Islamic banking refers to a system of banking or banking activity that is consistent with the principles of the Shari’ah or Islamic rulings. Its practical application is through the development of Islamic economics. In this system, the principles which emphasise moral and ethical values in all dealings have wide universal appeal. This is because Shari’ah prohibits the payment or acceptance of interest charges or ‘riba’ for the lending and accepting of money, as well as carrying out trade and other activities that provide goods or services considered contrary to its principles.
While these principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to provide an alternative basis to Muslims although Islamic banking is not restricted to Muslims. Also, disenchantment with the value neutral capitalist and socialist financial systems are what is leading not only Muslims but also others to look for ethical values in their financial dealings and in the West some financial organisations have opted for ethical operations.
We have a problem with the capitalists banking system. Although it operates in a free market environment where banks freely compete for profit and relevance, its characteristic element is gambling and this has led to an uneven distribution of wealth. They are only a few rich individuals against the many poor. The system is interest-based and does not favour growth and equal distribution of wealth. Simply, the system places the poor at a disadvantage.
It has to be mentioned that Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shari’ah, or Islamic rules on transactions. Islamic banking activities must be practised consistently with this and its practical application through the development of Islamic economics. Many of the principles upon which Islamic banking is based are commonly accepted all over the world. These principles are not new but arguably, their original state has been altered over the centuries.
The principal source of the Shari’ah is the Qur’an followed by the recorded sayings and actions of Prophet Muhammad – the Hadith. Where solutions to problems cannot be found in these two sources, rulings are made based on the consensus of scholars, independent reasoning of an Islamic scholar and custom, so long as such rulings do not deviate from the fundamental teachings in the Qur’an.
It follows that Islamic finance was practised predominantly in the Muslim world throughout the Middle Ages, fostering trade and business activities. In Spain and the Mediterranean and Baltic States, Islamic merchants became indispensable middlemen for trading activities. It is even claimed that many concepts, techniques, and instruments of Islamic finance were later adopted by European financiers and business people.
Much of what has been written about the financial actors throughout the world points to the fact that they are disenchanted with the capitalist financial model. The orchestration of global economic governance based on the uneven distribution of wealth through interest is ripe. Many are now searching for alternative conceptions in determining the rules of global economic governance and recognition of their own, often distinct, interests.
This is the impetus behind the emergence of new international Islamic financial institutions in many Muslim countries. As the capitalist global economy continues to sail in dangerous waters, new financial systems will likely become more common, pointing towards a new era that suggests a bumpy ride ahead for international monetary and financial cooperation, and the relative erosion of capitalism and its influence.
To be clear, there is now a need for The Gambia to take a path of a new financial system. Given that our financial resources as a nation are receiving a boost, we have to shift focus on a system that will allow for the equal distribution of wealth.
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