Towards the end of last year, I wrote a post lamenting how banks in Southern Africa milk their clients through unjustifiable chunks of high charges. This post is now one of the most popular posts of all time on this blog. It ranks as the fourth most commented post.Today, as I was browsing, I read about the opening of the World Islamic Economic Forum in the Indonesian capital, Jakarta.In his opening address, Indonesian President Susilo Bambang Yudhoyono has called on Islamic banks to take a leadership role in the global economy, amid the financial crisis. The BBC further points out that
Banks run in accordance with Muslims laws on interest payments and the sharing of credit risks are seen by many as fairer than traditional banks, less focused on profit and kinder to the communities they work in.
Islamic law prohibits the payment and collection of interest, which is seen as a form of gambling.
I don’t agree with the notion that the payment and collection of interest is a form of gambling. I also don’t think that these kind of banks can take a leadership role in the global economy. But I like the the fairness and kindness demonstrated by these banks to the communities in which they work. I just hope that banks in Southern Africa will one day voluntarily stop abusing their market power and become fairer and kinder to the communities in which they work.
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26 users commented in " Interesting observation:Islamic banks do not milk their clients. "
Follow-up comment rss or Leave a TrackbackI also disagree that collection of interest is not technically gambling. However, it is a step forward that they are fair to their clients, and then hopefully the banks of Southern Africa will see this and follow in their footsteps instead of abusing their clients.
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Gambling has the risk of loss, interest has no risk of loss only gain.
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Clement Nyirenda says:
March 7th, 2009 at 10:59 am
@Blogger Source: good observation
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To the best of my knowledge, calling them banks is a misnomer. Money gathered from depositors is invested in enterprises on a profit sharing basis, say like investing in shares for the dividend yield and the net income from such investments is shared among the depositors with a commission taken by the bank. At best, such an operation can be called an investment bank. Originally, usurious interest was collected and that was what was condemned but, the container has become more important than the content. What was originally the problem is exactly what you say about the bank operating in Southern Africa.
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Clement Nyirenda says:
March 7th, 2009 at 10:59 am
@Nicole: I like the profit sharing concept. One day when I have the bucks, I will do the same in my country.
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Banks are as always trying to protect themselves as much as possible, and we can’t do much over there. There are too many people depending from banks, and they are sort of bare bone of whole world financial system.
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This does make a lot of sense when you look at it from long range… but when it comes down to it, you really have to ensure that the right, uncorruptable people are running the show.
Still… would be interesting to see how this model works in North America – if it would!
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Clement Nyirenda says:
March 7th, 2009 at 10:55 am
@incorruptible people are hard to find these days….God help us.
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There are different type of banking and different type of interests. I was quite unfamiliar with Islamic Banking but I am really glad to see its transaction and their style of banking a few days back. I think they are much much better than conventional bankers.
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Islamic Law…generous in someways and not so much in others….hmmmm…
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Clement Nyirenda says:
March 7th, 2009 at 10:52 am
@grog: which is why I was so surprised!
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I came across an interesting news item which, I am sure will be of interest to you.
http://www.usatoday.com/money/industries/banking/2008-03-26-islamic-finance-sharia_N.htm
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Clement Nyirenda says:
March 26th, 2009 at 3:46 pm
@Nicole: It is a good article. As a staunch Christian, I am already thinking of how Christian banking would be like?
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There are several type of banking and assorted type of interests. I was quite strange with Islamic Banking but I am really pleased to see its dealings and their style of banking a few days backwards. I anticipate they are often more healthier than stereotypical bankers.
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I wonder whether we’d be in the financial mess we’re currently in if we followed the Islamic investment principles.
I saw a doco on TV a while ago about the different religeon’s investment principles… really interesting stuff, and the Islamic principles stood out for their ethics.
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To many people depending on banks. The banking system is so corrupt.
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Sharia bank or islamic bank in indonesian has been able to survive from the global crisis.
Greetings from Indonesian blogger
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Its only the belief in their system that charging of interest is gambling that drives Islamic banks to be fair and of least cost to their customers, thus being exactly opposite to South African banks.
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I don’t think that these types of banks will be able to survive. Interest is major part of bank’s earnings. If they will not charge interest on their financial products how will they cover their operating cost.
Shail
Agra India
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@Clement on March 7th, Are you thinking to start some sort of Bank?
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Clement Nyirenda says:
May 6th, 2009 at 8:58 am
@Allan: Not necessarily. But if I can acquire the resources and the technical capabilities, I can.
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I agree with you 100% Clement. I wouldn’t say I could really see banking interest as a form of gambling, it’s just a bit mean. I think by not taking advantage of their customers these banks will benefit and their communities will thrive. Hopefully they can be an example, even a small one, and help make some slow change.
And about christianity, I don’t know everything about it, but doesn’t the bible forbid “usury”?
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As the BBC said, the profit of islamic banking are low compare to conventional banking. And unless its supported by a special government encouragement, these bank growth rate will be really slow. But its survivability is higher than conventional.
The same concept also applied in : http://takaful-insurance.net/what-is-takaful/differ-to-conventional
And why worldwide islamic banking now flourished ? The fairness concept is ranked no.2 actually. The number one reason is : Middle East Oil Boom. Lots of wealthy client from muslim majority states.
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Clement Nyirenda says:
July 1st, 2009 at 12:53 pm
@Miqu: Now you are talking. The middle east oil boom is the major reason. This implies that if banks in the other regions of the world adopted the fairness of Islamic banks, it would be very difficult for them to survive.
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Miqu Deladieri says:
December 15th, 2009 at 6:11 pm
Long time not see Mr Clement.
I wonder what will happen to the islamic banking (and islamic finance as general), when the oil boom past away.
For now, Pakistan is no more the world leader of Islamic Banking as it battle with internal conflict, and the whole wealthy Arab countries are suffering a hard setback from global crisis.
But the islamic-banking trend is still growing on the net, atleast.
http://www.google.com/insights/search/#q=islamic%20banking&cmpt=q
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Clement Nyirenda says:
December 15th, 2009 at 6:21 pm
I guess its time for all countries that are heavily dependent on the hydrocarbons to start diversifying their economies. Otherwise, their future is dim.
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