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     Question Forum :  History of Islamic Banking  Date Posted:  09 - February  -  2003

 

 

 

I would like to know about the history of Islamic banking.

Islamic banking is new only with respect to the emergence of Western- style banking institutions claiming to adhere to Islamic rules on the prohibition of interest. There have, of course, always been various Islamic trusts and mutual societies concerned with helping people through cash flow problems or with financing larger projects. First experiments of "Islamic Banks" started in Egypt at the end of the 60's, and over the next two decades a diverse number of Islamic Banks, Islamic Investment Banks, and Islamic Development Banks emerged, and eventually received government backing in some Muslim countries, e.g. Pakistan, Malaysia, and the Gulf States. They have largely focused on trying to become major players in international banking and developing instruments akin to those used by other banks whilst finding technical legal explanations to accommodate those developments with the stipulations of Islamic Law. Thus they can often be seen as an attempt to make banking practices more acceptable to Muslims and to provide competition for non-Muslim banks. They have largely shied away from fundamentally challenging the usurious nature of present day banking, namely the fractional reserve banking method by which a bank puts fiat money into circulation. Nor have they redefined the task of banking as a service for the common good and to redress inequalities and fight poverty as the earlier mutual trust funds would have intended; instead they have been overtly concerned with investment opportunities and market share.

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