Is Islamic Banking Really Islamic?
S.M Nurul Momin Asked:
I want a FDR to Islami Bank Bangladesh Ltd.
But i have some question to Islami Bank Authority
01. Is it maintained 100% as Islami rules & regulations ?
02. As i know every commercial Bank control under central Bank rules and Bangladesh central Bank based on interest and that Prohibited in Islam. So could you pls clear to me that, what system do follow Islami Bank BD Ltd with Bangladesh central to avoid interest system ?
Honestly i want to make a FDR with any Islami Bank in Bangladesh but my doubt will it legal? If it is illegal so how i will answer to Allah after my death as a Muslim.
Hope you will answer my question.
Dear Nurul Momin, Assalamu’alaikum,
I appreciate your concern about the legitimacy of Islamic Banking. I will provide some facts which will help you decide, in sha Allah. First of all, I am not sure what you mean by FDR. If you mean a Fixed Deposit Receipt, then it is of itself haraam. A fixed deposit is a conventional banking product, in which, funds are held by a bank for a specified period and a fixed rate of interest is paid every year, until the funds are liquidated. I couldn’t find any details about FDRs on the IBBL website.
Islamic Banking is about profit sharing and partnership. All Islamic Banking products are necessarily based on the Sharee’ah or are Sharee’ah compliant. The former means that there are evidences from the Quran and the Sunnah for the legitimacy of those products. The latter are products derived from other rulings or products that do not oppose the Sharee’ah in any way. While discussing the products in Islamic Finance, jurisprudence is taken into consideration as well.
However, there may be instances where banks claim to offer Islamic Banking products, while that may not be true. So, you should be cautious while making your investment. You could enquire with an Islamic Bank in Bangladesh and provide us the details. We will in sha Allah help you identify whether the product they are offering is truly Islamic.
You could also read the posts under Islamic Banking Products to know more about them.
The answer to your second question is that the central banks do regulate the operation of Islamic Banks, but their transactions are totally different from each other. The extent of regulation differs from country to country. Central banks’ objective is to regulate money supply and the operation of banks. They also control interest rates that banks can charge, which is not applicable to Islamic banks. Generally, central banks deal with Islamic banks based on the Musharakah and Mudarabah capital.
In most countries, banks are required to deposit a percentage of deposits collected from customers with the central banks. This is called Cash Reserve Ratio or Statutory Liquidity Ratio in case of securities. In Bangladesh, the government has introduced the ‘Bangladesh Government Islamic Investment Bond’ which is used by the central bank to cater to Islamic Banks. Excess liquidity of a bank is invested in these bonds. In case of crises, the banks can avail investment from the Islamic Bond Fund. In case no surplus funds are available with the Islamic Bond Fund for a particular Islamic bank during crisis, it can avail investment from the central bank of Bangladesh (Bangladesh Bank) under the Mudarabah scheme.
In addition, Islamic banks in Bangladesh are also allowed to maintain accounts (Sharee’ah based investment schemes) with each other to maintain liquidity.
Most Islamic banks operate under the guidance of a compliance committee to ensure that all of the banks’ operations are in line with the Sharee’ah. Just to quote an example, you can learn about the Sharee’ah Supervisory Committee of Islami Bank Bangladesh Limited here.