08 July, 2011


Islamic banking in its present shape is a recent development. It is a part of Islamic Economics, which is now a subject of serious study and research in many national and international institutions of the world. In the decade of 1950s it was a matter of research and was limited in the papers of different scholars. The 1960s was the decade for practical experiment and 1970s was the decade for establishment. The decade of 1980s is expected to be the decade of consolidation.

During 1950s it was found that the Muslims of Malaysia save primarily for performing Hajj and such savings were mostly kept idle in pillow, under mattresses and floors for avoiding interest, which was damaging for the economy. To tape these savings the Malaysian Govt. in 1962 established an interest free financial institution known as “Pilgrims Savings Corporation”. Though it was not a full pledged bank, even then we can say that it marked the beginning of an institution free of interest, which is unconditionally prohibited in Islam.

“Mitghamr Bank” is the pioneer of modern Islamic Banking. Dr. Ahmed-El-Naggar by his personal endeavor established the Mitghamr Bank at Mitghamr in Egypt in 1963, which was the first banking institution in the real sense, to conform the Islamic Shariah. The Mitghamr bank conducted its banking operations successfully in accordance with Islamic Shariah for about five years. The Islamic bankers of the world now treat the short life of Mitgfamr Bank as the first model of Islamic Banking. A survey report by the National Institute for Management Development shows that the Mitghamr bank was tremendously successful in achieving its objectives. And the tremendous success of the bank was the cause of its closure by the vested interest in 1967.

In 1969 Malaysian Govt. by an enactment in the parliament established “Tabung Hajj” mainly for the purpose of utilizing the savings of the Muslims in investments in accordance with Islamic Shariah, which was advancement towards Islamic banking at official level.

In 1972 Naser Social Bank was found by Egyptian Govt. to save the public opinion in substitute of Mitghamr bank and made a success in operation with the principles of Islamic Shariah.

During early seventies the inflationary situation all over the world made the scholars thoughtful and many of them opined in favour of establishment of Islamic bank for effective control of inflation and the attention of the Muslim Govts. and scholars in particular concentrated over the concept.

In 1974 the IDB charter was adopted by OIC with a view to establish an institution of international character to operate in accordance with Islamic Shariah.

Islamic Development Bank came into being in 1975 having all the component states of OIC as its member abd charged with the responsibility of providing technical assistance to the member countries, extending training facilities for personnel engaged in development in member countries and to undertake research for enabling the economic, financial and banking activities in the Muslim countries to conform to the Shariah.

1975 also witnessed the establishment of a commercial bank in the real sense namely the “Dubai Islami”. Dubai Islami Bank made a remarkable success within a short span of time which inspired the Muslim countries in general and the business community in particular to take steps for establishment of Islami Banks in different countries and during the following three years 6(six) Islami banks and financial institutions namely (i) Kuwait Finance House, (ii) Faisal Islami Bank, Sudan (iii) Jordan Islami Bank for finance and investment, (iv) Faisal Islami Bank of Egypt, (vi) Islamic Investment Co. Ltd., Sarjah, were established.

In 1978 Islamic Foreign Ministers conference in their Dakar (Senegal) meet recommend to the members of OIC to make systematic efforts to establish Islami Banks gradually and during the next three years of their recommendation 20 Islami Banks and financial institutions came into existence. The Dakar meet also adopted an agreed definition of Islamic Bank.

Eighteen (18) more Islami Banks including one in Bangladesh were established during the period from 1982 to 1985 and now in January, 1986 about 50 Islami Banks are working having more than 10,000 branches all over the world. More Islamic banks are coming shortly in different countries. Proposals for establishment of one Islamic Investment Company and one Islamic bank in Bangladesh are under active consideration of Bangladesh bank. The proposed companies are Islamic International Finance Ltd. & Al-baraka Bank.

Not only in Muslim countries, Islamic banks are also functioning in predominantly non Muslim countries like Bahamas, Luxembourg, Switzerland, United Kingdom, Denmark and Philipines. But the status of Islami banking is not equal in all the countries.

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