These two books are part of a series of books by the same author, which provide a practical perspective to interest-free Islamic banking. The books are a timely contribution to the development of interest-free banking. Although various publications and articles have appeared on the theoretical aspect of interest-free Islamic banking, very little has been produced on its operation within the framework of the conventional financial system. The books provide solutions to the challenges, posed by the conventional financial system, to the operation of interest-free banking.
Participatory Financing through Investment banks and Commercial Banks, 1996, xii+96 pages.
This book explores the possibility of banks accommodating Muslim depositors whose primary aim is to use capital to earn an income. It is duly concerned with ways of earning income from surplus fund without contravening the Islamic prohibition of interest on money. To this end, the book focusses on investment in one-man businesses, partnership with one or more others, and in Mudaraba-type participation in investment where the investor is a sleeping partner.
The book, in chapter 2, develops a general financing scheme model. It applies basic interest-free concepts to commercial banks' credit creation activities. Concepts and mechanisms, which are universally applicable to all situations, are developed. Attention is drawn to the objections raised against Islamic banks, that its assets are tied up in investment without any guarantee as to the capital or the return.
Chapter 3 concentrates on how large and small investors may be matched with [different] investment options, and how to utilize the participatory financing scheme [in the different circumstances]. The writer advocates the financing of 'social' projects that cater to the basic needs of the population. This he considers as being particularly important to Muslims in third world countries.
Chapter 4 examines the potential of the participatory financing scheme and the problems that may arise from its application. It also demonstrates that investment companies also offer the scheme.
Chapter 5 deals with the effects of inflation on participatory financing. It gives an understanding of how and where the effects of inflation are felt in participatory financing and evaluates the extent of the damage. It is also able to show that inflation has no worse effect on capital in a participatory finance scheme than it may have on capital deposited in an interest-free account.
The book presents a single scheme with several options for bringing capital and entrepreneur together, through banks and investment companies, in a manner which complies with the Islamic prohibition of Riba and mutually beneficial to all the parties.
The write has in these two books created a work which, despite its brevity, is of considerable importance for the development of banking services which comply with Islamic principles. The books have been lucidly written in simple English. They are ideal for practitioners involved in the world of finance while are also suitable for academics.
Interest-free Commercial Banking, 1995, xii+86 pages
The aim of this book is to examine modern banking practice with a view to finding ways of eliminating Riba and maintaining a viable operation. It investigates, through the study of Islamic banking and basic banking principles, means of developing interest-free commercial banking.
Chapter 2 of the book presents a general model of commercial bank lending operation. It analyses the cost of borrowing from a commercial bank and the role of cost component in commercial bank lending. The writer demonstrates how interest may be eliminated from the bank's lending operation and consequently from the whole banking sector.
Chapter 3 presents a complete interest-free commercial banking system, which requires no legal reform or changes in commercial banking practice. The proposed system interest-free commercial bank leaves out the unacceptable elements in the conventional and Islamic systems. It combines the two systems to provide an efficient commercial banking system that guarantees depositors' capital and enables Muslims to engage in interest-free banking transactions.
Chapter 4 consists of an analysis of Islamic banking -- its historical development, operation and associated problems. The writer demonstrates that the Islamic-banking operation can be modified to offer a clean and efficient interest-free banking system. the modified system will offer the following banking services: loans with a service charge, and Mudaraba participatory financing. The resulting banking system is essentially the same as the proposed interest-free commercial banking system.
The book concludes that it is possible to completely eliminate interest from the banking system without taking any drastic measure, keeping it fully viable and compatible with conventional banking practices.