08-19-2007, 09:56 PM
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 bankâs own venture or project. Rather, it comes from earnings of othersâ 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 bankâs 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 banksâ 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, bankâs 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 Godâs will then we cannot call it to be sharia compliant banking.
Best regards,
Kamran
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 bankâs own venture or project. Rather, it comes from earnings of othersâ 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 bankâs 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 banksâ 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, bankâs 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 Godâs will then we cannot call it to be sharia compliant banking.
Best regards,
Kamran
