Economic think-tank recognise crucial role of Islamic Banking

Participants and facilitators (pix:dailyobserver)

Islamic Banking, as a variant of interest free banking, a system bound by Shariah (Islamic Law) requires that financial products, from mortgages to savings accounts be structured to comply with the prohibition of payment or taking of interest.

In recent years, there has been a significant growth in Islamic financial services globally, and global economic think tank have projected that “this growth will continue at a rapid pace” with an expanding demand for its products, even conventional banks are been drawn into providing Islamic financial services.

Islamic banks’ assets grew on average faster than that of conventional banks in major markets between 2007/9, and this relatively high rate growth, accompanied with the tendency to avoid excessive leverage and risk-taking have given some consumers, including non-Muslims, a new appreciation of the sector.    

Currently, there are about 500 Islamic banks worldwide and together, they manage close to US$1 trillion worth of assets, in fact, economic experts projected this figure to increase up to US$4 trillion by the year 2020.   

It is on this backdrop that the West African Institute for Financial and Economic Management (WAIFEM) in cooperation with the Central Bank of The Gambia (CBG), kick started a regional course on “Rudiments of Interest Free (Islamic) Banking” on Monday at a local hotel, west of the Gambian capital, Banjul.

The course, ending on October 21, is intended to provide the participants a broad understanding of the subject, and provide clarity on the Shariah requirements and the avoidance of RIBA (usury) in modern day banking business. 

“In 1997, the first Islamic institution, the Arab Gambia Islamic Bank was established through private equity participation, including the Islamic Development Bank (IDB), and within a decade, the Bank was able to mobilize 25, 000 depositors with a total of D400 million,” according to the Governor of CBG, Hon Amadou Colley.

This, he said, followed The Gambia Government’s (GoTG) realisation of the potential of Islamic banking, given the country’s majority Muslim population.  The GoTG engaged the IDB to develop the needed infrastructure for Islamic baking, thus, the revision of the Financial Institutions Act of 1992 (now Banking Act 2009) to facilitate the creation of a legal framework for the establishment of Islamic Banking in the country.

To further deepen the financial system and create an investment outlet for Islamic Banking and other Shariah compliant investors, the CBG developed an investible Islamic instrument (Sukul Al Salam) in 2007, which had a yield comparable to treasury bills. “The instrument gained popularity and attracted investment from Islamic and conventional banks alike,” Hon Colley said.

Prof Akpan H. Ekpo, director general WAIFEM

“Islamic Banking is expected to give depositors another choice of where to invest their wealth. In this dispensation, the customer and the bank share the risk of any investment on agreed terms and divide any profits that accrue there from,” Prof Akpan H. Ekpo, director general WAIFEM explain. “In our conventional banking environment, it is a fact that borrowers are at times rendered miserable and frustrated leading to failure as a result of overbearing interest rates.”

The irony is that while lending rates are always in an upward trajectory, deposit rates are pitiably low, and Prof Ekpo believes that a case for “non-interest or Islamic banking” would bridge the gap between deposit and lending rate.           

The non-interest (Islamic) banker sees the business of his client as his own and does anything legally to ensure his client succeeds, however, Prof Ekpo argued that such conditions are “unthinkable” in the extant conventional banking.

The participants will be introduced to the fundamentals of Islam and Islamic thought; concept and overview of Islamic finance; legal and institutional framework; operations of Islamic banking; developments and challenges; risk management; Islamic versus conventional banking; among other topical issues.

Author: Modou S. Joof for The Voice Newspaper