Model for Islamic banking
By Shams Ahsan
AT a time when Islamic financial products are gaining wide acceptance, an advocate of interest-free banking has come up with a new Islamic banking model."Economists have only made recommendations about interest-free banking, but no one has come up with a working model," claims Abdul Wadood Khan, who has been campaigning for Islamic banking based on the Time Multiple Counter Loan (TMCL) concept conceived by Professor Mahmud Ahmed, a renowned Pakistani economist.
Septuagenarian Abdul Wadood Khan resides in Riyadh after retirement as a mechanical engineer. Since 1973, he has been relentlessly championing the cause of a true Islamic banking modeled on TMCL system. But except for words of praise, he has not received any concrete assurance from those in authority that TMCL can actually be the model for true Islamic banking.
According to Khan, TMCL comprises two simultaneously exchanged interest-free loans between two parties in which the multiple of the amount and the period of one loan equal the multiple of the amount and period of the other loan. For example, a client can get a loan of $10 million for one year by giving a loan of $1 million to the bank for 10 years.
Here two parties exchange loans of different amounts but of the same loan value, so the transaction is equitable and interest-free as each party receives and pays back whatever it gives and takes in loan, says Khan.
He says the bank will earn profits from log-term investment of counter-loan amounts and deposits in Shariah-compliant modes like Mudarbah, Musharkah etc.
The TMCL concept is a fruit of about 50 years of research by Professor Mahmud Ahmed, who was praised in the Pakistan Supreme Court historic judgment in the Riba case as the "country’s most outstanding economist."
The Council of Islamic Ideology (CII) report of June 15, 1980, recommended the use of TMCL system by banks for giving personal and non-productive loans to account holders.
Renowned economist Dr. Umer Chapra suggested that the TMCL system could be adapted for small-scale financing within the framework of cooperative institutions.
What Abdul Wadood Khan wants is a debate on the TMCL concept so that it can be adapted for use in large scale financing.
He says that the TMCL concept was individually presented to more than 150 Islamic economists, bankers and research scholars. But only 14 of them responded.
No Islamic economist has so far presented a paper on this subject, says Khan, whose request to present the TMCL model at the International Conference on Islamic Economics and Banking in England in 2000 was rejected.
Khan is against the approach that large scale interest-free lending is neither desirable nor necessary and that it should be implemented gradually.
Whether the TMCL model is adopted or not the fact remains that the Islamic banking market is growing 15 percent annually.
A financial conference in Singapore last year estimated the size of the global market at between $200-$300 billion.
Islamic financial services range from basic bank deposits to investment accounts, equity funds, bonds and Islamic hedge funds.
From the Muslim Mideast to the Christian Europe, Islamic banking is gradually gaining currency. The Islamic Bank of Britain opened in London in 2003 to meet the needs of the country’s 1.8 million Muslims. Britain’s fifth-largest bank, Lloyds TSB, announced last February that it would become the country’s first high street bank to introduce a personal bank account compatible with Shariah law.
In September 2004, the state government of Saxony-Anhalt in Germany launched Europe’s first sub-sovereign bond under Islamic principles in the form of a 100-million-euro ($133 million) bond called "sukuk" in Arabic. g
From The Saudi Gazette July 20, 2006.