Friday, 4 September 2009



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Presented by: Farhan Mohamed Eggeh part 1st

Islam is not only a religion in the ordinary sense of the word, but a complete system of life. While other religious codes provide guidance only for the relation between man and his Creator, Islam guides man in his relationship with God, and gives him the norms which govern his temporal existence, since Islam is concerned with the spiritual, political, social economic, moral and all other material aspects of the human being.

Recent years there is an increasing concern about an opening Islamic institution in the horn of Africa. Therefore we need first to understand what is Islamic bank and what it differs from the conventional bank.
Every social system has its own economic system. Islam being a comprehensive and distinct social system possesses a corresponding economic system of its of its own. Islamic economics is fast developing into a different and distinct paradigm of economics. Therefore, a number of Islamic financial institutions have emerged in various Muslim as well as some non-Muslim countries reaching finally at long last to our country Somaliland. Hence the development of Islamic or interest free banks in the region.

Prohibition of Riba in the Quran and Sunnah

What is interest rate or “Riba”?
It is the addition of premium paid to the lender in return for the waiting period as a condition for the loan. Riba has the same meaning and import as interest in accordance with the consensus of all fuqaha (jurists) and is haram. The following are the steps on Riba prohibition:

First stage of prohibition of Riba
Allah Says in the qur’an: "That which you give as interest to increase the peoples wealth increases not with God; but that which you give in charity, seeking the pleasure of God, multiplies manifold". (Quran, 30:39)

Second stage of prohibition
Allah Says in the qur’an: "For the wrong doing of Jews, we made unlawful for them certain good foods which had been lawful for them - and for their hindering many from God's way. And their taking of Riba"(usury) though they were forbidden from taking it. (Quran, 4:160-161)

Third stage of prohibition
Allah Says in the qur’an: "O you who believe: Eat not Riba (usury) doubled and multiplied, and fear God that you may be successful. (Quran, 3:130)

Fourth and final stage of prohibition
Allah Says in the qur’an: "O you who believe! Be conscious of Allah and give up what remains (due to you) from Riba (usury) (from now onward), if you are (really) believers. And if you do not do it, then take a notice of war from Allah and his Messenger, but if you repent you shall have your capital sums. Deal not unjustly (by asking more than your capital sums) and you shall not be dealt unjustly (by receiving less than your capital sums).

Prohibition of Riba in the Sunnah
Reported by Jabir bin Abdullah that the Prophet (Pbuh) said: "Cursed is the receiver and the payer of interest, the one who records it and the two witnesses to the transaction". And he said: "They are all alike". (Muslim)
We pray and believe that the bank will strictly stick to Islamic principles and Shari'ah and uplift the living standards of all those who endeavour to do so in a decent manner – Amin……………Amin…………………Amin


Islamic banks operate various types of transactions the most important of which are:
1. Collection of Deposit and
2. Financing contracts
1. Collection of Deposit

Since interest bearing deposits entail Riba, Islamic banks offer two different kinds of deposits.
1 Current account
2 Investment account

Current account: The deposited capital is guaranteed and made available to the client on demand. No reward is paid on the deposit but is mainly used for transactions and safety keeping.

Investment account: Deposits remain with the bank for a certain previously agreed period. Customers open investment account to yield financial return based on trust financing. The depositor is the financing partner, while the managing partner is the bank.

To be continued in part 2 …………………………………………………………

Wa billahi tawfiiq Ramadan karim

Presented by: Farhan Mohamed Eggeh
Financial analyst and expert
Bachelor in BBA

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