DAR AL HARB/ISLA: WILL THE WEST SEE ISLAMIC BANKING AS THE ABYSS THAT IT IS?!?

Central Asia: Governments, Banks Gradually Open Up To Islamic Banking

The Saudi-based Islamic Development Bank (IDB) and the Kyrgyz government have launched a pilot project designed to introduce Islamic financing in Kyrgyzstan.

Kyrgyz President Kurmanbek Bakiev and IDB President Ahmad Muhammad Ali al-Madani on July 4 signed a deal to that effect at a ceremony in Bishkek. Under that deal, Kyrgyzstan's private EkoBank will be the country's first bank to offer financial products based on Islamic law, or Shari'a, to its clients. Bakiev said after the signing ceremony that he thinks the development of Islamic banking will convince the IDB's other 55 member countries to invest in his country's economy. He also indicated that his government was considering pushing the experiment further and set up a regional Islamic banking center in Bishkek.

Islamic banking traditionally prohibits usury and the collection or payment of fixed interest ("riba" in Arabic).

Regional Growth Of Islamic Banking

Islamic banking is widely viewed as having first appeared in Egypt in the 1960s. Owing to the oil boom of the 1970s, it then flourished on the Arabian Peninsula and, from there, expanded into the Middle East, Iran, and Southeast Asia. It is now rapidly developing in Pakistan and India, and is making inroads in Western countries that have large Muslim communities such as Britain and the United States.

But it has so far made little headway in Central Asia and the Maghreb region (western North Africa), a circumstance that some observers ascribe to historical, sociological, and psychological reasons.

When Kyrgyz authorities last year first floated the idea of introducing Islamic banking in the country, National Bank Chairman Marat Alapaev argued that it could only be done on an experimental basis; Alapaev cited what he called the "fundamentally secular character" of Kyrgyzstan's financial system.

Proponents of Islamic banking, in turn, object that the standards that apply in the Shari'a-based system do not differ greatly from that of traditional banking. They also say a number of conventional Western banks are offering Islamic financial products to their clients. They say the main difference between Islamic and secular banking is that Islamic banking has a stronger ethical component that makes it more appealing to Muslim believers.

'Ethical' Investing

Another common argument in favor of Islamic banks is that they inspire confidence because they assume a share of the risks in the ventures they fund.

One of the system's basic principles is the sharing of loss and profit. Islamic banking traditionally prohibits usury and the collection or payment of fixed interest ("riba" in Arabic). Under Islamic mortgage rules, a bank generally purchases the property and resells it at a profit, allowing the final buyer to pay in installments. This system is known in Arabic as "murabaha," or cost-plus financing.

Islamic banking also forbids trading in financial risk and bans investing in commercial activities that are considered unlawful ("haram" in Arabic) under Shari'a, such as the gambling and pornography businesses, or the tobacco and alcohol industries.

...




Pertinent Links:

1) Central Asia: Governments, Banks Gradually Open Up To Islamic Banking