Thursday, October 27, 2005

(9) How the West Came To Run Islamic Banks

Giants like Citigroup dominate the sector, through Islamic subsidiaries and hired Sharia scholars.
By Owen Matthews

Oct. 31, 2005 issue –

You're a pious Muslim with a few million in oil dollars to invest. So would the perfect Islamic bank for you be Citigroup, perhaps? HSBC?

Actually, yes. Giant Western banks—or, rather, their Islamic subsidiaries—are leading the market for financing that complies with Qur'anic laws forbidding lending money for profit, or sponsoring un-Islamic activities such as gambling or smoking. Citigroup's Bahrain-based Citi Islamic subsidiary was first into the market in 1996, and now leads the pack with deposits of more than $6 billion. Citi and at least 10 other Western majors dwarf the biggest locally owned rival, Al Baraka of Bahrain, worth a little more than half a billion.

Westerners are drawn in by oil money. The Middle East is enjoying its fastest growth in a generation. According to Islamic Banking and Finance magazine, there are $265 billion in deposits that comply with Sharia, the law that governs the behavior of Muslims, finances included. That's up 17 percent in the past year, and by almost 10 times in the past decade, according to the U.A.E.'s Sharjah Islamic Bank. Since 1996 Dow Jones has offered indexes of stocks vetted by Sharia scholars. Now there are more than 40 Islamic indexes, and last year Islamic stocks on average outperformed the market by 5 percent.

How did Western banks come to dominate a market predicated on Islamic purity? A generation ago, an Islamic bank was just a simple investment house that, instead of paying interest on deposits, created dividends by buying and renting out property. "Islam forbids making money on money," says Alun Williams, marketing director of the new Islamic Bank of Britain. "But it does allow you to rent, and to trade." Now Western banks are using that template to pioneer Islamic credit cards, Islamic mortgages and Islamic bonds (known as sukuks) that during the past year have financed everything from a $1 billion upgrade of Dubai airport to Pakistani government debt. As growth picks up in the Middle East, more and more Muslim-run corporations find they need sophisticated services, from bond issues to derivatives, that so far only Western banks provide.

The Western banks gain Islamic credibility by hiring top-drawer Sharia scholars to sit on their boards. "The caliber of your scholars is the basis on which these [financial products] are marketed," says Majid Dawood, a London-based consultant on Sharia compliance. Because there are just a handful of financially literate Islamic scholars in the market, most sit on the boards of many institutions and can, says Dawood, command salaries of as much as $88,500 per year per bank. Sheik Mohammed Taqi Usmani, a former Sharia judge on the Supreme Court of Pakistan, sits on the board of Citi Islamic, HSBC, Al Baraka and eight others, and is chairman of the Dow Jones Islamic indexes' Sharia panel.

But the trend toward investing in Islamic funds really took off after 9/11, when many Muslims began bringing their money home from America. Since then, international banks like Societe Generale, BNP Paribas, Deutsche Bank and Standard Chartered have all entered the Islamic banking business. Accounting and consulting firms like Ernst Young are now offering Islamic financial services. The recently opened Islamic Bank of Britain, owned by leading Islamic banks and other institutions from the Middle East, plans to create a retail-banking chain for "average income" Muslim Britons, says Williams.

Customers in Muslim nations are driven to Western banks in part by distrust of their own banks. Prominent failures, such as the 2001 collapse of Turkey's Ilhas Finance dented depositors' faith. In Turkey, the Islamic world's largest economy, the fledgling Islamic-banking sector is lobbying the state to guarantee deposits of up to $36,000, which could in time make Turkey a major player. In Malaysia, where more than 11 percent of deposits are now Sharia-compliant, local houses like Bank Muamalat are working to gain on the multinationals. "Local Islamic banks lack sophistication," says Humayun Dar, an Islamic economist. "Customers are still more comfortable with an international name." Even if the rules are strictly local.

Tuesday, October 25, 2005

(8) Way Foward- Islamic Finance!

Assalamu alaykum wa rahmatullahi wa barakaatuh,
Respected Brothers in Islam,

Glad that the issue at hand has taken priority! Please find time to address issues raised in my initial email at your leisure…

While it may be practical and even necessary for Muslims to engage with and utilize the products and services of conventional banks, this approach must be limited to the short term! As I said in my first email, if Muslims believe this to be the ideal, there will be no hope of anything ‘more Islamic’ being able to build itself up. I believe that the current products/services are the lesser of the two evils but still not the ideal. Muslims should also be told, that while it may be temporarily acceptable to deal with conventional banks, it is definitely not encouraged to unnecessarily do so- it should be the option of last resort, after all other steps have failed..

The most urgent need for the future would be a vibrant and collective educational drive- there needs to be more transparency from all parties as well as open discussion and debate with regards to solutions. Any suggestions? What about monthly platforms where professionals, maulvis and all other interested parties can meet and engage? I will assist in arranging these in Johannesburg after Ramadaan..

Economics is without doubt intertwined with politics- even more reason for a call for Muslims to be more politically active! History has shown that the traditional maulvi stance to politics proved to be disastrous to our community- but some current maulvi’s have admirably discarded that negative rhetoric and we seem to moving to a more positive political future. I have heard the call from many ulama in Johannesburg but things seem to still be very conservative in Natal- or at least that’s what I experienced on campus in the last five years.. However, there is a major shortage of Muslims taking this advice and becoming politically active, opting rather for more financially attractive options! Once again, more discussion around the importance of politics from both on and off the mimbar, will be the best way forward…

While it may be true that community at large does not listen to maulvi’s, I don’t believe that a call for the ulama to stand up and give directives will ever prove successful. I am in no position to advise the ulama about their general future modus operandi, but as a suggestion, maybe a change in approach will have better results.. They need to engage rather than dictate- people need to understand what, why and how; rather than be instructed to follow.. Maybe also more transparency and/or accountability..

To engage with conventional banks can only be a practical short term solution- in the long term, there needs to be more strategizing and planning going on. If all Muslim professionals in the field of economics and commerce, began to study and understand the essence and principles of an economic system, and then in their current jobs, when given the opportunity to make a decision, enforce a policy, direct an initiative or any other change making opportunity, they take the ‘more Islamic’ option; this will be a move to a ‘more Islamic’ economy than we currently have.

An Islamic financial institution must not be one with an Arabic name that merely staffs bearded and robed employees; it can have any name with any employees but must be ultimately based on Islamic values and principles. I think that our community places too much emphasis on aesthetics! When explaining, for example the benefit of non-interest based models; we should appeal to the logic of man rather than resort to rhetoric..

Two immediate needs present themselves:

- Some coordinative approach to the current certification process to prevent impending abuse of such certification, together with more transparency, discussion and educational initiatives to ensure supreme results are achieved.

- A call for more education on these and other issues- there may have been talks, debates or discussions from on and off the mimbar, but these have been far from adequate. The mindset of our community may not yet be prepared for it, but there inevitably needs to be practical information disseminated by the best disseminators, maulvi’s or not!

The reliance placed by financial institutions on foreign ‘authorities’ further compounds the issue. We should, wherever possible discourage foreigners from certifying local institutions- it may be fine to advise, but they should not certify locally, without an adequate understanding of the local environment, without locals having easy access to discuss and debate with them, and to a lesser degree but just as important, being directly involved with traitorous and treacherous governments masquerading as Muslim governments!

I will request that this email, together with all previous and future correspondence, be posted on Open Forum so that mailboxes no longer need to be bombarded! This is a website that has been set up by someone I know- this perhaps could be used for this purpose:

Looking forward to rigorous and beneficial discussion and debate from all concerned parties!


Bilal Randeree

Monday, October 24, 2005

(7) RE: A Response to your response on FNB

Assalamu alaykum wa rahmatullahi wa barakaatuh
Respected Brother in Islam,

Jazakallah for your email.
Your apologies accepted, and let the past be the past.
Like I previously indicated, any constructive engagement would be most welcome.
Time does not allow me to go into much detail in this email.

While your concerns of establishing an Islamic economy are commendable, solutions offered should be practical. There should be a very pragmatic approach.

For the greater part, Economics is intertwined with politics. To establish an Islamic economic system without political domain, is, in my understanding, impossible. I have heard comments that it could be done without any political intervention. I would really be interested in hearing a practical plan of action in this light.

What some brothers have suggested is that the Ulama must stand up and give directives on how the business community must conduct their affairs. This, in my opinion, is a ‘pie in the sky’ suggestion. When the community at large are not interested in what

Allah Ta’ala wants from them, and are motivated by personal gain, where are they going to listen to the molvies. Who does not know interest is Haraam, but for personal motives, the larger community are soaked in it.

Hence, given the situation, the Ulama are of the opinion that to engage with the banks on our terms will be a practical solution to drawing the community away from the Haraam that they are already involved in. From our experience, this is having an effect on the ground. This essentially is our motivation for working with the banks.

Looking forward to hear from you.

Jazakallah and Was Salaam
E. Vawda for Daarul Iftaa

Sunday, October 23, 2005

(6) Response to Camperdown

Assalamu alaykum wa rahmatullahi wa barakaatuh
Respected Brother E Vawda,

Shukran for your response! Hope that all is going well in these blessed last days of Ramadaan…
I would not like to get stuck in semantics, but just a brief reply to your concerns-

The first email was distributed to the same ‘wide group’ that received the then attached advertisement from FNB. That email said nothing of who was involved in certifying FNB’s products and asked many still unanswered questions- and there were definitely not ‘unduly cast insinuations’ as there where was no known party to insinuate anything against! And thus also, could not ‘suggest you were complacent’!

Again, the first email, a reply to FNB’s advert, did not subtly suggest any ‘bending of Shariah’, but raised concern of this possibly happening in the future- I will append the first widely distributed email…

I did not ‘loosely resort to innuendos’ or ‘subtly imply’ anything- it’s blatantly obvious that interest is the life blood of the entire economic system of this country!

The second email, naming you as one of the certifiers of FNB’s products-

What I found difficult to believe, was not that Ebi Patel was making up a story, but that a conventional Western bank could be ‘certified’- I now understand why it maybe necessary to use the conventional banks in the short term, but the inevitable issue with regards to other less scrupulous conventional banks abusing the ‘certification process’ still looms…

I would like to apologise for any shortcomings on my part- however, I have seen many important issues derailed and many beneficial discussions cut short due to minor, often surmountable, issues! The matter on hand is extremely important and I ask that we put any differences aside and work together- the number of Muslim professionals in the field of commerce and economics is staggering and most of us were under the misconception that it is fine to be involved in the work that we do and that we have no further commitments and responsibilities…

So view not the previous emails as a personal attack- it was anything but! I do not wish to level any criticism at any particular organisation, our entire community can be criticised till eternity- as a value based, constructive way forward, can I once again suggest:

1. To find a means of offering viable, consistently certified, temporary financial solutions for the needs of Muslims,
2. An organised educational process so that Mufti’s, professionals and the general population understand better the current economic environment, the essence of an Islamic economic system and what we need to do so that we can make the necessary changes to the current economic system and curb its oppressive and unjust effects!

It may be unattainable in the short term, but I surely think it’s possible, that if planned well, the economic environment of this country can be changed to be more Islamic than any so-called Muslim country!

I hope that this is not viewed as an equally juvenile reprisal, but rather as setting the scene for discussion in accordance with proper Islamic decorum! Looking forward to your positive response and if possible comments on General Issues raised in the first, appended email!

Saturday, October 22, 2005

(5) A Response to your response on FNB

Assalamu alaykum wa rahmatullahi wa barakaatuh

Respected Brother in Islam,

As an intro, I would like to inform you that we at the Daarul Iftaa in Camperdown receive literally hundreds of emails a day. It is not practical for us to read them all, let alone attending to them. Hence our auto responder clearly states that if you do not receive a reply, one should resend one’s email. I have not previously seen the emails sent by you, but thereafter a brother wrote to me indicating that you have been distributing your emails to a wide group. He requested me to look into the matter, and this is when I first saw your emails.

I have before me two emails sent by you. The first is entitled ‘FNB launches bank for Muslim?’ which was sent out to a long list of recipients. The second is one entitled ‘response from FNB!’

At the outset, may I say that you are most welcome to query issues, but one should be careful not to unduly cast insinuations without thorough investigation. The tone of your emails certainly suggests so.

I can confirm that we at the Daarul Iftaa have approved the vehicle finance product. Should you have a specific concern, you are most welcome to raise your concerns. This can be via email, or during Ramadhaan telephonically between 10 and 12 AM weekdays.

I cannot speak for other bodies, but only reflect the views of the Daarul Iftaa. I can explain the basic concepts involved. However, I am not in a position to share documents with the public. Anyone requiring documents may contact ‘Islamic Finance’ directly.

Many of the points raised by you have been duly considered before approving the product. Your comments suggest that we have been complacent in approving this product. In which way?

You subtly suggest that the rules of Shari’ah have been bent to accommodate for this product. On what do you base this?

You talk of the ills of an interest based system, thereby subtly implying that we are approving an interest based transaction. This is not true. You should have investigated the matter before loosely resorting to innuendos. Your last comment of finding loopholes in the Shari’ah is out of place. One should not ‘shoot first and ask later’. Rather, get the facts, and thereafter if you have any constructive criticisms to make, it would be welcome.

We share your concern that there are many products springing up, all claiming to be “Shari’ah Compliant”. While there can be no absolute solution to this scourge, the Muslim public have a fundamental role to play. Such schemes can only prosper on a gullible and undiscerning client base. The simple and reasonably effective solution would be for the Muslim public to check with the reliable Ulama upon whom they have confidence. If there is no Ulama approval and supervision for these products, as a rule of thumb, abstain!

You wrote:
(These have not been verified independently by me (I still find it extremely difficult to believe) as these schools are now on holiday- but our respected brother, Ebi Patel at FNB, has confirmed this.)

This is one of your uncalled for ingratiations. We have been working on this product for two years. It is not that on the spur of the moment we hurriedly approved something, and then fled the scene. Our integrity demands that if we put our name to a product, we stand by it. We have nothing to hide, nor does Ebrahim Patel have any special access to us that the general public does not have. What then is so difficult to believe? Are you suggesting that because you did not get an immediate response, Ebrahim Patel could be making up a story? I think Islamic decorum demands that you should be more careful with your words.

You wrote:
All should come to the table- professionals who are MufT’s in the field of economics and commerce as well as Mufti’s who are professionals in the field of recorded Shariah- together both groups can grasp a full and proper understanding of where we need to be in the long term and take these steps so that we are not forced to accept half-baked, Islamically inferior products and services as the Real McCoy…

This is the first time I have heard of MufT’s of the field of economics and commerce, side by side to having Muftis of Shari’ah. Again you sadly insinuate that the product in question is “half-baked”, compromising of the Shariah, and a McCoy. One has to ask: Did you study the product? If not, and I am reasonably sure you did not, then a little patience would have been expected of you.

To the other readers, I would like to assure you that we welcome any constructive input. We are in no way bound by the bank, and bank knows that fully well. Our independence is to the extent that if we are convinced that we have erred in any way in approving the product, we will have no hesitation of withdrawing our support. Our support has no strings attached whatsoever. However, I must stress that any criticism offered should be constructive and value based, not mere shots in the dark.

Lastly, I would like challenge to any person who has some knowledge of the field of Islamic Finance to show me a product offered by any western based financial institution that is more “conservative” or strict on Shari’ah principles that the product approved by us. I think this challenge speaks for itself.

Once again, feel free to contact me for any assistance.

Jazakallah and Was Salaam

E. Vawda
For Daarul Iftaa

Tuesday, October 18, 2005

(4) Response from FNB

Ebrahim Patel originally approached all Mufti’s in South Africa- none of which had a problem with a conventional bank offering ‘Shariah Compliant’ Services. I find this really strange as this list of Mufti’s includes PE which has been commonly known to take extremely hardliner views. But subsequently the following, after much expense for FNB, was obtained:

-FNB’s Wesbank car financing has been approved by Camperdown.
-FNB’s ‘Islamic Banking’ has been approved by Zakariyya.
(These have not been verified independently by me (I still find it extremely difficult to believe) as these schools are now on holiday- but our respected brother, Ebi Patel at FNB, has confirmed this.)

Br. Ebi Patel cannot make public the opinions received from these schools as large sum of money was spent on this process and FNB, understandably, does not want this to be merely copied and used by other institutions! I assume that once the schools re-open after the holiday, they will be willing to explain the process reached in granting the above certification.

Now, while I am still personally extremely unhappy with products being offered with no parallel educational initiative, the blatantly probable problem that we face is the likelihood of other unscrupulous persons using the ‘Shariah’ stamp on products that have not gone through the processes and without taking the important steps that Br. Ebi Patel from FNB has taken!

We could have a real circus on our hands, similar to the whole food certification debacle!

Imagine if banks and other financial institutions realise that they can go to different individuals to look at their products until they find someone who, for what ever reason, is willing to give them the go ahead- I believe that in light of this serious issue, someone needs to do something…

I propose a few ideas as a way forward-
A unified approach to this impending problem is needed- And this approach must be two pronged,
1. To find a means of offering temporary solutions for the needs of Muslims,
2. An organised educational process so that Mufti’s, professionals and the general population understand better the current economic environment, the essence of an Islamic economic system and what we need to do so that we can make the necessary changes to the current economic system.

All should come to the table- professionals who are MufT’s in the field of economics and commerce as well as Mufti’s who are professionals in the field of recorded Shariah- together both groups can grasp a full and proper understanding of where we need to be in the long term and take these steps so that we are not forced to accept half-baked, Islamically inferior products and services as the Real McCoy…

It may be unattainable in the short term, but I surely think it’s possible, that if planned well, the economic environment of this country can be changed to be more Islamic than any so-called Muslim country!

This email has been sent to Jamiat- Gauteng, Camperdown, Jamiat- Kzn, M Ml E Bham, Mufti Zubair Bhayat, Radio Islam and others. Can this discussion also be taken to Zakariyya, PE, and other Mufti’s…

The Economics and Finance Desk at Jamiat has agreed to a meeting after Ramadaan to address these and other issues- will notify those who would like to attend in due course.

Ebrahim Patel, CEO at FNB, has also agreed to a meeting where we can discuss the steps and processes that he undertook- inshaAllah this will also happen after Ramadaan.

Friday, October 14, 2005

(3) Islamic Finance Article


I've published an article on Islamic Finance in the SA Financial Markets Journal. Here is the link:

Please provide feedback/suggestions for future articles!

Ebrahim Patel

Monday, October 03, 2005

(2) FNB launches bank for Muslims!?

I am seriously concerned about the following and hope that an someone is able to respond:

-By whom has this product been certified 'Shariah Compliant'?
-Can a conventional bank ever be accepted by Shariah?
-Will a bank/institution that is totally based on Islamic principles, ever be able to be established and sustained if Muslims believe that 'Shariah Compliant' products offered by conventional banks are acceptable?
-How long will it be before all other conventional banks jump onto the bandwagon and start offering 'Shariah Compliant' products, thereby obliterating any chance of a truly Islamic solution to the economic and social ills caused by the current economic system?

While it make sense that Muslims need to always opt for the 'lesser of two evils' and that initiatives like this do create awareness in the minds of many Muslims with regard to need of following the framework of Quran and Sunnah, if we become complacent and recognize this as being totally acceptable, don't we face the danger of never being able to change things for the better?

What is the reason interest is totally forbidden in the Quran? Is it because an economic system based on interest, in theory, makes the rich richer and poor poorer? Is it because an economic system based on interest, in theory, is unjust and oppressive and Muslims are supposed to be against all oppression and any injustices?

Besides the persons paying and receiving interest, is not any other person involved in the transaction, from the witness to the scribe, also equally cursed? Does the same apply to, not a single transaction, but an entire system of transactions based on interest?

Can a Muslim work in a job or hold a position that directly or indirectly assists and ensures the progress of the current economic system that is based on everything that Muslims are fundamentally against? Can I work as accountant and justify my work as not being directly involved in interest?

If all Muslims that are part of this countries economy decide to educate themselves on the principles of Quran and Sunnah, and then whenever given the opportunity to make a decision, or enforce a policy, or do whatever there jobs entail, they take the action that would in their understanding best lead towards a 'more Islamic' system; if we do this, is it possible that sometime in the future we can have a 'more Islamic' economic system than any 'Muslim' country?

Do you have to change something from the inside or must we just carry on with our lives and wait for someone to change it from the outside?

Can the Shariah be reduced to check list that is ticked off to see whether some product is acceptable or not, or is it necessary to look at the background, essence and take into account future effects of said product?

Is the Shariah a set of laws, similar to tax laws, which can be circumvented by looking for and using 'loopholes'?

Looking forward to some answers, thoughts or comments...


FNB launches bank for Muslims

FIRST National Bank is to offer Shari'ah compliant banking facilities through its IslamicFinance bank accounts. According to Ebi Patel, CEO of Wesbank Islamic Finance at FNB, banking services have traditionally been out of the reach of devout Muslims.

"The rules and regulations laid out in the Shari'ah prevent Muslims from dealings that involve the payment or receipt of interest. And as local banking operations are reliant on gains from interest, banking services designed specifically for the Islamic market have largely been regarded as untenable," Ebi says.

Understanding the importance of Shari'ah compliance to the Islamic community, FNB has developed its IslamicFinance account to meet the requirements of Shari'ah compliance.

"To date, South African Muslims have been forced to avoid the offerings from local financial institutions. Nevertheless, like all other South Africans, local Muslims require the services of a secure, customer focused financial institution and we are proud to be the first major bank to offer services which meet the specific needs of this market," says Ebi.

Shari'ah compliant IslamicFinance bank accounts are available at any of the more than 650 FNB branches around the country and meet the needs of youth, sole proprietors and business customers.

Saturday, October 01, 2005

(1) Welcome to Open Forum

Watch this space for current debates and discussions on wide range of issues...
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