Emergence of Islamic Banks

The first Islamic bank in the urban setting was established in Cairo. Nasser Social Bank was established in 1971 and started its operations in 1972. The bank is a public authority with an autonomous status. Its purpose is mainly social, such as granting of interest-free loans for small projects on a profit- sharing basis, assistance to the poor and the needy, and loans to needy students for university and higher education. Because of the social functions, Nasser Social Bank was granted exemption from the banking and credit law of 1957 in its initial stages. The bank was originally under the ministry of treasury but it is now functioning under the ministry of social affairs and insurance. Its capital comes from the funds allocated by the president from extra-budgetary resources, appropriation from state budget and contributions from the ministry of awkaf.

Next to follow was Dubai Islamic Bank in 1975. This bank is a public limited company having its head office at Dubai with a capital of 50 million dirhams. The governments of Dubai and Kuwait have contributed 20 percent and 10 percent of the capital, respectively. Since then, a number of Islamic banks have been established in different parts of the world and are successfully functioning.

There are two major holding companies, viz. Dar al Mai al Island (DMI) group and Al-Barakah group controlling a number of Islamic banks. The DMI is a holding company registered under the laws of Bahamas. It was established in 1981 with an authorised capital of USS1 billion divided into 10 million shares of equal value. Today, the DMI is operating in 14 countries through 22 institutions which include Islamic investment companies, Islamic banks and Islamic insurance companies.

The Al-Barakah group was established in 1982. It has 12 affiliates and financial interests in some other sister institutions. There are certain Islamic banks in the Gulf such as Dubai Islamic Bank, Kuwait Finance House and Qatar Islamic Bank which do not belong to anyone of these holding companies. There are Islamic banks in some other Islamic countries such as Bank Islam Malaysia and Bangladesh Islamic Bank which have been established with the active support of the governments of these countries. Some Islamic banks are functioning in non-Muslim countries too, like Philippines Amanah Bank, Islamic Bank International, Denmark, and Islamic Finance House Universal Holding in Luxembourg. The Al Rajhi Banking and Investment Company is operating as an Islamic investment company in Saudi Arabia.

In addition to these and several other institutions, certain conventional institutions are also operating the so-called “Islamic windows” through which they offer to their clients certain services using various Islamic financing techniques. Among them, National Commercial Bank of Saudi Arabia, Bank Misr of Egypt and Bank of Credit and Commerce International (BCCI) need special mention.

Source: Elimination of Riba, Khurshid Ahmad, Khalid Rahman and Zahed A. Valie. Republished with permission.