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History & Development

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Islamic Banking and Finance: History Development

Slide #1 Some Issues

History Of IBF

Development of IBF -Overview-

2. Islamic Banking and Finance: History and Development
History and Development of IBF in Bahrain

Full Fledged IB vs. IB windows

• Word ‘bank’ comes from the word ‘banco’
- A table or a bench on which Italian money-changers used to display their monies and records and conduct their transactions

History of Islamic Banking and Finance
• Arabic financial and economic system preIslam – Trading based arrangements were common • Bay’ al-musawamah (bargaining) • Bay’ al-muzayadah (auctioning) • Bay’ al-amanah (trust sale) – Al-murabahah (resale with profit) – Al-tawliyyah (resale at cost) – Al-wadiah (resale at loss or below cost)

History of IBAF- (2)
– Barter trade was common – Al-sarf (money exchange) • Lack of standardization – for e.g., 10 grams of gold in coin form = 15 grams of gold in bracelet form – Institutionalization of riba – Widespread gharar and maysir – Monopoly, fraud and economic injustice was common

History of IBAF- (3)
• With the advent of Islam, – Eradication of riba institutions and practices – Eradication of gharar transactions – Institutionalization of fair and equitable markets • No monopoly, fraud • Standardization of money and commodity exchanges – Hadith on the six commodities – Islamization of many business organizations and institutions • Mudarabah, musyarakah, salam, muzara’ah (sharecropping or partnership in agriculture), musaqah (irrigation) – New organizations and institutions were introduced • Zakah, waqf and manihah • Baitul-mal

The first attempt to establish IB was in the 1950’s – in the rural area of Pakistan -Pious landowners deposits their funds without interest rewards -Credit was advanced to other poorer landowners for agricultural improvements -Although there was no shortage of

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