Islamic Banking Operations and Trade Finance

Banks traditionally offered current and saving accounts because of the benefits such products availed for depositors; a check book, typically associated with a current account for instance, is a must for all types of businesses. Further, current and savings accounts are classified as “low cost deposits”, i.e. they either bear no interest rates or comparatively low interest rates. This means that banks gain higher profit margins upon lending said funds. In consumer finance the interest rates could be as high as 11%. It is for this reason that banks strategically pursue sources of low cost deposits.

The most attractive source of low cost deposits is Islamic Banking. Deposits under this domain are totally free of interest. This explains the reason for which global banks are investing large amounts to attract Islamic Accounts. The HSBC have a whole Islamic Banking Division and so is the SAMBA (CitiBank in Saudia). They are even offering a whole range of retail, corporate and trade finance products under their Islamic Banking brands like “Amanah” for the mere purpose of attracting interest free (low cost) deposits that can be lent later on at prevailing interest rates to make higher profit margins. Of course, according to the Shari’a principles, a dedicated Muslim must not deal with those banks that directly or indirectly charge interest (riba) from or pay interest to their customers. In principle, a Muslim that does not accept riba but banks with a financial institution that deals with riba, is in the same position as that Muslim who directly accepts interest. Hence, a devout Muslim must not deal with any bank that offers conventional banking products. To demean this rule, global banks have gone as far as employing the so called Shariá Boards that constitute of groups of 6 or more Muslim sheiks (O’lama: Islamic banking experts) who placed hundreds of fatwa’s (religious interpretations) to make dealings with them legitimate according to Islamic values. Although they were not so convincing, yet they managed to built their Islamic banking business. Their success is solely attributed to the failure of genuine Islamic Banks to offer the Muslims services at standards adequate to secure their rights and protect their interest, especially with regard to trade finance and investment transactions.

Hence, if a genuine Islamic bank was able to operate at standards parallel to those adopted by international banks, it becomes imperative on all devout Muslims to deal with such a bank rather than dealing with conventional banks.

J. Sifri, Graincon.