Journal of Banking and Finance six (1983) 339-354. North-Holland
G O 3rd there’s r T Farreneheit O L I O MANAGEMENT OF ISLAMIC FINANCIAL INSTITUTIONS
B. A. BASHIR*
College or university of Lancaster, Lancaster LA1 4 YX, UK
Received January 1982, final edition received Feb 1983
The Islamic bank and financing system is latest in origins. Its special features preclude the application of contemporary finance hypotheses. The system can be briefly explained in this paper as part of a preliminary attempt to build a simple unit for the portfolio supervision of an Islamic bank. The model is created on the assumption of conviction for one period. A numerical example based upon actual data of Faisal Islamic Lender of Sudan is given to illustrate the model and reveal it is relevance.
1 ) Introduction
Currently in Arabic and Muslim countries, a new banking program based on Islamic economic concepts is swiftly developing. A lot more than 28 financial institutions exist in the time writing and more are designed. 1 The importance of this new system comes not only through the growth (which is shown in the growth of the number of accounts and the progressively large sums of money becoming handled) but also arises from the serious thought given to the device by the governments of the 'Islamic' oriented countries. The number of accounts of the Faisal Islamic Lender of Sudan, for instance, features exhibited an annual increase of approximately 200% inside the number of the accounts among 19781981, plus the funds managed are raising by over 100% g. a. Moreover, the Sudan government has ordered the specialized banks to change (from the Western banking system) to the Islamic banking system; other business banks are seriously considering this modify. Similarly, the government of Pakistan is taking into consideration changing it is whole overall economy to the interest-less Islamic system. 2 Countries such as Egypt, Saudi Arabia, Bahrain, the Arabic Emirates and others are highly supportive of the system and give many incentives to make certain its success. The developments include encouraged *The author wants to gratefully acknowledge the assistance and valuable comments that Dr . C. W. R. Ward and Professor K. V. Peasnell (Dcptartment of Accounting and Finance, College or university of Lancaster, UK) plus the anonymous referee(s) have offered. He as well wishes to express his appreciation and sincere gratitude towards the management of Faisal Islamic Bank of Sudan for their help and support.
2Report of the Council of Islamic Ideology (1980).
N. A. Bashir, Portfolio supervision of Islamic banks
a number of studies and publications on the Islamic bank system. Nevertheless , few writers have considered the status in the system in the existing regarding modern financing, nor the use of modern financial theories to Islamic banking companies. Such studies are of vital importance especially because these banks happen to be operating together with the established Western financial system.
The special highlights of Islamic economic principles preclude the application of the managerial methods and types advanced in the conventional monetary framework. It's the purpose of this paper to derive a basic model pertaining to the optimal supervision of Islamic banks; that may be to produce the right analogue of your conventional thready optimization style.
The principles actual the system and some of the ideological underpinnings are initial explained. The organization operations of Islamic banking institutions are also shown. Then the unit is created and a numerical case is used to illustrate the usage of the model. The sample data used are provided from the Faisal Islamic Lender of Sudan (FIBS) to get the period 19791980.
2 . Guidelines underlying the Islamic bank system
It is explicitly stated in the Koran (the Islamic Holy Book) that control is authorized but that usury is forbidden. three or more Charging interest (which is a special type of usury) is thus banned from all kinds of transaction. This can be a most fundamental principle that differentiates the Western from the Islamic bank...
References: Bashir, B. A., 1982, Banking without fascination: The Islamic system, Bankers Magazine, March.
Report from the Council of Islamic Idealogy on the reduction of interest through the economy, 1980,
Siddiqui, M. And., 1971, Financial without curiosity (Islamic Guides, Lahore).
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