The Syariah Council

The basic principle of Islamic banking is the prohibition of Riba- (Usury - or interest):

"While a basic tenant of Islamic banking - the outlawing of riba, a term that encompasses not only the concept of usury, but also that of interest - has seldom been recognized as applicable beyond the Islamic world, many of its guiding principles have. The majority of these principles are based on simple morality and common sense, which form the bases of many religions, including Islam.

"The universal nature of these principles is immediately apparent even at a cursory glance of non-Muslim literature. Usury was prohibited in both the Old and New Testaments of the Bible, while Shakespeare and many other writers, particularly those writing in the 19th century, have attacked the barbarity of the practice. Much of the morality championed by Victorian writers such as Dickens - ranging from the equitable distribution of wealth through to man's fundamental right to work - is clearly present in modern Islamic society.

"Although the western media frequently suggest that Islamic banking in its present form is a recent phenomenon, in fact, the basic practices and principles date back to the early part of the seventh century." (Islamic Finance: A Euromoney Publication, 1997)

It is evident that Islamic finance was practiced predominantly in the Muslim world throughout the Middle Ages, fostering trade and business activities. In Spain and the Mediterranean and Baltic States, Islamic merchants became indispensable middlemen for trading activities. It is claimed that many concepts, techniques, and instruments of Islamic finance were later adopted by European financiers and businessmen.

The revival of Islamic banking coincided with the world-wide celebration of the advent of the 15th Century of Islamic calendar (Hijra) in 1976. At the same time financial resources of Muslims particularly those of the oil producing countries, received a boost due to rationalization of the oil prices, which had hitherto been under the control of foreign oil Corporations. These events led Muslims' to strive to model their lives in accordance with the ethics and philosophy of Islam.

Disenchantment with the value neutral capitalist and socialist financial systems led not only Muslims but also others to look for ethical values in their financial dealings and in the West some financial organisations have opted for ethical operations.

Islam not only prohibits dealing in interest but also in liquor, pork, gambling, pornography and anything else, which the Shariah (Islamic Law) deems Haram (unlawful). Islamic banking is an instrument for the development of an Islamic economic order. Some of the salient features of this order may be summed up as:

1. While permitting the individual the right to seek his economic well-being, Islam makes a clear distinction between what is Halal (lawful) and what is haram (forbidden) in pursuit of such economic activity. In broad terms, Islam forbids all forms of economic activity, which are morally or socially injurious.
2. While acknowledging the individual's right to ownership of wealth legitimately acquired, Islam makes it obligatory on the individual to spend his wealth judiciously and not to hoard it, keep it idle or to squander it.
3. While allowing an individual to retain any surplus wealth, Islam seeks to reduce the margin of the surplus for the well-being of the community as a whole, in particular the destitute and deprived sections of society by participation in the process of Zakat.
4. While making allowance for the ways of human nature and yet not yielding to the consequences of its worst propensities, Islam seeks to prevent the accumulation of wealth in a few hands to the detriment of society as a whole, by its laws of inheritance.
5. Viewed as a whole, the economic system envisaged by Islam aims at social justice without inhibiting individual enterprise beyond the point where it becomes not only collectively injurious but also individually self-destructive.

The Islamic financial system employs the concept of participation in the enterprise, utilizing the funds at risk on a profit-and- loss-sharing basis. This by no means implies that investments with financial institutions are necessarily speculative. This can be excluded by careful investment policy, diversification of risk and prudent management by Islamic financial institutions.

It is possible, that investment in Islamic financial institutions can provide potential profit in proportion to the risk assumed to satisfy the differing demands of participants in the contemporary environment and within the guidelines of the Shariah.

The concept of profit-and-loss sharing, as a basis of financial transactions is a progressive one as it distinguishes good performance from the bad and the mediocre. This concept therefore encourages better resource management.

Islamic banks are structured to retain a clearly differentiated status between shareholders' capital and clients' deposits in order to ensure correct profit-sharing according to Islamic Law.

When the concept of Islamic banking with its ethical values was propagated, financial circles the world over treated it as a utopian dream. Having lived for centuries under the valueless capitalist economic system, they asked what ethics had to do with finance?

Attitudes are changing gradually and in the last few years' value neutral conventional banking has begun to trouble the conscience of an increasing number of people.

There is a reluctance to hand over the funds to banks and financial institutions that invest in companies engaged in unethical and socially harmful activities. The emerging Islamic banking scene has succeeded in achieving general acceptance.

Today, Islamic banking is estimated to be managing funds to the tune of US$ 200 billion. Its clientele are not confined to Muslim countries but are spread over Europe, United States of America and the Far East.

Islamic banking continues to grow at a rapid pace because of its value-orientated ethos that enables it to draw finances from both Muslims and non-Muslims alike.

Islamic bankers, keeping pace with sophisticated techniques and latest developments have evolved investment instruments that are not only profitable but are also ethically motivated.

Today, more than two hundred and fifty Islamic financial institutions are operating world-wide. The countries where Islamic financial institutions are functioning include:

Albania, Algeria, Australia, Bahamas, Bahrain, Bangladesh, British Virgin Islands, Brunei, Canada, Cayman Islands, North Cyprus, Djibouti, Egypt, France, Gambia, Germany, Guinea, India, Indonesia, Iran, Iraq, Italy, Ivory Coast, Jordan, Kazakhstan, Kuwait, Lebanon, Luxembourg, Malaysia, Mauritania, Morocco, The Netherlands, Niger, Nigeria, Oman, Pakistan, Palestine, Philippines, Qatar, Russia, Saudi Arabia, Senegal, South Africa, Sri Lanka, Sudan, Switzerland, Tunisia, Turkey, Trinidad & Tobago, United Arab Emirates (Abu Dhabi, Dubai, Sharja), United Kingdom, United States, Yemen.

Today, more than 250 Islamic banks are operating from China to USA, managing funds to the tune of 200 billion USD. Western banks, through their Islamic Units in U.K, Germany, Switzerland, Luxembourg, etc. also practice Islamic banking.

Besides, Islamic funds have found a flourishing market in USA and Europe.

Despite these successes, this market has seen a record of poor marketing as emphasis is on products and not on addressing the needs of investors. Over the last few years, quite a number of funds have closed down.

Most of the funds tend to target high net worth individuals and corporate institutions, minimum investments ranging from US$50,000 to as high as US$1,000,000.

Target markets for Islamic funds vary, some cater for their local markets e.g Malaysia and Gulf based investment funds. Others clearly target the Middle East and Gulf regions, neglecting local markets and have been accused of failing to serve Muslim communities.

Since the launch of Islamic equity funds in the early 90's, we have seen the establishment of credible equity benchmarks by Dow Jones Islamic market index and the FTSE Global Islamic Index Series.

An Al Mudharabah GIA account offers an investment opportunity that operates under the Islamic banking principle of Al Mudharabah. This transaction is derived from a partnership based on risk and profit sharing. This partnership is a collaboration between an investor(Rab al Mal) and an entrepreneur (Mudharib) under which the former provides funds to the latter for the purpose of investment and profit sharing.

In practice, the investor will deposit an amount of money into the bank, which acts as the entrepreneur. This investment is utilized as business capital by the bank, which acts as the entrepreneur. This investment is utilized as business capital by the bank. In this contract you will have no authority to interfere with the management of your investment. Conversely, the bank will has the right to manage your investments as it deems fit by investing into businesses that are both permissible (Halal) and profitable, according to the Syariah. Prior to this, an agreement (akad) is made between you and the bank on the profit sharing ratio. Your investment period may be between 1,3,6,9,12 or even up to 60 months varying from bank to bank.

On the date your investments mature, the bank will distribute your share of accumulated profit into your investment account. You can opt to continue compounding your investment, withdraw your accumulated profit or terminate your account. The termination of an Al Mudharabah contract can also be exercised at any time by informing the bank of your intention.

Similarly the can be a Al Mudharabah Special Investment Account (SIA)