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Interest-free Commercial Banking by A.L.M. Abdul Gafoor

Studies the problems of eliminating interest from the banking system from basic principles. Using a general model of the commercial banking lending process, shows that interest can be eliminated from modern commercial banking without resort to drastic measures. Presents a commercial banking system that is free of interest, and yet is fully viable and compatible with current practices in the conventional system.
This system is practicable in strictly Islamic countries, nominally Islamic countries, as well as in other countries. The only requirement is that there is a clientele that wishes to avoid dealing in interest. Implementation of the system requires no changes in either the laws of the country or in that of commercial banking.
A full chapter is devoted to the study of Islamic banking: Its history, current practices and the problems it faces. Suggestions for overcoming these problems are also given. The resulting system is essentially the same as the one previously arrived at by removing interest from the conventional system.
The proposed system, however, rests on a firm theoretical foundation, and provides management information that is very useful for monitoring and control.
Written lucidly in simple English, it is suitable for reading by professional and academics as well as by the general public.
ISBN 90-802354-1-5, xii+86 pages, 1995

Click here for Table of Contents

For further information or discussions please write or e-mail to the author: abdul@noord.bart.nl

Stockists and Distributors are required in all countries. Translation, reprint offers welcome. Trade enquiries: APPTEC Publications

Apptec Publications

Berkenlaan 75

9741 JL Groningen

The Netherlands Tel/Fax: +(31-50) 5775136

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Preface

Chapter 1 -- Introduction

Chapter 2 -- The Cost of Borrowing

2.1 -- A model of the cost of borrowing (Interest, Services cost, Overheads and other services, Risk premium, Profit, Inflation)

2.2 -- Analyses using the model (Lending by individuals, Bank lending from time and savings deposits, Lending by individuals - another scenario, Bank lending from current account (demand) deposits, Government lending through banks, Other banking services)

2.3 -- Some further analyses and results (The general model under different regimes, Overheads cost is not interest, Bank is not the lender, How does the bank get involved in interest?)

2.4 -- Conclusions

Chapter 3 -- Interest-free Commercial Banking

3.1 -- Deposits (Current accounts, Savings accounts, Time deposit accounts)

3.2 -- Bank charges (Services charge, Overheads charge, Risk premium, Competition and profit)

3.3 -- Loans and advances (Temporary overdrafts, Loans, Inter-bank lending)

3.4 -- Services (Money transfers, Others)

3.5 -- Financing (Bills of exchange, Others)

3.6 -- Government finance (Treasury bills, Others)

3.7 -- The Central Bank (Supervision and control, The bank rate, Reserve ratios and money supply)

3.8 -- International banking

3.9 -- Conclusions

Chapter 4 -- Islamic Banking

4.1 -- Historical development (Interest-free banking as an idea, The coming into being of interest-free banks, The last decade)

4.2 -- Current practices (Deposit accounts, Modes of financing, Services, Shortcomings in current practices)

4.3 -- Problems in implementing the PLS scheme (Financing, Legislation, Involvement in specialised non-bank activities, Re-training of staff, Other disincentives, Excess liquidity, Uneasy questions of morality)

4.4 -- Islamic banking in non-Muslim countries (Certainty of capital and return, Supervision and control, Tax regulations)

4.5 -- Discussions and suggestions (Savings accounts and capital guarantee, Loans with a service charge, Investment under PLS scheme)

4.6 -- Conclusions

Chapter 5 -- Summary and Conclusions

5.1 -- Summary

5.2 -- Conclusions

Bibliography

Index

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