The Muslim man is bound, in any place and at any time, to refer to the basic rules: Sharia or basic law, which is the set of fundamental rules as issued by the Koran or fixed by Hadiths – sayings of the Prophet – duly authenticated. In both, there are also a variety of topics such as taxation, public expenditure, interest, land trust, natural resources, wage rates or even finance.
The interest as well as annuity provided by the virgin lands and natural resources are considered, by Islam, as Riba under pretext that the interest and usury favor concentration of wealth and thereby reduce the consideration to be carried to its similar. The prosperity of the individual does not result from an “unjust enrichment” but it must be the result of a transaction, thus a personal activity and efforts. Islam recognizes the right to private property provided that the owner of these natural resources use them productively.
The characteristics of our Islamic financial institutions
Thus the bank, in Islamic society, must be limited to its essential role as an outlet for savings and investment creator. The Islamic bank will prefer to associate systematically with its customers in profitable transactions rather than lend them its funds. The emphasis on equity investment affects the very nature of banking techniques used and involves the essential existence of a service responsible for evaluation of projects.
The special feature of financing of Islamic financial institutions mainly lies in three aspects:
- it favors profit sharing;
- they use methods of financing very little known by conventional banks and very rarely experienced.
- partnership system requires both parties to cover all the risks while sharing profits and losses,
and this considering the objectives which are assigned to them and that we can summarize in three points:
- promote and encourage compliance with the principles, laws and Islamic traditions in the world of finance, banking and branches of similar activity by creation and management of investment Modarabas (see below).
- offer modern financial services to all Muslims of the sub-region allowing them to carry out financial transactions while respecting the requirements of Islamic Sharia and without infringing the Koranic prohibition of “Riba”.
- help the Islamic community of the sub-region in the collection and use of resources necessary for a real economic development while respecting Islamic principles.
Islamic bank offers two types of investment:
- either DIRECT, by which it handles capital investment in projects which bring in a dividend.
- or by PROFIT SHARING where it takes part in the capital of a production company as a partner in both investment and in management. In this specific case, the bank shares the risks with the client while participating according to an agreed percentage in the profits as in losses.