Islamic banking: An in-depth look

Mohammad Arifur Rahman | Published: September 06, 2018 21:14:00 | Updated: September 07, 2018 21:38:30

The book titled 'Essays on Islamic Banking and Finance' is a collection of some selected articles and case studies written by Dr. Mahmood Ahmed. He is Director General of Islami Bank Training and Research Academy (IBTRA), Dhaka. The book is published by Lambert Academic Publishing, Mauritius, which is a renowned international publication house that specialises in bringing out research works. The book comprises 18 articles and 9 case studies on Islamic banking.

At the beginning of the book, the author delineates the key characteristics of Islamic banks which use the 'money to commodity to money (MCM)' model. He asserts: "Islamic banks do not deal in money, rather deals with money using the Islamic modes of finance. The bank converts or links 'bank money' into 'commodity' and sells those to the ordering buyer at a 'mark-up profit' under the instalments of re-payment in future. Islamic banking, therefore, may be called 'money to commodity to money (MCM) model of banking". On the other hand, the conventional banks deal in money. It may be called money upon money (MM), which is prohibited 'riba' model of banking. Islamic banks necessarily link financing to real goods, services and projects. Outright lending without the involvement of goods and services may not be possible in the system. It may be called an 'asset-backed' financing system. Islamic finance in form and legality is asset-backed at the micro-juristic level. It also ensures control of banks over 'money movement', which ultimately contributes to minimising the overdue risk of banks and curbing over-expansion of credit to both public and private sectors.

This may help attain monetary expansion in harmony with the growth of output and, thus, help minimise inflationary pressures. In Islamic banking, profit is the reward of risk. Islamic banks bear risk under documentary ownership and constructive possession of goods for a short or fleeting time. The 'mark-up profit' is the reward for converting 'bank-money' into 'commodity' and selling them under constructive possession to the promised buyer. It is 'mark-up profit' that is generated from the adaptation of Shariah principles of buying and selling to Islamic banking".

In his first article, the author examines the use of Shariah compliant financial products in Islamic banking of Bangladesh, and also analyses the growth of Islamic banking in the country over the last five years. In the next two articles titled, 'The Compliance with Shariah Governance System of AAOIFI: A Study on Islamic Banks Bangladesh' and 'The Compliance Status of The Islamic Insurance Companies with Shariah Governance Standards Of AAOIFI: A Study', the author delineates the picture of corporate governance in Islamic banks and Islamic insurance companies in Bangladesh. He provides some recommendations based on his study.

The author provides various analyses about the modes and mechanisms of Islamic banking in his articles titled 'Determination of a Just Mark-up Profit on Bai-Murabaha Investment', 'Variance Analysis of Practice of Bai-Murabaha Mode of Investment' and 'Management of Mudaraba Waqf Cash Deposit in Islami Bank Bangladesh Limited: An Evaluation' - and brings some new perceptions on   modes and mechanisms of Islamic banking.

Islamic Microfinance, as a new market niche, represents the confluence of two rapidly growing industries: microfinance and Islamic finance. It has the potential to not only respond to unmet demand but also to combine the Islamic social principle of caring for the less fortunate with microfinance's power to provide financial access to the poor. The author sheds lights on this issue in the articles titled 'Impact of Rural Development Scheme (RDS) of IBBL on Poverty Alleviation:  A Case Study', 'Grameen Bank vs. RDS of IBBL: A Comparative Analysis', 'Women's Empowerment under Islamic Microfinance: A Case Study on RDS of IBBL', and 'Building Social Business with Islamic Fund'.

The author explicates recent issues in banking in his article titled 'Participatory Banking and School Banking in Bangladesh: A Study on Sustainability'. In his articles titled 'Islamic vs. Traditional Banking in Arab Region: Premises and Promises', 'Product Development in Islamic Banking: Challenges and Opportunities', and 'Authenticity Test for Interest-free Banking', he also touches upon some global key issues in Islamic banking.

The author, a reputed talent developer in banking for the last three decades, also highlights some training related issues in banking in his articles titled 'Assessing Return on Training Investment (ROTI) of Islami Bank Bangladesh Limited' and 'Management of Training by Islamic Banks Bangladesh', and   also in his nine well written banking cases related to various issues in banking.

Dr. Mahmood Ahmed has been observing the Islamic banking and finance industry in Bangladesh since its inception not only as a researcher, talent developer, and administrator but also as a direct practitioner in the position of a regional head. As a result, the book 'Essays on Islamic Banking and Finance' is a culmination of all his key thoughts in banking and finance packed in a single volume. The book can be a ready reference of banking and finance for researchers, practitioners and talent developers at home and abroad.

Mohammad Arifur Rahman works at a private bank.

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