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Islamic Banking and Finance - an Introduction

By Shakeel Ahmad, Dubai, UAE

Part-2: History of Evolution

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Part-2: History of Evolution

Agibi Bank is reported to be the first attempt at interest-free banking system (Baron-1952). Although it could not meet with much success, it definitely showed ways and means for others to tread on the path of success. Usury has been prohibited at different times in the history of mankind. Even today, it is banned in many countries, e.g., in USA and South Africa, to the extent that limits are fixed for maximum charges of interest. Islamic banking goes much further than its interest-free character, as we shall see in the next section.

Islamic world has been averse to charging or paying of interest since the 7th Century, but could not come up with a viable financial system. Table-1 provides an idea of how the IBF system has evolved after its resurgence in the modern world, and lists a brief chronology of milestone historical events. Figure-2 gives us an idea of how far and wide the system has traveled and the geographical boundaries the system has scaled during the last four decades , after reappearing in the Arab world, this time as an organized institution.

Table-1: Evolution of Islamic Banking and Finance in Modern times

Year	Landmark Event	Brief Description	Country/ Region
1940s	Savings and loan societies	A number of interest free saving and loan societies are reported to have been established	Indian subcontinent
1963	Political Independence	Starting with attaining of independence by Indonesia in 1945, by 1963, all Muslim majority states had gained independence from Colonial rule.	Muslim States
1963	Muslim Pilgrims Savings Corporation	Later (in 1969), named as Lembaga Tabung Haji (LTH) or Pilgrims Fund Board, a savings mechanism under which devout Malaysian Muslim set aside regular funds to cover the costs of performing the annual pilgrimage. These funds were in turn invested in productive sectors, aimed at yielding riba-free return.	Malaysia
1963	Mit Ghamr	An under-cover savings bank based on profit-sharing in the town of Mit Ghamr , led by Ahmad El Najjar	Egypt
1963	The Phillipine Amanah Bank	To enable Muslims to meet some of their financial needs without involving interest.	Philippines
1963	Interest-free bank	Another experiment at starting an Islamic banking system, established in Karachi by some individuals, did not survive for long.	Pakistan
1971	Nasir Social Bank	Declared an interest-free commercial bank, although its charter made no reference to Islam or Shariah	Egypt
1973	Islamic Organization Conference	First conference of Finance Ministers of Islamic States that discussed establishment of Islamic Banking systems.	Jeddah , Saudi Arabia
1974	Islamic Development Bank	Formed by Organization of Islamic Conference (OIC), an inter-governmental bank aimed at providing funds for development projects in member countries.	OIC, Saudi Arabia
1975	Dubai Islamic Bank	First Commercial Bank in the world	UAE
1977	Faisal Islamic Bank	First officially established bank in Sudan , by the Faisal Islamic Bank Act.	Sudan
1977	Islamic Bank of Faisal	First officially established bank in Egypt .	Egypt
1978	Islamic Bank of Faisal	Established along with Bank of Islamic Finance and Investment	Jordan
1978	Islamic Finance House	First known attempt at Islamic banking in the West.	Luxembourg
1979-1985	Islamization of banking system	Pakistan ‘Islamized’ banking, through a series of Ordinances issued by the Federal government and a number of circulars issued by the State Bank of Pakistan	Pakistan
1983	Bank Islam Malaysia Berhad	BIMB - First officially sponsored Islamic bank, in Malaysia .	Malaysia
1983	Islamic Banking	Banks officially launched in Sudan - Sudanese Islamic Bank, Islamic Bank of Western Sudan, Al-Baraka Bank, and Islamic Cooperative Development Bank	Sudan
1983	Islamic Banking Laws	Iran passed its usury free banking laws, first such laws at the National level	Iran
1985	Islamic Bank	First Islamic Bank in Turkey established under a legislation on interest-free banking passed in December 1983	Turkey
1989	Full conversion to Islamic banking	Full conversion of the banking system in the whole of the country, to Islamic System.	Sudan
1991	AAOIFI	Accounting Standardization body, Accounting & Auditing Organization for Islamic Financial Institution, formed as per Agreement of Association signed by Islamic financial institutions on 26th February, 1990 in Algiers . As of July 2004, it has 104 member institutions located in 26 countries.	Bahrain
1994	Bank Muamalat	First Islamic bank in Indonesia , established under state patronage	Indonesia

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Islamic Banking and Finance - an Introduction

Part-2: History of Evolution

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