Prof. Dr. M. A. Mannan
Social Investment Bank Limited
Presentation at the Joint Conference on Financial Development in Arab Countries
March 31- April 2, 2003.
Al-Ain, United Arab Emirates
Table of Contents
0. Abstract 3 - 4
1. Statement of the problems, hypotheses and objectives 5 - 6
2. Seven Key Conceptual and Operational Assumptions 6 - 8
3. Dilemma of Islamic Banking in Corporate Sector: An Overview 8 - 9
4. The Neglected Frontiers of Non-formal Islamic Banking. 9 - 12
5. Discovering Islamic Voluntary Sector Banking 12 - 17
6. Agenda for Action in the 21st Century 17 - 20
7. Conclusion 20
8. Resume 21
Trend and Issues in Islamic Banking and Finance with special reference to Arab World.
Prof. Dr. M. A. Mannan
Social Investment Bank Limited
The paper offers an alternative perspective, imperative and vision of challenges and opportunities of Islamic Banking in the 21st Century with a special reference to Arab world. This paper provides a forum for hard talk on harsh social realities. Therefore, an attempt is made to unfold some of the fundamental issues of Islamic Banking as in the corporate sector as well as a neglected area of non-formal and voluntary sector Banking in Arab world. It is argued that Islamic Banking in the 21st Century needs “discontinuous leaps” - a change in paradigm, to clear the backlog of history. It is however, felt that the Islamic Banking in Arab world will face great challenge of our time but it would create great opportunities, if and only if, it works in developing participatory economy beyond market, arrest the present trend towards rising corporate power, secularization, concentration of ownership and beneficiaries of Islamic Banking and Finance in the hands of a few in formal sector, redefine the role of Islamic formal corporate finance, rediscover new role of informal and semiformal finance, through developing tailor-made micro-credit package for re-empowerment of families of both the rich and the poor at the grass-root level, help development of voluntary sector Social Banking for mobilization and capitalization of social savings and investments.
The paper is based on seven key conceptual and operational assumptions dealing mainly with real-life realities and their concerns and consideration.
Dilemma Corporate Finance
It is felt that Islamic Corporate Banking in Arab world is getting submerged in the wave of market and running the risk marginalising social and ethical elements of Islamic Finance. While the convergence between Islamic Banks and Western Banks having Islamic window may bring efficiency in operations of Islamic Banks, Islamic Banks in Arab world are expected to face at least following five dilemma in the corporate sector:
(a) Concentration of ownership and beneficiaries of Islamic Banking;
(b) Neglecting the vast masses of people at the grass-root level;
(c) Secularizing Islamic Economics, Banking and Finance;
(d) Marginalising social, ethical and moral ingredients of Islamic Finance; and
(e) Neglecting the growth of human and social capital which reinforces shared values and stimulates caring society.
Neglected of Islamic Non-formal Banking Finance
The paper stressed the need for Non-formal Banking and explained its vast scope of operation in promoting genuine family enterprises on group and cooperative basis. Furthermore, the paper argued that Islamic Bank in the Arab world can play a very vital role in monetizing, re-activating and institutionalizing the role of Islamic Socio-Economic institutions and various voluntary and obligatory tools of redistribution of income through innovative financial instruments and management of fund such as Waqf properties development bond, Cash-Waqf Certificate, Zakat Certificate, Hajj Saving Certificate, Trust Fund and so on. This would help developing both human and social capital.
Agenda for Action in the 21st Century:
The paper advocated that Islamic Banks in the Arab world may adopt the following Action program:
I. Undertaking Family Empowerment Credit Programs at the grass-root level on a voluntary basis;
II. Global mobilization and creation of Trust Fund through sale of Cash Waqf Certificate to support education, health & research;
III. Globalization of Islamic Voluntary Sector activities with special reference to Zakat, Hajj, Cash-Waqf etc.
IV. Initiating establishment of Trading House of Islamic Chamber of Commerce under the cover of Organization of Islamic Ummah for promotion of joint venture projects, trade promotion and economic co-operation.
V. Supporting establishment of World Social Bank in the private sector mainly for mobilization and investments of Social savings of Islamic voluntary sector.
Taken all in all, the key thrust of Islamic Banks in Arab world should be directed towards development of an authentic participatory economy beyond market economy, redefine the role of Islamic corporate finance and re-discover non-formal and voluntary sector Islamic Banking.
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Trend and Issues in Islamic Banking and Finance with special reference to Arab World.
Prof. Dr. M. A. Mannan
Social Investment Bank Limited
1. Statement of the problems, hypotheses and objectives
This paper seeks to develop an understanding as well as to unfold some of the key issues involved in exploring the new frontiers of alternative Islamic Banking Paradigm in the Arab world with special reference to non-formal and voluntary sector banking. Islamic Banking and Finance in Muslim Countries in general and Arab world in Particular needs “discontinuous leaps” - a change in paradigm, to clear the backlog of history. Relatively speaking, a paradigm which refers to a set of premises, views, conventions and beliefs changes to meet the requirements of new social puzzles and economic realities.(2) The serious theoretical works of Islamic Economics, Banking and Finance during the last 40 years, since early 60s’ and institutional development in terms of the establishment of Islamic Development Bank (IDB), a good number of Islamic banks with interlocking relationships and Investment Companies etc. in both Arab and Non-Arab countries in ‘70’s through ‘90’s are indeed one of the major historic developments of our time. It is however, felt that there is a profound and disturbing gap between theory and practices of Islamic Banks on the ground, particularly when the point of contact of the Islamic reform is the feudal capitalist system as observed in many Muslim countries of today. As a result, Islamic corporate formal sector banking instead of gaining strength is perhaps gradually losing its distinctive character both in Arab and Non-Arab world. It appears that it is getting submerged in the wave of market economy. There is indeed a risk of destroying its distinctive character by marginalising its social and ethical ingredients. This is not to suggest that market mechanism is not acceptable in Islamic Economics, Banking and Finance. However, it is to be recognized that there is hardly any work done in understanding the dynamics of Islamic non-corporate informal and semi formal Finance and role of social capital in developing Muslim countries. It can transfer power to powerless. Recent studies showed that the non-corporate sector accounts for a substantial part of the labor force in some developing countries including Arab world. Practically, no attempt was made so far to monetize the Islamic Voluntary sector Banking and consequent securitization of its capital market. We need Islamic Banking for all by all in both Arab and elsewhere in other Muslim Countries. Non-formal and Voluntary sector Banking can help mobilization and capitalization of social savings and investments, reinforce basic values and ethics of a society and stimulate civil society. Social capital is perpetual in nature indeed.
It is therefore felt that, the Islamic Banking in the Arab world will face great challenge of our time but it would create great opportunities as well, for both Arab and Non-Arab Muslim countries, if and only if, it works in developing participatory economy beyond market, arrest the present trend toward rising corporate power, secularization, concentration of ownership and beneficiaries of Islamic Banking and Finance, redefine the role of Islamic formal corporate finance, rediscover new role of informal and semiformal finance, through developing tailor-made credit package for re-empowerment of families of both the rich and the poor at the grass-root level, help development of voluntary sector Social Banking for mobilization and capitalization of social savings and investments.
At this stage, it is perhaps desirable to throw some lights in general terms on the underlying assumptions on which this paper is based.
2. Seven Key Conceptual and Operational Assumptions
2.1 Beyond common ideas: Distinctiveness of Islamic responses to Economic problem:
The study is based on the fundamental assumption that there are Islamic responses to the socio-economic problems and that the underlying assumptions on which Neo-classical orthodox paradigm or Marxist-radical paradigm are based are either inappropriate or inadequate or incapable of explaining the Islamic concern and values in socio-economic matters(3). The fact is that in every system of thought, there are some assumptions and ideas in common with other systems of thought. It is through emphasis or de-emphasis or rejection, an identity is established. Therefore, Islamic economics, banking and Finance will have its own hypothesis. In course of scientific investigation, it may reject or accept or modify or alter them irrespective of social and economic systems.
2.2 Beyond Positive Economics
The study of Islamic economic behavior as a distinct branch of knowledge owes its origin to the very ideology of Islam derived directly or indirectly not only from the Quran and Hadith and Sunnah (i.e., the sayings and tradition of the Prophet) but also from “Jima” (i.e., consensus based on agreed practice) Qiyas (i.e., analogy, and “Ijtihad” (i.e. fresh thinking), as sources of Islamic laws. To Muslims, the Quran is the “revealed knowledge”; it is given. While this “revealed knowledge” is beyond the scope of positive economics, the acquired knowledge may be subject to test and critique(4) . This view of “Islamic man” is indispensable for functioning of Islamic Economics, Banking and Finance within the framework of the totality of human situations at an earthly macro level and dual notion of accountability (i.e., life on earth and life hereafter) on the spiritual level.
2.3. Beyond Market
Free market mechanism based on effective demand is linked to the affluent, making resources available to those who can buy them and not necessarily to those who need them and that the market is either inefficient or ineffective or indifferent in providing all aspects of basic needs with which Islamic market is concerned. Thus neither perfect competition nor perfect co-operation model meet the goals of an Islamic economy. An optimal mix of “supervised” competition, induced and voluntary co-operation and critical control may provide a better basis for Islamic economic analysis. There is in fact, no rule for optimal mix or trade off between 3cs’ (i.e., Co-operation, Competition and Control)(5). The paper also presupposes the existence of a vast non-corporate and voluntary sector in most of the Arab and Muslim states beyond market.
2.4. Beyond Corporate power: empowering the powerless
The paper presupposes the existence of corporate power. Despite their ostensible support for open economic competition, the multinationals use elaborate strategies to retain their pre-eminent economic positions. They tend to obstruct the entry of the poor, inexperienced who are coming from the nations having little or no link with this global elite and access to global finance. Most of all, they benefit from their participation in the global corporate elite and its networks of mutual obligations. Islamic Finance and Credit should transfer power to powerless, cover those who remained uncovered.
2.5. Beyond integration of Distribution Considerations
The key thrust of economic development in Islam lies not in the integration of development and social justice via distribution, nor in viewing development with social justice as an adjustment, but in treating distributive considerations as the fundamental basis for the allocation of resources - both human and non-human, their use and maintenance(6) . This emphasis is considered to be crucial in understanding the Islamic concept of Banking Finance and Development.
2.6. Beyond replacement of Interest
The mere replacement of interest by profit-sharing may not initiate the process of authentic Islamic Banking and Development in the Arab world. On the contrary, there is real danger that the replacement of interest by the profit-sharing system may actually increase the level of economic exploitation of the poor by the rich. At its heart lies the change of attitude from individualistic and acquisitive behavior in economic transactions to an Islamic egalitarian group notion, reflected in the basic consumption behavior, production priorities and distributional strategies.
2.7. Beyond the form of Islamic financial modes
The paper presupposes that it is not the form but the content and substance of all Islamic financial technique and contracts that matter most. All the modes of Islamic financing as practiced by Islamic Banks should exhibit inter-connectedness of economic, social and ethical dimensions at their operational level. The crucial distinctiveness of Islamic Bank’s operations should lie not only in integrating economic, social and moral dimensions in every transaction, but also in controlling their results, managing and directing their consequences to achieve their desired economic justice.
The above-mentioned seven crucial assumptions are not exhaustive, yet they would provide a framework for developing an understanding Islamic Economics, Banking and Finance for the years to come not only in Arab world but also in Non-Arab Muslim Countries as well.
3. Dilemma of Islamic Banking in corporate sector: An overview
Before we discuss some of the key issues involved in the operation of Non-formal Banking in non-corporate finance and voluntary sector banking in mobilization of social savings and investments, it is perhaps desirable to throw some lights on the operation of Islamic Banks in the corporate sector in the contemporary period particularly in the Arab world. As indicated earlier that the establishment of Islamic Development Bank and a number of local Islamic Banks and Investment Companies in the 70s’ through 90s’ are, among others, one of the major historic developments in the last quarter of 20th Century. Despite their point of contact are feudal capitalist system in many Muslim countries , the impact of Islamic banks is felt both in Arab, Non-Arab Muslim and in several Western countries. A number of Western conventional banks including some multinational giants, World Bank and IMF have taken serious note of Islamic financing techniques and gathered considerable experience in this area.
The comparative advantage of conventional Western Banks over the Islamic Banks in terms of their systems, management experience and techniques of product innovation are expected to bring competitions, resulting in sharpening of the techniques and procedures of Islamic Banking modes. In the process, profitability, not profit constraint is getting dominance in Islamic Banks’ operations. The Western conventional Banks having Islamic window, lacks the knowledge and know how of ethical and moral foundation of Islamic Finance. The Islamic Bank in the corporate sector particularly in the Arab world is running the risk of getting submerged in the wave of market economy and marginalising social and ethical elements of Islamic Finance.
While the resultant convergence point may bring efficiency in operations of Islamic Banks, it is expected to bring at least five dilemma for Islamic Banks in the corporate sector:
(a) increasing concentration of ownership and beneficiaries of Islamic Banking and finance having link to global elite and its network of reciprocal obligations;
(b) crucial neglect of the vast masses of people in Muslim countries incapable of entering into market;
(c) increasing trend towards secularization of Islamic Economics, Banking and Finance;
(d) marginalising social, ethical and moral ingredients of Islamic modes of Financing; and
(e) developing barrier to the growth of perpetual social capital which expresses the shared values of a society, reinforces them and stimulates caring society in the Arab and Non-Arab Muslim Countries.
Each of the above five hypotheses can be good subject matters for empirical studies. Let us discuss in some details the frontiers of both Non-formal and Voluntary Banking which can offer complementaries to the existing Islamic Banks in solving some of the dilemma for Islamic Banks in the corporate sector in the Arab and Non-Arab Muslim Countries.
4. The Neglected Frontiers of Islamic Non formal Islamic Banking
Generally speaking, Non formal Banking deals with informal finance in non-corporate sector. The popular view of in-formal Sector activities is that they are primarily those of petty traders, street hawkers, shoeshine boys and confined to employment on the periphery of the main urban areas. On the contrary, informal activities are the way of doing things, characterized by :
i. ease of entry.
ii. reliance of indigenous resources;
iii. family ownership of enterprises;
iv. small scale of operation ;
v. labour intensive and adapted technology ;
vi. skills acquired outside the formal school system ;
vii. unregulated and competitive markets.
One important characteristics of the formal sector is its relationship to the government. Economic activities formally and officially recognized. They obtained the direct benefit of access to credit, foreign exchange concessions, work permit and a formidable list of benefits that reduce the cost of capital in relation to that of labour. Partly because of its privileged access to resources, the formal sector is characterized by large enterprise sophisticated technology, high wage rates, high average profits and foreign ownership.
The informal sector on the other hand, is often ignored and in some respects helped and in some harassed by the authorities. Enterprises and individuals within it operate have no access to the formal credit institutions. The evidence suggests that the bulk of employment in the in-formal sector is economically efficient and profit making, though small in scale. As indicated earlier these non-corporate sector which covers small scale producers and enterprise traders, small farmers and low income and middle groups of people account for a substantial part of the labour force in some developing countries(7) including many Arab Countries such as Egypt.
It is to be recognized that the top income groups to the working poor would result in new types of labour-intensive investments in both urban and rural areas. This should not only generate demand for the products of the non-formal sector but also encourage innovations in labour -intensive techniques in this sector. This is where Islamic Bank must make a conscious and planned intervention. The difference of wealth and income between urban and rural area draws migrants towards the urban concentrations, not the spread of wealth.
It is to be mentioned here that a small farmer or a small entrepreneur having no access to institutionalized source of credit establishes semi-permanent relations with suppliers and buyers, frequently at the expense of his profit and become hesitant to innovate, particularly in agriculture, for he cannot take the chance of failure. These characteristics behavioral responses are not inherent in the in-formal sector, they are adaptive responses to low income.
In this context it becomes imperative for the Islamic Banks in general and Arab world in particular to work in the non-corporate sector. There are number of approaches which have been tried elsewhere can be adopted or adapted by Islamic Banks. Let us say a few words about Group Lending Schemes and Rotating saving and credit Associations.
Group Lending Schemes:
Group lending is one of the most popular form of informal finance. The funds for group leading schemes can come from a commercial bank, a government development Bank or private institutions. The role of the group varies. The idea is that by joining together, small borrowers can reduce the costs of borrowing and improve their access to credit. The two most common means of providing group accountability are (a) joint and several liability and (b) limited liability.
Experience indicates that family empowerment credit program or group lending schemes, under Non-formal Banking of Social Investment Bank Ltd. in Bangladesh works well with groups that are homogeneous and jointly liable for defaults. The practice of denying credit to all group members in case of default is found to be most effective and least costly way of enforcing joint liability. Group lending arrangements without collateral are less subject to the dangers of portfolio concentration because Bank is diversifying lending by serving a varied clientele in different areas under its family empowerment credit arrangement. Bank also is ensuring joint liability of wife and husband in case of lending to family or groups of families. This will humanize family and discourage internal immigration. Any attempt to decompose family through various credit and financing schemes in its ultimate analysis bound to generate the forces of disintegration of families, internal migration, child delinquency, social alienation and social conflict. Any credit program which does not manage its socio-economic consequences can not alleviate poverty. Besides, Bank has already introduced Rotating Family Savings and Credit Net and Group installment credit Scheme for any group of individual.
Rotating savings and credit Associations:
Rotating savings and credit associations (ROSCAs) are a popular form of informal finance. They have various aliases: tanda in Mexico, pasanaku in Bolivia, san in the Dominican republic, syndicate in Belize, gamaiyah in Egypt, isusu in Nigeria, susu in Ghana, tontine in Niger, hagad in Somalia, zitique in Mozambique, arisan in Indonesia, paluwagan in the Philippine, chit in India and Sri Lanka, pia huey in Thailand, hui in China, kye in Korea, and ko in Japan(8) .
ROSCAs intermediate in the most basic way. A small number of individuals, typically six to forty, form a group and select a leader who periodically collects a given amount ( a share) from each member. The money collected (the fund ) is then given in rotation to each member of the group. In some countries, such as India and Cameroon, ROSCAs have evolved into formal banks. Three types of ROSCAs are found in many countries. In common ROSCAs, the leader receives no special consideration (other than possibly getting the first fund). Commission ROSCAs pay their leaders, who in return may assume liability for defaults. Promotional ROSCAs are used by merchants to sell goods, especially consumer durable.
Loans are interest free in most common and promotional ROSCAs. The popularity of ROSCAs among low-and middle-income groups shows that people like to save even under trying circumstances. The popularity of such arrangements show the potential for pooling individual savings among small farmers or micro entrepreneurs. In England and elsewhere building societies-which later became an important part of the formal financial system- often began as ROSCAs.
From the preceding discussion it is evident Islamic Banks in Arab world should chart a clear course and mode of intervention in the non-corporate sector by financing mainly Family Empowerment Credit Program through group Lending Scheme or organizing ROSCA type credit management in combination with social fellowship program in exchange of small social assignments involving students as well as mobilizing local voluntary participation or culturally liked Social Innovation.
Islamic Banks strategy should focus on supporting policy for alleviation of poverty and promotion of income generating activities for the poor in collaboration of micro-enterprises and small scale enterprises targeted at the poor family in the urban as well as the rural areas. It would provide the graduation of selected beneficiaries who have been regular clients of micro-credit schemes to upscale their business and provide support to clients interested in starting new enterprises having benefited from ongoing skill development and training programs. It may be mentioned here that Islamic Development Bank, wanted to start a Micro Credit Program on a pilot basis. This is indeed a right move in right direction.
5. Discovering Islamic voluntary sector Banking
The real glory of the Islamic voluntary sector lies in the fact that it has a rich legacy, culture and history, it is indeed an area where thousand flowers can bloom, given the revolution in information technology, it is the right time for globalisation of Islamic voluntary sectors activities. In this process Islamic Bank in the Arab world can play a very vital role in re-activating and institutionalizing the role of Islamic Socio-Economic institutions and various voluntary and obligatory tools of redistribution of income through innovative financial instruments and management of fund such as Waqf properties development bond, Cash-Waqf Certificate, Zakat Certificate, Hajj Saving Certificate, Trust Fund and so on.
Despite the fact that many of the activities of the Islamic voluntary sector which may include the institutions such as Zakat, Awqaf, Mosque, Hajj, Islamic non-profit charitable trusts and foundations do not come under the conventional calculation of GNP, these institutional activities need to be reviewed and analyzed in the light the challenge and change, Muslim societies are facing today. In the wake of great transformation in East-West relationship resulting from (a) emergence of formidable economic block in Europe, (b) collapse of communism, (c) rise of Muslim republics in the Central Asia, (d) the widening the economic gap between North and South, and (e) severe economic backwardness, under-development and poverty in the Islamic countries of the Organization of Islamic Conference (OIC), despite their potentialities and vast resources, and (f) rise of ethnic militancy and growing threat to Muslim minorities in non-Muslim countries, there is, perhaps an urgent need to restore these institutions to their true spirit and utilize them fully for promoting the moral, spiritual, social and economic welfare of Muslim societies, nay, the mankind as a whole. The crucial question before us as to how to operationalize and institutionalize these activities of the voluntary sector so that they can be integrated into the mainstream of economic activity, resource mobilization, savings and investments and capital markets.
Viewed from this perspective, all Islamic Banks in Arab world in particular should establish Zakah Fund and actively explore the possibility of utilization of Zakah Fund in lawful ‘Mudarabah Projects’ as a financial partner. Zakah revenue redistributes wealth into consumption flows for the poor, raises their productivity, reallocates ex-ante saving by checking the tendency to hoard idle cash, and stimulates production through inter-sectoral allocation of resources. However, it is felt that Zakah has a tremendous humane potential and can generate the forces of altruistic behavior in a Muslim society. The need to educate the people to accept the obligatory income sharing voluntarily is critical need of our time.
Similarly, Hajj affairs should be viewed as one of the significant socio-economic institutions of Islam, an area where Islamic Banks can work by managing Hajj affairs. In this context attempts will be made to analyze the activities of the Pilgrims Management and Fund Board of Malaysia, more popularly known as “Tabung Haji”, identify the factors responsible for its success, and draw the lessons of experience of its operations for the members of the Organization of Islamic Conference (OIC) and its possible policy implications.
Furthermore, from a historical perspective, the institution of Waqf has, among others, played a significant role in furthering the cause of Islamic education, health and research through establishment of Schools, Hospitals, Madrasas, Mosques and public libraries.
In the context of 21st Century, Islamic Banks in Arab world in particular must work for Securitization of Islamic Voluntary Sector. In this connection, it is to be noted that in the voluntary sector. The following financial instruments with different sets of rules in conformity with Shariah may be explored:
a) Waqf Properties Development Bond (specific and general)
b) Cash Waqf Deposit Certificate (specific and general)
c) Family Waqf Certificate
d) Mosque Properties Development Bond (specific and general)
e) Mosque Community Share
f) Qard-e-Hasana Certificate (specific and general)
g) Zakat/Ushar Payment Certificate
h) Hajj Saving Certificate
The value of all the Bonds and Qurd-e-Hasana Certificate need to be are guaranteed by the Bank against surrender of the instrument on maturity.
Cash Waqf Certificate Scheme
As a part of extending three Sector Model Banking services towards the achievement of corporate objectives of Social Investment Bank Ltd. (SIBL) in Bangladesh, SIBL has already introduced Cash Waqf Certificate Scheme in the process of Organizing Voluntary Sector Capital Market operation for the first time in history of Banking. It intended to empower the family heritage of the rich as well for the benefit of the society at large.
As we know, Waqf generally means the permanent dedication of any property by a Muslim for any purpose recognized by Islamic law as religious, pious or charitable. Generally, Waqf is known to be related to endowment of any property of permanent nature. The use of “Cash Waqf” as recognized in Islam can be traced during the Ottoman era. Turkey has one of the longest history of Awaqf administration. Egypt which has a long history of Awaqf Management also allowed Bank credit as a subject of Waqf endowment. It is felt that the Cash Waqf can be used as a financial instrument, a new product line in Banking sector.
The introduction of Cash Waqf Certificate Scheme is intended to monetize Islamic Voluntary Sector for the first time in history for mobilization and capitalization of social savings. It would perhaps, be the most effective and perpetual mode of deposit mobilization and use of its profit for perpetual social investment and benefits in the Arab world as well.
The guidelines governing the operation of the Cash Waqf Certificate as adopted by Social Investment Bank Ltd. in Bangladesh are as follows:
1. Cash waqfs shall be accepted as endowment in conformity with Shariah. Bank will manage the waqf on behalf of the waquif.
2. Waqfs are done in perpetuity and the Account shall be opened in the Title given by the waquif.
3. Waquif will have the liberty to choose the purpose (s) to be served either from the list of 32 purposes identified by SIBL as given below or any other purpose(s) permitted by shariah.
* Family Rehabilitation : 1. Improving the conditions of absolutely poor living below the poverty line
2. Rehabilitating physically handicapped, and disadvantaged
3. Rehabilitating beggars.
4. Rehabilitation of destitute women
5. Upliftment of urban slum dewellers
* Education & Culture : 6. Education of orphans i.e. supplying books free of cost
7. Expansion and development of appropriate education for skill development
8. Informal education facilities of children at home (i.e. mother’s educational program, children literature)
9. Physical education and sports facilities
10. Supporting local culture and heritage and art promotion
11. Conducting Dawah activities
12. Supporting education of deserving students in the form of scholarship
13. Supporting vocational education in general
14. Supporting education of a specific area
15. Financing specific Madrasha/School/Colleges of a particular area.
16. Educating deserving descendants
17. Supporting any projects in the area of education, research, religious and Social services in the memory of father, mother and any descendants.
18. Establishing educational chair.
* Health & Sanitation : 19. Village health care and sanitation
20. Supplying pure drinking water (to households, schools, mosques, slums, etc.)
21. Establishing hospitals, clinics, health care programs specially for the poor.
22. Health research grant, Research in particular disease.
* Social utility service:
23. Settling disputes (e.g. Village litigation)
24. Providing legal aid to deserving women to establish their lawful rights.
25. Assist in arranging dowryless marriages to poor girls.
26. Maintenance of public roads and tree plantation in the village
27. Providing assistance to peace loving non-Muslims and solving their problems
28. Creating social awareness to prohibit gambling and other social vices such as theft and other anti-social activities.
29. Construction, installation and development of public utility services.
30. Maintenance of a specific mosque(s) with an income generating project(s)
31. Maintenance of a specific graveyard with an income generating project(s)
32. Maintenance of a specific Eidga(s) with an income generating project(s)
4. Cash waqf amount will earn profit at the highest rate offered by the Bank from time to time.
5. The waqf amount will remain intact and only the profit amount will be spent for the purpose(s) specified by the waquif. Unspent profit amount will automatically be added to waqf amount and earn profit to grow over the time.
6. Waquif may also instruct the Bank to spend the entire profit amount for the purpose specified by him/ her.
7. Waqif will have the opportunity to create cash waqf at a time. Otherwise he/she will declare the amount he/she intends to build up and will start with a minimum deposit of Tk. 1000/= (one thousand) only. The subsequent deposits shall also be made in thousand or in multiple of thousand.
8. Waquif shall also have the right to give standing instruction to the bank for regular realization of cash waqf at a rate specified by him/her from any other a/c maintained with SIBL.
9. Cash waqf shall be accepted in specified endowment Receipt voucher and a certificate for the entire amount shall be issued as and when the declared amount is built.
10. The Principles and rules of Cash Waqf Account are subject to amendment and to be reviewed from time to time.
6. Agenda for Action in the 21st Century:
It becomes abundantly clear that a considerable in house preparation by Islamic Banks in Arab world is needed in developing distinct Islamic Corporate, non corporate and voluntary sector financing. In the case of corporate sector, the key thrust lies in greater participation of the local people both in terms of ownership and beneficiaries of Bank's investment, greater network of mutual obligations among the Islamic Banks, greater transparency of Social, ethical and moral ingredients of various Islamic modes of financing. In the case, non-corporate sector, the key thrust lies in conscious planning and developing credit program that reinforces family values and stimulates civil society. In the Islamic Voluntary Sector, the key thrust lies in developing social capital market for mobilizing and capitalization of perpetual social savings and investment. The composite thrust of these three sectors' financing lies in comprehensive participatory Banking with human face beyond market for the benefit of Muslims and non-Muslims. Seen from these perspectives, the following few proposals are put forward for appropriate intervention by Islamic Banks in Arab world in particular.
I. Launching Family Empowerment Micro Credit Programs on a voluntary basis.
Credit transfer powers. Each Islamic Bank should voluntarily make its own allocation of this credit program to serve the poor at the gross-root level to be Coordinated by a Islamic Bank volunteer or by regional rotation of Islamic Banks.
II. Global mobilization and creation of fund through sale of Cash Waqf Certificate to support education, health & research ;
Throughout the history of Islam, Waqf played a significant role in promoting Education, Health, Arts and Architecture and Research. The 21st century must rediscover Islamic Philanthropy. Perhaps, Turkey which has one of the longest history of Awaqaf administration reached its peak during the Ottoman era, where Awaqf properties were estimated to have three quarters of the whole arable land in 1925. In 1983, a Ministry of Awaqaf was re-established after its abolition in 1924. One half (1/2) of the cultivable land in Algeria in mid nineteenth century was dedicated to Waqf. Similarly, in Tunis, one third (1/3) (1883), in Turkish empire (3/4) (1928) in Egypt(1/7)(1935), in Iran about 15% (1930) of the whole arable land were endowed to Waqf The accumulation of such extensive possession of land under Waqf had prompted many countries to introduce many reforms. In India, the statutory control of Waqf started with the passing of the Mausalman Waqf Act of 1923 during the pre-partition days. During the post-partition era, several acts were in acted and ordinance promulgated in Pakistan which was adopted in Bangladesh also.
Seen from these perspectives, global mobilization and sale of Cash Waqf Certificate should not be difficult, given the rich Islamic Legacy, culture and history of endowments. Currently, American is perhaps the most generous nation in the world. For example, American gave nearly US $ 2 billion to International Cause in 1997. Last year according to figures by Giving USA , Americans donated $143 billion to non-profit organizations. Just over three quarters of this came from living individuals ( $109 billion); the rest from foundations($ 13 billion), bequests ($ 13 billion) and companies ($ 8 billion). The non-profit part of the economy accounts for 8% of GDP, a figure that has more that doubled since 1960; and it employs nearly 10% of the American work force-more than federal and state government combined(10). Perhaps, given its legacy Muslim Philanthropy in the Arab Islamic Bank in co-operation of other Islamic Banks can match the American philanthropy. What is needed rediscover Islamic socio-economic values and revive Islamic Institutions. Islamic Banks must explore this opportunity for mobilizing this social capital.
III. Globalization of Islamic Voluntary Sector activities with special reference to Zakat, Hajj, Waqf etc:
The creation of Islamic Soldiery Fund and its Waqf under the umbrella of OIC is the right move. There is a urgent need to re-active its activities. Instead of extending charity out by the fund, the involvement of Islamic Banks in one form or other appears to be needed in planning and implementing social investment programs.
IV Establishing Trading House of Islamic Ummah / corporation & Islamic Dinar:
It appears to be in order to suggest that under the umbrella of Islamic Chambers of Commerce, Trading House of Islamic Ummah in Co-operation of the Kingdom of Saudi Arabia may be established under which each member country or Muslim community be given a permanent space to exhibit and sale their products. At the end of pilgrimage, an arrangement can be made for the optional visit by all pilgrims and other Muslims who come to "Umrah" during the whole year. This Trading House of Islamic Ummah can serve as one of the important building blocks of eventual formation of Islamic Common Market. This House of Islamic Ummah once established can provide scope for exchange of information relating to investment in co-financing and joint venture projects among Islamic Banks. These can eventually lead to the formation of Islamic Multi-national Corporation or Islamic Ummah Co-operation in the various fields such as petro-chemicals, Textile, leather, electronics, etc. Since exchange of different currencies into local currency and vice-versa are taking place throughout the Hajj and Umrah session of the year, attempts may be made for further operationalisation of Islamic Dinar. Islamic Bank in Arab world should play its role in this regard.
V. Establishment of World Social Bank in the private sector :
There appears to be an urgent need to establish World Social Bank in the private sector for global mobilization of Social savings and investments that re-inforce basic family and Societal values and stimulate civic responsibilities of civil society at the grass-root level. As indicated earlier that establishment of Jeddah based Islamic Development Bank (IDB) of 53 member countries in the public sector is indeed important event of our time. Since IDB has to work through governments of the member countries, it has its great limitations. Its potentials are great, but its impact is marginal. The proposed World Social Bank of Islamic Ummah must address the issues involving globalization of poverty, pervasive corruption in some Muslim Countries. Private sector of Islamic Ummah should forward to create fund for establishment of this Bank. Arab Islamic Banks can play a vital role in this direction.
Taken all in all, it can be safely said that Islamic Bank in Arab world must play a more aggressive role. It has enormous responsibility in mobilizing, allocating of resources which contribute to participatory economics of peace, the burden of which material civilization can not sustain. The proposed agenda for action is only indicative. They are by no means exhaustive.
The key thrust of Islamic Banks should be directed towards development of an authentic participatory economy beyond market economics that empowers the family of both rich and poor in the context of their social settings. The understanding of the real people and putting real masses of people into work in a socially and culturally acceptable environment is the critical need of our time. This significant element of "Participatory Economy" calls for an urgent attention. This is where operations of Islamic Banks in Arab world would assume their special significance.
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Prof. Dr. M. A. Mannan*
M. A. Econ. (R. U.)’60, M. A. Econ. (Michigan), Ph. D. Econ. (Mich. U.S.A.)’73 Certificate in Dev. USA.
Over 41 years’ experience of money, banking, finance, economic planning, civil administration, teaching, and research in several universities and countries around the world including Australia, Bangladesh, Pakistan, Papua New Guinea, Saudi Arabia, U.K. and the USA; a pioneer in the field of Islamic Economics, Banking and Finance; Research Professor, King Abdul Aziz University, Jeddah, Saudi Arabia, (1978-84); Commissioned as Consultant, Islamic Development Bank (1978) and Asian Development Bank, Consultant in the areas of Development, Monetary Economics, Public and Islamic Finance; Visiting Professor/Scholar, Georgetown University, USA in early 80s’. Served about 13 years at the highest professional position of Senior Economist/Chief Economist in Islamic Development Bank (IDB), Jeddah, Saudi Arabia (1984-96). Founder Chairman: a) Social Investment Bank Ltd. (SIBL); Targeting Poverty, approved in 1994, b) Bangladesh Social Peace Foundation (BSPF) (A Non-profit Trust) and c) Holistic Family Health Clinic (HFHC) (A Non-profit Organization), Dhaka, Bangladesh; Started career as University College Professor and as a Member of the then East Pakistan Civil Service and Central Superior Service of Ex-Pakistan in 1963-64; served as Asst. Financial advisor and Asst. Chief of Planing Commission of Ex-Pakistan in early’60s.
His major works in Economics, Islamic Economics, Banking and Finance include: (i) An Introduction to Applied Economics, (Dhaka -1963), (ii) Economic Problems and Planning in Pakistan, (Lahore:1968), (iii)Academic award winning book: Islamic Economics-Theory and Practice (Pakistan - 1970) (revised Edition UK 1986): “Internationally recognized” first text book on the subject. Reprinted over 20 times, translated in dozen of foreign languages, including Arabic, English, Bengali, Turkish, Bahasa Malaysia, Bahasa Indonesia, (iv) The Making of Islamic Economic Society (Cairo-1984), (v) The Frontiers of Islamic Economics, ( India -1984), (vi)Economic Development and Social Peace in Islam, (UK-1989), (vii) Understanding Islamic Finance (IDB, Jeddah-1993) (viii) Structural Adjustments and Islamic Voluntary sector with special reference to Bangladesh (IDB, Jeddah-1995), (ix) The impact of single European Market on OIC Member countries (ed), (IDB, Jeddah-1996), plus numerous articles/papers and reports mainly on Economic development, Economics of Education and underdeveloped countries, General and Islamic economics, Money Banking and Finance.
Placed as one of TOP FIVE ISLAMIC ECONOMISTS IN THE MUSLIM WORLD published in a book entitled, Contemporary Islamic Economic Thought, Malaysia (1995). Enlisted in ‘WHO’S WHO IN THE WORLD’ (since 8th edition: 1978-88, Macmillan USA) as economist, educator, consultant, Islamic economist. Also included in ‘FIVE THOUSAND PERSONALITIES IN THE WORLD’ 2nd edition 1990, ABI, USA and Men of Achievement, Cambridge, UK (1989). Traveled over 50 Countries.
*Dr. Mannan, born in 1938, a Bangladesh national returned to his country after living 33 years abroad taking pre-
mature retirement from Islamic Development Bank, in 1996: married with two children:
Wife, Nargis Mannan, MA, International Award winning Copper Artist and Director, Social Investment Bank
Ltd. Daughter, Dr. Reshmi Mannan, BSc.(LSE), Msc (Oxon) MS (NY), Ph.d. (USA): Son, Dr. Ghalib Mannan,
M.B.Bch.(UK), MD (USA) Fellow (USA):
Mailing Address: “Megh Mallar”, 97 Suhrawardy Avenue (Biswa Road), Baridhara, Dhaka- 1212. Tel: (880-2) 8811241 (Res.), Tel & Fax: (880-2) 8821654(Res), E-mail: firstname.lastname@example.org (Res).
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