The Art of Islamic Banking and Finance: Tools and Techniques for

435 Pages·2009·2.77 MB·English

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The Art of
Islamic Banking
and Finance
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The Art of
Islamic Banking
and Finance
Tools and Techniques for
Community-Based Banking
YAHIA ABDUL-RAHMAN
John Wiley & Sons, Inc.
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Copyright#2010byYahiaAbdul-Rahman.Allrightsreserved.
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LibraryofCongressCataloging-in-PublicationData:
Abdul-Rahman,Yahia,1944-
TheartofIslamicfinanceandbanking:toolsandtechniquesforcommunity-basedbanking/
YahiaAbdul-Rahman.
p.cm.–(Wileyfinance;504)
Includesindex.
ISBN978-0-470-44993-6(hardback)
1. Banksandbanking–Islamiccountries. 2. Banksandbanking–Religiousaspects–Islam.
3. Finance–Islamiccountries. 4. Finance–Religiousaspects–Islam. I.Title.
HG3368.A6A244 2010
332.10917’67–dc22 2009028344
PrintedintheUnitedStatesofAmerica
10 9 8 7 6 5 4 3 2 1
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Contents
Preface xiii
Acknowledgments xxix
Chapter1:
Introduction 1
Chapter2:
TheFaith-BasedJudeo-Christian-IslamicFoundationoftheProhibition
ofInterestandtheRF(Riba-Free)BankingSystem 13
AnIntroductiontotheJudeo-Christian-IslamicFoundations
ofFaith 16
TheBook 16
ThePeopleoftheFaith 18
Loans 18
Usury/Interest 18
TheJudaicPositionontheChargingofRibit(Interest):
Money,Lending,andInterestintheTorahandthe
JewishTradition 21
LoanstothePoor 21
LendingtoNon-JewswithInterest 22
BusinessFinancing 23
TheChargingofRibit(Interest)intheRomanCatholic
Tradition:ThenandNow 23
LendingtothePoor 24
PositionoftheContemporaryRomanCatholicChurch
onAllowingtheChargingofInterest 25
TheChargingofRibit(Interest)intheTraditionandTeachings
oftheEvangelicalChristianChurch 27
LendingtothePoor 27
LendingtotheEnemy 30
v
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vi CONTENTS
BusinessFinancingandRelaxationoftheRulesof
ProhibitingtheChargeofInterest 30
TheProhibitionofChargingofRibit/Riba(Interest/Usury)
inIslam 31
TheDevelopmentoftheUniversalRiba-FreeSystem
inIslam 31
TheConceptofGodOwningEverything 32
DevelopingtheInstitutionofGiving(Zakah)asa
RequiredIslamicRitual(LikePrayers) 34
BehavioralGuidelinesandtheDisciplineofGiving 38
BusinessFinance 39
TypesofRiba 41
Shari’aaProhibitsDeceptiveandSpeculativeActivities
inBusinessTransactions(Gharar) 43
Chapter3:TheRuleofCommodityIndexationand
thePrincipleofMarkingtotheMarket 47
DevelopmentoftheMark-to-the-MarketRule 53
Riba-FreeBusinessTransactionModels 54
Cost-Plus(Murabaha) 54
Leasing(Ijara) 56
JointVenture(Musharaka)DirectInvestment/Equity
OwnershiporPartnership 58
MoneyManagement(Mudaraba) 59
FinancingFutureProduction(Ba’iulSalam) 59
Chapter4:Shari’aa:Shari’aaBoardsinIslamicBanks:AnOverview
andaVisionfortheFuture 61
TheLaw:Shari’aa 63
SourcesofShari’aa 64
ApplicationofShari’aa 67
TheShari’aaBoardinanIslamicBankorFinance
Company 75
TheRoleoftheShari’aaBoard 76
TheDutiesoftheShari’aaBoard 77
ApproachesUsedtoAppointShari’aaBoards 78
ConcernsofWesternCentralBankersandBank
RegulatorsRegardingShari’aaBoards 79
TheDevelopmentofShari’aaScholarsandShari’aaCompliance
CommitteesforRiba-FreeBanksandFinanceInstitutions
inthe21stCentury 80
TheCentralBankandtheRegulatoryShari’aaCompliance
Committee 81
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Contents vii
Chapter5:MoneyandItsCreation:TheFederalReserve
System(CentralBanks),InterestRates,andCommodityIndexation 84
ThoseWho‘‘Make’’MoneyandOthersWho‘‘Earn’’Money 84
WhatIsMoney? 86
TheHistoryofMoney 87
Fiat(Paper)Money 88
AmericanCurrencyBeforetheFederalReserveSystem 89
TheFederalReserveBoardoftheUnitedStatesofAmerica 90
FunctionoftheFederalReserve 91
StructureoftheFederalReserveBoard(America’s
CentralBank) 92
WhoOwnstheFederalReserveBank? 93
CreditCreationintheModernBankingSystem 93
TheDollarMadeAsGold!WhataWonderfulPlacetoBe! 96
ABriefHistoryoftheBrettonWoodsAgreement,Which
ChangedtheWorldofMoney 96
TheFedFundInterestRatesSettingRegime 99
Fiat(Paper)MoneyandtheCyclicalNatureofthe
FiatMoneyEconomy 102
TheProhibitionofRiba/Ribit:RulingsonRibainFiqh,
theScienceofShari’aa 105
ReasonforProhibition 106
ApplicationofShari’aausingtheCommodity
IndexationRule 108
HomesinAmerica 111
PriceofCoal 113
PriceofCrudeOil 114
PriceofNaturalGas 117
PriceofRice 118
Gold:ThatAmazingMetal 121
GoldReservesintheWorld 123
TheHistoryofGoldMarketsandPrices 124
GoldPriceFixing 125
MarkingtheInvestmenttotheMarket 128
Chapter6:CivilityandSocialResponsibilityofthe
Riba-FreeBankingSystem 132
TheJudeo-Christian-IslamicValues:Civility,Morality,
andSocialResponsibility 137
TheVisionofanIdealFaith-BasedJudeo-Christian-Islamic
Society 140
NewTrendsthatCapturedtheImaginationofthePagansof
theArabianPeninsula 141
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viii CONTENTS
ElementsoftheRiba-FreeEconomicSystem 142
Production 142
Distribution 142
Consumption 144
TheRiba-FreeJudeo-Christian-IslamicSystemandBusiness
Ethics 144
TheMarketSystem 145
ManagementEthics 145
JusticeandFairnessonBothSides:TheBankandthe
Customer 146
BankingandInvestmentBanking 147
ValuesandBusinessEthicsoftheRFBanker 149
Professionalism 149
Concentration 149
Consistency 149
Commitment 150
TheTenGoldenCovenantsoftheRFBank 150
WhereDoWeStartandHowDoWeRealizetheDream? 151
Chapter7:TheConventionalRiba-BasedBankingSystem 154
TheBankingSystemoftheUnitedStates 154
TypesofBankingServicesintheUnitedStates 156
NationalBanks 157
StateBanks 157
CreditUnions 159
InvestmentBanks 160
LicensingaCommercialBankintheUnitedStates 160
GovernmentSupervisionoftheBank 161
TheOfficeoftheComptrolleroftheCurrency 162
InsuranceofBankDepositsbytheFederalDeposit
InsuranceCorporation(FDIC) 163
UnitedStatesBankingRegulations 163
ConsumerComplianceManagement 164
BoardofDirectorsandManagementSupervision
andAdministration 164
ComplianceProgram 165
ComplianceCommittee 165
InternalControls 166
SummaryofFederalBankingRegulationsinthe
UnitedStates 168
RegulationB:EqualCreditOpportunity 169
RegulationC:HomeMortgageDisclosureAct(HMDA) 172