-caled religious board to approve such modarbas to be as per Islam Naoozbillah. Have you ever observed methdologies of earning profit (interest) by such non-trading modarbas? They never embed the option of loss in any of the finance provided by them. Similarly, in Zia-ul-Haq regime so many changes were brought up to banking sector giving it a makeover of Islamic framework. This way Islamic banking cannot be implemented.

My these words are not purposed to conclude that in Islamic mode of financing, finance cannot be given. There could be so many possibilities. One of my friends in some Joint Venture investment company discussed with me some new product of pure islamic financing and I really appreciate his research and struggle. He said they will send it ICAP and SECP for approval and implementation.

I cannot discuss that methodology at the moment since it is their business secret undisclosed at the moment. However, banking or lending is posible in Islam with a concept of sharing profit as well as loss (and not only profit). We only have to change our minds and stand against RIBA enforcing agencies.

Best regards,

Kamran.

When the interest in present banking system is Riba which has been emphatically forbidden in our religion, a think at least at the moment our system or anyother cannot go on by excluding banks completely

Yes Shoaib,

For this purpose, we have to change so much. I agree.

Regards,

A brother is very confused how if real Islamic banking started as Shahnaz said then how it will be a disaster particularly in the Western word. The answer is very simple which I have very well understood from the original post. When an Islamic Bank, a real Islamic bank where both bank and depositor both are under Islamic laws equal partners and the active partner after earning say 40 per profit more than that which all these banks are today earning and would distribute profit equally saying 20% 20% then may it be a Hindu, may it be a Muslim in USA or may it be a christian in Room will run to such a bank since profit is in simple words worth to their savings. This is as simple as it is. It is just like if tomatoo are being sold at Rs. 50 a kilo in the market, and at Gulshan these are Rs. 25 people will run to Gulshan to buy (to off set the cost in bulk, etc). If the concerned reader has still not understood then he can understand it from one other example. There is suicide bombing, roads in every city are in shamble, every city and town has load shedding, mobile snatching is there, political instability since years is there yet foreign investment is keeping rushing towards Pakistan. Why? Is it a "safe" heaven as safe as US or Canada is safe for our looters. Certainly not. These foreign investors are keep rushing because here due to closures of eyes by State Bank, authorities, etc they can in a very short time pull back all their principals, can pickpocket the people eg on undisclosed levies on Credit cards, bank charges. They can give advertisment on TV giving a phone number for which they tell call charge is Rs. 10 but did not disclose Rs. 74/- undisclosed other charges. Since quick return backs and quich repatriation is blanket permitted hence these investors are here. Likewise when there will be a real Islamic bank (simple meaning disributing profit equally - may be out of 20% a 5% retained for futher capitalisation), then people even of West will invest in this Islamic banking pulling their accounts from normal banking and this will be a disaster to western and even aisa traditional banking. It is as simple - but it is well know more than West our own Mulsim rulers will never let such an islamic banking take place which may annoy Mr. Bush.

This effort to explain things should be appreciated, though I guess it didn't go one degree to explain the things further. My brother didn't tell how profits in Islamic Banking would going to be drastically more than they are in normal banking or non Islamic according to you. It is beyond any doubt and needs no explanation that if a bank is offering higher returns people will rush towards it. But still my question remains there, as said by one member that Islamic banking will prove to be a blast, and another emphasized by adding that when Islamic Banks will offer quite higher returns than they would be given preference by the depositors. However, both failed to convey how Islamic Banks will achieve this.

Pakistan, no doubt is a heaven for foreign investment because as much as 40% of the profit can be drawn per year which means if your business really earns a profit margin of 40% you can take all of your investment back to your country in 2.5 years. Such lucrative investment policies are not very common in the world. However, some countries of Middle East and Far East have achieved some economic development by following similar policies.

Regards,
Shoaib