DUSHANBE, November 2, 2012, Asia-Plus -- The National Bank of Tajikistan (NBT) and Zaid Ibrahim & Co., the largest private law firm in Malaysia, have reportedly signed an agreement on development of Islamic banking.
Tajik central banks press center reports the agreement was signed in Dushanbe last Tuesday. Under this agreement, the sides will work out a draft law “On Islamic Banking in Tajikistan” for the purpose of expansion of Tajikistan’s banking system.
Islamic banking (or participant banking) is banking or banking activity that is consistent with the principles of sharia law and its practical application through the development of Islamic economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees (known as riba, or usury) for loans of money. Investing in businesses that provide goods or services considered contrary to Islamic principles is also haraam (“sinful and prohibited”). Although these principles have been applied in varying degrees by historical Islamic economies due to lack of Islamic practice, only in the late 20th century were a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community.
The first modern experiment with Islamic banking was undertaken in Egypt under cover without projecting an Islamic image—for fear of being seen as a manifestation of Islamic fundamentalism that was anathema to the political regime. The pioneering effort, led by Ahmad Elnaggar, took the form of a savings bank based on profit-sharing in the Egyptian town of Mit Ghamr in 1963. This experiment lasted until 1967, by which time there were nine such banks in country.
In 1975, the Islamic Development Bank was set up with the mission to provide funding to projects in the member countries. The first modern commercial Islamic bank, Dubai Islamic Bank, opened its doors in 1975. In the early years, the products offered were basic and strongly founded on conventional banking products, but in the last few years the industry is starting to see strong development in new products and services.
Islamic banking has the same purpose as conventional banking: to make money for the banking institute by lending out capital. But that is not the sole purpose either. Adherence to Islamic law and ensuring fair play is also at the core of Islamic banking. Because Islam forbids simply lending out money at interest (riba), Islamic rules on transactions have been created to prevent this evil. The basic principle of Islamic banking is based on risk-sharing which is a component of trade rather than risk-transfer which we see in the conventional banking. Islamic banking introduces concepts such as profit sharing, safekeeping, joint venture, cost plus, and leasing.
International experts note that Islamic Banking is growing at a rate of 10-15% per year and with signs of consistent future growth. Islamic banks have more than 300 institutions spread over 51 countries, including the United States. According to CIMB Group (universal bank operating in high growth economies in ASEAN), Islamic finance is the fastest-growing segment of the global financial system.
Established in 1987, Zaid Ibrahim & Co. is the largest private law firm in Malaysia. Today, it is the most widely networked firm in Malaysia, with offices throughout the country. Its successful expansion beyond Malaysian shores began in 2003 and it now has strategically positioned offices in major cities in the ASEAN region, the Middle East and Australia.