I am firmly against the way Emir Sanusi  went about his Islamic Banking agenda in Nigeria (knowing fully well that anything religious in our country is flammable). Still I have an interest in educating myself, particularly how investors actually make money from participation in an Islamic Bank. So I went looking. Here is a "real" Islamic Bank explanatory text as "practiced" in the U.S.

Well after reading the below a couple of times it seems I see what is going on. Before I offer my discovery (and potentially misinterpret things) can someone else, particularly those in support of Islamic Banking in Nigeria, take a stab at the following items:

1. Explain in clearer terms how the bank below makes its money from offering mortgage loans.
2. Is this really different from the conventional interest rate approach in terms of real $ values or is the difference only in meeting the religious requirements?
3. Do you believe that this is how Islamic Banking will be practiced in Nigeria? If not, what do you expect to be different, especially in terms of mortgage loans?

http://ijaraloans.com/?p=20&gclid=CLGZz9a3lqoCFRNb7AodOXO5zg
Islamic Finance Method Topics : Ijara, Musharaka, Murabaha, What is Riba?

IJARA / IJARAH - Lease To Own[/b]The term Ijara literally means rent, the Sharia process is known as Ijara-wa-Iqtina, rent with an acquisition or rent to own. The process of Ijara can be used for equipment as well as property.  The process is very simple, a single asset Trust is created, the Trust purchases the property, and then leases the property to the customer.  With each monthly payment, a portion of that payment goes towards ownership, until the customer owns 100%.

The basic difference between a Sharia Ijarah-wa-iqtinah process and a conventional lease is that, the Ijara process obligates the Trust (seller) to sell the property to you under a Promise to Purchase, and while the same contract entitles the customer to purchase the property, the customer is not enforceably obligated to do so.

[b]HOW THE PURCHASE PRICE OF THE IJARA TRANSACTION DETERMINED
The purchase price that is agreed to in the Promise to Purchase is equal to the original purchase price less the down payment made by the customer plus $1.00.  For example, if the value of the property is $200,000 and the customer makes a $40,000 down payment, then the initial amount the customer has to pay the investor for 100% ownership is $160,001.  As the customers ownership increases, this amount reduces, until the final ownership payment of $1.00

HOW THE MONTHLY IJARA RENT PAYMENTS CALCULATED
The initial Ijara amount that is financed by the customer, earns profit for the investor through monthly rental payments.  Traditional amortization calculations are utilized to determine the exact monthly payment.  The mathematical formulas are acceptable as there are no Sharia issues with mathematical calculations.  The major difference between a traditional mortgage amortization and an Ijara transaction is that the Ijarah transaction is based upon a reverse amortization calculation.

THE BASIS OF USING A PERCENTAGE
While it may appear contrary to the Sharia, it is in fact acceptable to describe the profit on an Islamic transaction as a percentage.  The following example should clear up any confusion regarding the acceptability of quoting the profit as a percentage in an Ijara transaction:
i. Suppose you have a $100,000 in cash.
ii. You purchase a home and pay cash for the home.
iii. You rent the home to a tenant for $500 per month
iv. At the end of the year you have collected $500 x 12 or $6,000 in rent
v. That $6,000 in rent is a 6% return on your $100,000 investment

Is that 6% Rent or Riba?  well it is clearly it is Rent, as it is based upon a business transaction. Now let's look at a traditional mortgage interest transaction:
i. Starting with the same $100,000 cash.
ii. You give someone the money.
iii. They proceed to purchase the same home with those funds.
iv. They pay you the same $500 per month, or 6% a year for use of the money.
v. This is basically rent on money

In this case is the 6% Riba? yes, it is rent on money.  The first example was rent on property.  So it should be clear that from a Sharia perspective it is acceptable to describe the profit on an Islamic Ijara transaction as a percentage.  Furthermore, it is also a requirement under the Truth in Lending Act/Consumer Protection Act, that any profit earned on a residential real estate finance transaction should be described as a percentage so that a customer can clearly understand what the overall cost of the finance transaction is.

TENANT OR HOMEOWNER?
In an Ijara transaction, you are technically a tenant. You sign a lease that obligates you to a rent payment over a period of time.  However, unlike a typical rental property lease, you are responsible for all the maintenance of the property, and you have all the rights and duties of a Homeowner.  You can sell the property anytime you wish, you can remodel, decorate, landscape, sublet, or basically utilize the property for any legal purpose that it is zoned for.  The only exception may be if you engage in an activity that may adversely affect the value of the property, like demolishing a garage without rebuilding it.  For all practical purposes your role is the same as a homeowner, because once your have fulfilled your obligations under the lease or promise to purchase, you become the owner of the property.

SHARING OF A GAIN OR LOSS
One of the basic Sharia compliance principles is that there should be a sharing of either a gain or loss in a finance transaction.  The Ijara transaction is structured in such a way that 100% of the gain is rightfully the customers.  Under the Shariah, the gain or loss is shared by the parties in a transaction according to their percentages of ownership.  The Ijara transaction abides by this principle, in that at the time of realization of the gain or loss, there is only one owner of the property, and that is the customer.  From a procedural perspective, at the time of sale:
1. the Trust will transfer the title of the property to the customer,
2. the customer will then transfer the title to the new buyer,
3. the new buyer will then settle the transaction according to the agreement with the customer,
4. and then the customer will settle with the trust according to the agreement between the customer and the trust (the Ijara documents)
the procedural steps above creates a situation where the customer holds 100% title, albeit for a short period of time, but by doing so entitles the customer to be the beneficiary of the difference between the two agreements; that is the sale to the new buyer, and the original promise to purchase agreement with the trust.

Wow, its a long list of questions. I will try my best to answer and others are welcome who have expertise in the other areas to join in and eduicate.

I know some of you have many times in the past when buying grains or some commodities have requested the seller to add "jara". Lmao!

That "jara" is actually derived from "Ijara".

Also common among Yorubas and Hausas is the word "riba".

First, we cannot discuss this topic and educate on it without using the scriptures as backdrop. I'm not at home so not close by a scripture to give you the references here in the Quran, the Gospel and the Torah. I will share how you can obtain the info in some other ways.

The term non-interest banking is actually a wrong way to describe Ijara. Interest is not forbidden in Islam, what the Sharia forbids is "USURY".

What is Usury?  It is a prohibitive fee charged on a loan (interest) of money, property or service. Unlike conventional loans, usury rates are often unregulated. Pawnbrokers, loansharks, check cashing joints, payday loan, title pawn, etc, are all usury loaners. Debt is bad for the soul, it drains the spirit, divides family, encourages crime and destroys society.

Why is usury forbidden in Islam?

I wish most of you know the history of christianity enough to understand the background of usury and that the practice was forbidden by the Christian Church. Usury was a common practice with the Jews. Their scripture forbids charging interest on loans between children of Israel but authorizes it when Jews loan to non-Jews. Jews developed crude methods for recovering their investments. When Islam came along usury was forbidden by the Quran. Quran did not forbid interest, as it said trade and contracts should be conducted measure for measure and to reduce all contracts into writing with witnesses attesting to the agreements.
So Islamic banking will derive fees on the utility but not on the loan itself.

Example: if I loan you N500,000 to start a business and we agree that you pay the money back in yearly installments of N50,000 for a term of 10yrs. Then at end of 10yrs your total loan repayment will be N500,000. There is no interest on the loan. Now, at the initial stage when I gave you this money for business I may express desire in some remittance from the business itself, say for every N100 sale N5 is deposited into a benefit trust fund that I set up for philantrophy. This is interest or profit sharing on the business.    

Usury in developed countries have become so bad and destructive that they are seeking new regulations to limit many of these pawnbrokers. In fact some conventional banks have copied their style and became prohibitive in their practices as well.

If you use ATM to get your money, there is a fee for it. If you make 5 withdrawals in a month there is a fee. If you don't maintain a certain minimum amount there is a fee. It gets worse with credit cards. Average person in Europe or America is sitting on a huge debt of credit spending - borrowed spending. The banks make more revenue from fees than they do on interest on convential loans. So industriaized nations picked back on non-usury banking practices by going to Islamic banking for the answer. But its not strange to them because out of the three religions it was only in Judaism that usury was allowed, Christianity and Islam forbade it.

Another example is pawn in America. If you need money and can't get a loan from bank but you have a house you can use as collateral then you can get financing for home equity loan. When your loan matures and you don't have any way to pay it there are other second chance financiers that will buy the loan and add more weight to the problem by extending the maturity date but for a higher interest now. Then when you default on payment and you have title to a car then you can pawn the title on that car, get quick cash to make payment so you don't loose the house. When its time to pay on the title loan and you don't have the money they have another company that buys you out of a title pawn debt.

So what started as a $10,000 loan with house equity might become $50,000 in just 5yrs when the equity loan is added to the second equity, added to the title pawn and then pawn buy out. . . . .add all the service fees at each intermediary point to the accumulated interest.  At the end of the day the debtor will either go into crime to meet obligaions, or loose the house and the car and might not be cleared of the debt even after the losses. Some end up addicted to hard substances and or just comitting suicide.

Usury is a very bad practice in the society, worse than most any other crime imaginable. Islamic banking is a relief and its self-regulated by Shariah and on.a consuistent basis so that an Islamic bank in Dubai operates with same principles and measures as Islamic banking in Kuala Lumpurn same for Isamic banking in Nigeria, same for Islamic banking in London. This is because the Sharia is uniform in all pllaces for all peoples at all times.

 

The vices and corruption of conventional banks in developed countries has crept into our own system in Nigeria. The Northerners are aware of this problem and since its their desire to have a Shariah demarated region, then they also get a wholesale benefit of its banking and financing. This will prepare the way forward for a self-sufficient North.

Generally everyone else in the country benefit from it by default, moslem or not. Sincerely, CAN ought to review the Church history and come to understanding that this practice is not opposed by  Christianity.

Like I said 'can't give the specific verses right now but look in the index of your Quran for the word "usury" and read the referenced surahs. In the Bible I believe Deutoronomy. If not there then here are two navigators for where they should be in Old Testament after the captivity of the Children of Israel into Babylon. I'm not sure its in New Testament but if its I would suggest the teachings of Paul or Rebecca.

If anyone can get the specific chapters and verses pleae share.


On the origin of the Jewish usury itsself it is believed it started in Egypt when Joseph was made the custodian over agricultural crops and harvests and he was charged with the exchanges and trades.

@Negro_Ntns
Thank you for the response. The main points from your reply as I understand it, which also seems to match what the bank quoted in my post does, are that:

1. Islamic Banking actually allows agreed profit rates on loans (akin to traditional interests). It has to, as many people have suggested, otherwise there is really no investment - it would simply amount to giving away one's money. The emphasis is really on keeping the interest "reasonable".

2. For the Islamic Bank mortgage loan, and this is what I think the quoted bank does, the profit (ijara) is first incorporated into the payments to arrive at a total amount, which is then used to calculate a monthly rental payment - this appears to be what they mean by this paragraph: "The initial Ijara amount that is financed by the customer, earns profit for the investor through monthly rental payments.  Traditional amortization calculations are utilized to determine the exact monthly payment.  The mathematical formulas are acceptable as there are no Sharia issues with mathematical calculations.  The major difference between a traditional mortgage amortization and an Ijara transaction is that the Ijarah transaction is based upon a reverse amortization calculation." Obviously, other rules for what happens if the customer decides to sell the house have to be included to specify how the bank will enjoy part of the gain or loss - this part is not very clear to me.

3. Thus, if the conventional bank's interest rate and the Islamic Bank profit rate on a loan are the same then the rental/monthly payments in both cases should be the same(?)

4. There appears to be two contributions of an Islamic Bank mortgage: 1) It helps to ensure that the profit rate, depending on who is setting it, is reasonable i.e. it does not become usury. In reality, it seems that this depends on the bank being conscientious since the profit rate may vary from person to person - unless there are clearly written profit rates that the customer can use a guide. It also means that the profit rate doesn't have to follow official interest rate levels; 2) It helps to ensure that mortgage transactions are accompanied by actual transfer of property ownership i.e. people cannot keep selling the title ad infinitum like was done in the U.S. over the last decade.

This at least clears up a portential confusion that someone, being Sharia-Compliant, can walk into an Islamic Bank and get a loan without paying something in return for making use of the money. The main difference to a conventional loan is that the loan is attached to a specific activity at an agreed upon profit rate - it would seem that the minimum profit trate would be dictated by the "source" of the investor's funds. This is a potential problem - since there appears to be no counterpart rules governing the Islamic Bank's sources of funds or is there?.

I wonder how many potential Nigerian customers understand this, especially with the "non-interest' nomenclature.

Can a Christian be serviced with discrimination.

Sweet_gala,

Here is an advise, applies to everyone as well:

If you are going to use the service of an Islamic bank, then obtain information and get awareness on what it allows and forbids. I really want to say read the Sharia but that may be asking you to do too much. For those who that may interest, pay attention to the section on "contracts".

There is nothing in Sharia that forbids Christian or Jew, except what they have forbidden for themselves. So if a Christian says I'm not going to trade with Islamic banking because it is Islam, then this individual has forbiden his/her own opportunity, not that he/she was denied by the bank.

<quote>

1. Islamic Banking actually allows agreed profit rates on loans (akin to traditional interests). It has to, as many people have suggested, otherwise there is really no investment - it would simply amount to giving away one's money. The emphasis is really on keeping the interest "reasonable".

</quote>

Yes, this is true. I know you said "Islamic banking alllows. . . ", I understand what you mean and would state that "Sharia law allows. . . .".  If you leave the bank to make rules very soon human greed will creep in and you will end up in usury.

Sharia allows interexchange and profit and to nake profit the trader has to sell above cost. Similarly, the bank is a trader providing a service and must make profit. The profit is realized through profit sharing (interest on utility, but not on loan). There are many injunctions in the Quran that cover this and they are worded in various ways to convey the weight of the contract : "give measure for measure and do not place a burden greater than Allah has allowed"; "admonish the faithfuls to stay within their means when entering into contract"; "reduce your contracts into writing and obtain witnesses to attest to the agreements"; "Allah will not call you to account for what is error in your agreements but he will punish severely those who knowingly deny to His creations what He himself has not forbidden for them".  

<quote>

2. For the Islamic Bank mortgage loan, and this is what I think the quoted bank does, the profit (ijara) is first incorporated into the payments to arrive at a total amount, which is then used to calculate a monthly rental payment - this appears to be what they mean by this paragraph: "The initial Ijara amount that is financed by the customer, earns profit for the investor through monthly rental payments.  Traditional amortization calculations are utilized to determine the exact monthly payment.  The mathematical formulas are acceptable as there are no Sharia issues with mathematical calculations.  The major difference between a traditional mortgage amortization and an Ijara transaction is that the Ijarah transaction is based upon a reverse amortization calculation." Obviously, other rules for what happens if the customer decides to sell the house have to be included to specify how the bank will enjoy part of the gain or loss - this part is not very clear to me.

<quote>

Sharia is concerned and indeed contains vast mathematical calculations in both arithmetical and exponential expressions and on all aspects of interaction where equitable share is needed to establish fairness.

In matters of human interaction Allah says to his creations "I am close to you and I know the affairs of your heart". Meaning, I know your emotions and its bias nature. Then he said: "give measure for measure". In other words, He expects us to be bias when interacting with one another so its not likely we will treat one another equally but He wants us to be fair to one another. So "measure for measure" looks to some like if Islamic bank loan me N50,000 then I just pay back N50,000 and what I do with the money and how much I turn over on it is my prerogative. Wrong impression! First, the loan has to be for the purpose of a Sharia friendly usage and profit sharing [(a predetermined and agreed loan + nominal fee) and or (a predetrmined and agreed business partnership)] is attached to the investment.

In the second bracket, business partnership is not mandatory and the loan applicant has the right to agree or disagree. The first bracket with the precalculated armortization is mandatory on the investment.  

The major difference between conventional bank and islamic bank are the following:

1. Service Fees and commissions

2. Regulations and jurisdiction

3. Community centered

4. Capitalist/open market swings.

I'm sure there are more than just these 4 but you get the idea.


<quote>

3. Thus, if the conventional bank's interest rate and the Islamic Bank profit rate on a loan are the same then the rental/monthly payments in both cases should be the same(?)

</quote>

Ought to be but no they are not.

When you sign a conventional loan part of what you agree to is that the investor has the right to revoke the contract; right to increase the interest rate and applicable service fees, right to modify the contract; right to demand additional payments or securities in form collaterals. You hardly have any rights except what the investor gives you in a conventional loan and those are of no effect. Under civil law you have certain rights against an investor but they have lobbied lawmakers and reduced those laws to toothless tigers, you can file a suit but doesn't mean you win.

Also in a free for all open market where rates swing every three months, a conventional loan may be reviewed and modified unilaterally by the investor (he/she already told you he has that right) and cause the cost of servicing the loan to jump which then increases the burden of debt.

Also a major difference is conventional loan can be used for any legitimate business. What is legitimate business in a secular society is very often "haram" or forbidden in Sharia. A conventional loan can be used to open gay bar; casino; liquor store; brothel. Sharia forbids all these activities.

Its too many of these differences to list here but these three should be good.    



<quote>

4. There appears to be two contributions of an Islamic Bank mortgage: 1) It helps to ensure that the profit rate, depending on who is setting it, is reasonable i.e. it does not become usury. In reality, it seems that this depends on the bank being conscientious since the profit rate may vary from person to person - unless there are clearly written profit rates that the customer can use a guide. It also means that the profit rate doesn't have to follow official interest rate levels; 2) It helps to ensure that mortgage transactions are accompanied by actual transfer of property ownership i.e. people cannot keep selling the title ad infinitum like was done in the U.S. over the last decade.

This at least clears up a portential confusion that someone, being Sharia-Compliant, can walk into an Islamic Bank and get a loan without paying something in return for making use of the money. The main difference to a conventional loan is that the loan is attached to a specific activity at an agreed upon profit rate - it would seem that the minimum profit trate would be dictated by the "source" of the investor's funds. This is a potential problem - since there appears to be no counterpart rules governing the Islamic Bank's sources of funds or is there?.

</quote>

Yes to everything you said except in the beginning where you said the bank can arbitrarily charge rates based on local market; and at the bottom where you ask for a parallel regulating body.

In the first the answer is that Sharia law and the official government rates dictates the bank's actions.

In the second, Sharia law is the regulating body. Since the law is uniform regardless of country, location, people, circumstance, the bank is transparent and uniform wherever you find one. they all operate under same guidelines irregardless if its located in India, Nigeria, Brazil, South Africa, England, USA, or wherever else on the planet.


<quote>

I wonder how many potential Nigerian customers understand this, especially with the "non-interest' nomenclature.

</quote>

People should read and understand more on it. I'm glad we have a forum here where we can discuss it openly and share.
The only exchange in Islam that does not need a contract between strangers is charity. Everything eslse demands contract and fair treatment.

@Negro_ntns
Thanks for the interesting and informative reply.

I have only one clarification regarding my comment on the source of  Islamic Bank funds. The reason I wonder about and thought about this is that there appears to be no set of rules addressing who can invest in an Islamic Bank.

The main source of the funds in conventional banks are customer deposits on which they pay interest, keep some in reserve and lend the rest. Since customers cannot expect to deposit money in Islamic Banks and receive interest they really have no incentive to do so (?).

I guess the real questions is whether depositors in an Islamic Bank receive zero, fixed (which would be like interest) or a profit rate determined by the banks daily/monthly/yearly profit.

One other question, someone remarked in earlier discussions that the advent of Islamic Bank in Nigeria will allow the "collection and distribution of zakat". Is that part of the fees charged on Islamic Banking loans or how did he come to that conclusion?

Negro_Ntns:

I know some of you have many times in the past when buying grains or some commodities have requested the seller to add "jara". Lmao!

That "jara" is actually derived from "Ijara".

Also common among Yorubas and Hausas is the word "riba".

First, we cannot discuss this topic and educate on it without using the scriptures as backdrop. I'm not at home so not close by a scripture to give you the references here in the Quran, the Gospel and the Torah. I will share how you can obtain the info in some other ways.

The term non-interest banking is actually a wrong way to describe Ijara. Interest is not forbidden in Islam, what the Sharia forbids is "USURY".

What is Usury?  It is a prohibitive fee charged on a loan (interest) of money, property or service. Unlike conventional loans, usury rates are often unregulated. Pawnbrokers, loansharks, check cashing joints, payday loan, title pawn, etc, are all usury loaners. Debt is bad for the soul, it drains the spirit, divides family, encourages crime and destroys society.

Why is usury forbidden in Islam?

I wish most of you know the history of christianity enough to understand the background of usury and that the practice was forbidden by the Christian Church. Usury was a common practice with the Jews. Their scripture forbids charging interest on loans between children of Israel but authorizes it when Jews loan to non-Jews. Jews developed crude methods for recovering their investments. When Islam came along usury was forbidden by the Quran. Quran did not forbid interest, as it said trade and contracts should be conducted measure for measure and to reduce all contracts into writing with witnesses attesting to the agreements.
So Islamic banking will derive fees on the utility but not on the loan itself.

Example: if I loan you N500,000 to start a business and we agree that you pay the money back in yearly installments of N50,000 for a term of 10yrs. Then at end of 10yrs your total loan repayment will be N500,000. There is no interest on the loan. Now, at the initial stage when I gave you this money for business I may express desire in some remittance from the business itself, say for every N100 sale N5 is deposited into a benefit trust fund that I set up for philantrophy. This is interest or profit sharing on the business.    

Usury in developed countries have become so bad and destructive that they are seeking new regulations to limit many of these pawnbrokers. In fact some conventional banks have copied their style and became prohibitive in their practices as well.

If you use ATM to get your money, there is a fee for it. If you make 5 withdrawals in a month there is a fee. If you don't maintain a certain minimum amount there is a fee. It gets worse with credit cards. Average person in Europe or America is sitting on a huge debt of credit spending - borrowed spending. The banks make more revenue from fees than they do on interest on convential loans. So industriaized nations picked back on non-usury banking practices by going to Islamic banking for the answer. But its not strange to them because out of the three religions it was only in Judaism that usury was allowed, Christianity and Islam forbade it.

Another example is pawn in America. If you need money and can't get a loan from bank but you have a house you can use as collateral then you can get financing for home equity loan. When your loan matures and you don't have any way to pay it there are other second chance financiers that will buy the loan and add more weight to the problem by extending the maturity date but for a higher interest now. Then when you default on payment and you have title to a car then you can pawn the title on that car, get quick cash to make payment so you don't loose the house. When its time to pay on the title loan and you don't have the money they have another company that buys you out of a title pawn debt.

So what started as a $10,000 loan with house equity might become $50,000 in just 5yrs when the equity loan is added to the second equity, added to the title pawn and then pawn buy out. . . . .add all the service fees at each intermediary point to the accumulated interest.  At the end of the day the debtor will either go into crime to meet obligaions, or loose the house and the car and might not be cleared of the debt even after the losses. Some end up addicted to hard substances and or just comitting suicide.

Usury is a very bad practice in the society, worse than most any other crime imaginable. Islamic banking is a relief and its self-regulated by Shariah and on.a consuistent basis so that an Islamic bank in Dubai operates with same principles and measures as Islamic banking in Kuala Lumpurn same for Isamic banking in Nigeria, same for Islamic banking in London. This is because the Sharia is uniform in all pllaces for all peoples at all times.

The vices and corruption of conventional banks in developed countries has crept into our own system in Nigeria. The Northerners are aware of this problem and since its their desire to have a Shariah demarated region, then they also get a wholesale benefit of its banking and financing. This will prepare the way forward for a self-sufficient North.

Generally everyone else in the country benefit from it by default, moslem or not. Sincerely, CAN ought to review the Church history and come to understanding that this practice is not opposed by  Christianity.

The bolded is not true on a few accounts.
1. Islamic Banks such as the Grameen Bank in Malaysia and Bangladesh charge interest but they claim it is less than interest from conventional banks.

2. Conventional banks in the UK and other Western countries have caught on to the idea of receiving deposits without paying interest to the account holder. As far as these banks are concerned, they receive free money which they can still loan out and collect interest. You will struggle to find a bank in the Western world that gives interest free loans to Islamic depositors even if the said depositors have non-interest bearing accounts.

koruji:

@Negro_ntns
Thanks for the interesting and informative reply.

I have only one clarification regarding my comment on the source of  Islamic Bank funds. The reason I wonder about and thought about this is that there appears to be no set of rules addressing who can invest in an Islamic Bank.

The main source of the funds in conventional banks are customer deposits on which they pay interest, keep some in reserve and lend the rest. Since customers cannot expect to deposit money in Islamic Banks and receive interest they really have no incentive to do so (?).

I guess the real questions is whether depositors in an Islamic Bank receive zero, fixed (which would be like interest) or a profit rate determined by the banks daily/monthly/yearly profit.

One other question, someone remarked in earlier discussions that the advent of Islamic Bank in Nigeria will allow the "collection and distribution of zakat". Is that part of the fees charged on Islamic Banking loans or how did he come to that conclusion?

In principle, I am not against Islamic Banking for two reasons
1. It allows Muslims to practice their faith
2. It offers an alternative to greedy conventional banks

That being said, you hit the nail on the head with your comment about depositor funds. Banks are reliant on depositor funds so as to make money. The biggest Islamic Banks in the World are State-owned with seven of them in Iran alone. The fact that is the State that provides the bulk of funds in Islamic banks and the near collapse of the system in Pakistan suggests that not too many Muslims are placing their savings with the islamic banks. Apart from not receiving interest on your funds, you run the risk of losing it if the bank has several non-performing loans. Bear in mind that the Islamic bank can not charge for default and in the case of default, it must share the proceeds from the sale of assets with the defaulter.

There are two types of accounts - savings and investment. With the savings, you receive no interest on your deposit. With the investment account, your funds are used for investment by the bank and you are able to share the losses and profits with the banks. So there is a chance that you can receive less than your initial deposit.

With regards to your comment about Zakat, I don't understand how the Islamic Banks will collect Zakat. Zakat is voluntary even in Muslim countries where the State administers it. If a depositor places funds in an Islamic Bank and Zakat is deducted from it, he/she will simply move their funds back to a conventional bank.

Koruji,

You are comparing and expecting parity between conventional and Islamic bank. Please don't do that. From outside looking in, each has its advantage and disadantage.

On the issue of interest earning savings, what are the contracts? If I deposit N10M can I expect to get interest? It depends if I have a contract with the bank to that effect.

Let me give a perspective which I'm sure you are familiar with: deriative investments, particularly hedge funds were not regulated. Their terms were based on individdual contracts with the investment company, totally unrestrained by conventional methods in regular banking.

Again, the Sharia need for an Islamic banking is strictly to protect against the damages of usury.

On Zakat, in my example on first response if you recall I said certain remittances are set aside for philantrophy. I did not want to preempt and give too much outside of the immediate points you asked questions on, but yes zakat is expected.

If you have questions on zakat look for a post here tited "almajiri" I wrote in there about zakat and its relevance.


Katz,
Please see below for my response to your dispute in (1). The quote is in my response from earlier this morning. For (2) I hope my response to Koruji above also answers your query.


<quote>


In the first the answer is that Sharia law and the official government rates dictates the bank's actions.

</quote>

Here you go on zakat question. https://www.nairaland.com/nigeria/topic-712052.0.html

Negro_Ntns:

Koruji,

You are comparing and expecting parity between conventional and Islamic bank. Please don't do that. From outside looking in, each has its advantage and disadantage.

On the issue of interest earning savings, what are the contracts?  If I deposit N10M can I expect to get interest? It depends if I have a contract with the bank to that effect.

Let me give a perspective which I'm sure you are familiar with: deriative investments, particularly hedge funds were not regulated. Their terms were based on individdual contracts with the investment company, totally unrestrained by conventional methods in regular banking.

Again, the Sharia need for an Islamic banking is strictly to protect against the damages of usury.

On Zakat, in my example on first response if you recall I said certain remittances are set aside for philantrophy. I did not want to preempt and give too much outside of the immediate points you asked questions on, but yes zakat is expected.

If you have questions on zakat look for a post here tited "almajiri" I wrote in there about zakat and its relevance.


Katz,
Please see below for my response to your dispute in (1). The quote is in my response from earlier this morning. For (2) I hope my response to Koruji above also answers your query.


<quote>


In the first the answer is that Sharia law and the official government rates dictates the bank's actions.

</quote>

I am sorry but your answer isn't satisfactory. You stated that Islamic Banking is the same everywhere. I disagree with that statement on the two points I raised. There are Islamic Banks that charge Riba and banks in the west that receive deposits without paying interest but charge interest on loans.

But are their operations outside of Sharia injuncrtions? If you see I repeatedly stressed that point and referenced Sharia because I knew we will get to this point eventually on the forum. lol!

Negro_Ntns:

But are their operations outside of Sharia injuncrtions? If you see I repeatedly stressed that point and referenced Sharia because I knew we will get to this point eventually on the forum. lol!

You are about to go into an angle that won't support your argument or the proponents of Islamic Banking. So which Islamic Banks are completely Sharia compliant?

I think, katz, the appropriate question should be "who is the Sharia police" that monitors compliance?

In an Islamic state, its the Ummah - the council of scholars that interprete Sharia law.

In a non Islamic state they would be properly identified as non-interest banking, as opposed to Islamic banking.

For this reason, even when Koruji said "Islamic bank regulates, " , I responded and said "Sharia regulates".

Thanks for these responses Negro_Ntns & Katsumoto.

There is certainly much more to know,but the better I understand Islamic Banking from these notes the less cut-and-dry it appears.

On the one hand, government as the major source of deposits in the banks, as in Iran and Pakistan, will generate a crisis in the Nigerian financial/political/religious system for obvious reasons - religious sensitivities and corruption. On the other hand, it will never work in Nigeria to take depositor's funds without some kind of returns - only those who are really indifferent between returns/no returns would participate. That means either people with very small funds or those with large illicit funds. Unless for philanthropy no rich businessman would deposit his/her funds in a non-interest account or put it in a loss/profit sharing account unless he gets to exercise some control over the affairs of the bank - the latter turns the bank into a joint venture business.

The CBN Gov. has certainly gone about this the wrong way. Implementation of Islamic Banking is not as simple as he is portraying it. In particular, there is a need to regulate out two of the cases identified above - government and the money launderer as the sources of funds (perhaps these are already taken care of by current laws, but we know that government officials currently misuse public funds through the banking system).

In any case, it seems impossible to have a strictly Sharia-Compliant banking system. The non-interest nomenclature certainly doesn't fit, and in rational economic system the "profit rate" is likely to be a shadow of the conventional interest rate.

Negro_Ntns:

I think, katz, the appropriate question should be "who is the Sharia police" that monitors compliance?
In an Islamic state, its the Ummah - the council of scholars that interprete Sharia law.
In a non Islamic state they would be properly identified as non-interest banking, as opposed to Islamic banking.
For this reason, even when Koruji said "Islamic bank regulates, " , I responded and said "Sharia regulates".

Katsumoto:

You are about to go into an angle that won't support your argument or the proponents of Islamic Banking. So which Islamic Banks are completely Sharia compliant?

Negro_Ntns:

I think, katz, the appropriate question should be "who is the Sharia police" that monitors compliance?

In an Islamic state, its the Ummah - the council of scholars that interprete Sharia law.

In a non Islamic state they would be properly identified as non-interest banking, as opposed to Islamic banking.

For this reason, even when Koruji said "Islamic bank regulates, " , I responded and said "Sharia regulates".

I see that you are trying to dodge my question. lol

If the implementation of Islamic Banking deviates from the intention of Prophet Mohammed, then what is the point of implementing Islamic Banking? For instance, can an Islamic Bank charging Riba be said to be Islamic? Or can you call it Islamic Banking when small businessmen in Iran and Pakistan are no longer able to obtain small loans? Regardless of how the Ummah interpretes Sharia law, it is evident that the implementation and operation is different what is intended.

Again, my question - what country practices Shariah compliant Islamic Banking?

See the article below where it states that only the wealthy Muslims have access to loans.

http://www.rferl.org/content/article/1075606.html

Lmao!

Allah has not placed a burden on any soul greater than it has strength to bear.

Allah has not made us perfect, neither does He expects it. If you ask any true Moslem if he has complete understanding of the Quran and he/she answers yes, they are lying. If you read the Quran a million times, each read reveals to you new understanding and better grasp than the last read. Its truly a revelation and there are people that dedicate an entire lifetime to studying it to unlock the mysteries.

The Ummah or council of scholars are peiple that have the best understanding and interpretation of the law. They too continue in their study and more understanding to help the Khadis or justices.

I say all this to reflect your conclusion that no bank can be totally Sharia compliant. Its an accurate statement. Equality is not guaranteed but fairness is expected.

On Sanusi, it is wrong to say he does not understand how Islamic banking works. Sanusi and grandfathers before him were born into a Sharia system. Back then, in fact upto about 1970, all official records of the core Northern states were recorded in Arabic. Upto 1980, within the city walls of Kano city home addresses were numbered in Arabic numerals. He is the grandson of an Emir in whose courts the Grand Khadi (Chief Justice) conducted sessions stricly on Sharia law. It is wrong to say Sanusi has no core understanding of Sharia or Islamic banking. On the other hand, his understanding and competency in communication is short on expectation.

He can recover and do the right thing by releasing scheduling and facilitating educational series via tv to soften fears and communicate the vision and how it benefits everyone regardless of background.

On the issue of deosits, there is a particular angle that has not been considered in defense of the need to protect the community and that is money laundering. I am sure you and katz recognize that underground money, far more than payroll income, is what keeps conventional banks buoyant. Black market is not accounted for in production, tax or Gdp, so there is a monumentally high proportion of the input to a bank's reserve that are inaccurately audited for their true worth and hence reduces the true tax liability on a bank. Who hurts from all these?

The community! Greedy individuals get rich which widens the status gap, which increases the possibility of abuse and unfairness. The very rights that Sharia is trying to protect.

The very rights that Sharia is trying to protect "against".

Negro Ntn

I understand all that in principle but I am a realist. So I focus on the implementation. The evidence today from the implementation of Islamic Banking (Iran and Pakistan) is that loans are no longer available to small businessmen since the implementation of Islamic Banking. This view is further buttressed by the article that I gave the link to which stated that it is the wealthy that are benefitting from Islamic Banking. The most successful implementation of Islamic Banking is that practiced by Grameen bank which loans to poor people. But the key principle here is that the Grameen bank charges Riba which makes it a non-Islamic Bank if we follow the words of the Prophet Mohammed.

So what should happen and what happens are two different things. So how has Islamic Banking helped poor people in Pakistan and iran?

Katz, you are a case!

Do I look like an Islanmic bank CEO? I am not expert on Islamic banking and not even on Sharia though I have a very good understanding of it, and until you nominate to Sanusi to head an Islamic bank I don't have hands on experience to relate and answer your question.

In my opening, I invited others who have knowledge and exposure to join and share and educate.

Stop looking for riba where there is none katz! Negro has no hands on to answer questions procedural operations.

If they deviate from the Prophet's guideline, the Ummah is there to correct and if that doesn't happen then it attests to man's imperfection.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

lol

Ok Negro ntn

At least you get my point now. I will suggest that you try to focus on the implementation of Islamic Banking.

You can read the book 'Interest-Free Commercial Banking by A.L.M. Abdul Gafoor.

Yes I do. Do not let it slip by, take opportunity of the resource when its launched.

Oh, I thank you for that reference. Good advice I made some contacts already trying to get back in school and get some credentials on Sharia so I can flow with the current.

This Islamic banking idea is an epic problem waiting to manifest itself.
I am still adamant that the defendant of a northern elite is trying to establish the a religion complaint system otherwise practiced by a fraction on the whole nation which is multi ethnic and religious and thus he has failed in his capacity as a leader in a central government which should be separating religion and state.

Sanusi should focus on establishing NON-INTEREST BANKING , where a respectable interest is charged, a fair agreement that benefits all parties is implemented in all situations , has no allegiance or lineage to any religion with an established regulatory council rich in accounting knowledge and morally justified, with no religious alliance.
It might even become a model for other countries .
CAN ANY OF THE DEFENDERS OF ISLAMIC BANKING TELL ME WHAT IS WRONG WITH THE ALTERNATIVE I PRESENTED