Bahrain to have largest Islamic bank in the world
Bahrain, Economics, 3/6/2006

Gulf investors announced plans to collect 10 billion dollars in order to establish the largest Islamic bank in the world. The new Bank will carry the name the al-Masraf.

"Al-Masraf" bank was licensed as a commercial and investment bank working according to the rules of the Islamic Sharia law with Bahrain as a headquarters.

Chairman of the bank's foundation committee Khaled al-Sweidi told journalists in Manama that the bank will start work with a capital of 5 billion dollars with plans to increase this sum to $10 billion during the first five years.

Al-Sweidi explained that the "al-Masraf" was planning to collect 60% of the first five billion USA through a public stock offering this year and the remaining capital through a private sale.

Islam banking according to this following citation at (www.usc.edu/dept/MSA/economics/nbank2.html) creates ways of avoiding the payment of interest in loans, prohibited by Islam, and "Islamic banks around the world have devised many creative financial products based on the risk-sharing, profit-sharing principles of Islamic banking. For day to day banking activities, a number of financial instruments have been developed that satisfy the Islamic doctrine and provide acceptable financial returns for investors. Broadly speaking, the areas in which Islamic banks are most active are in trade and commodity finance property and leasing. Some of the basic financial techniques of Islamic banking are the following:

Murabaha: This is the sale of a commodity at a price which includes a stated profit known to both the vendor and the purchaser. This can be called a cost plus profit contract. The price is usually paid back by the buyer in deferred payments. Under Murabaha, the Islamic bank purchases, in its own name, goods that an importer or a buyer wants, and then sells them to him at an agreed mark-up. This technique is usually used for financing trade, but because the bank takes title to the goods, and is therefore engaged in buying and selling, its profit derives from a real service that entails a certain risk, and is thus seen as legitimate. Simply advancing the money to the client at a fixed interest rate would not be legitimate. It is important to note that only a legitimate profit in addition to the actual price is considered lawful under Islamic law. Any excessive addition on account of deferred payments will be disallowed as it would amount to a payment based on the value of money over time i.e. interest.

Mudaraba: This implies a contract between two parties whereby one party, the rabb al-mal (beneficial owner or the sleeping partner), entrusts money to the other party called the mudarib (managing trustee or the labour partner). The mudarib is to utilise it in an agreed manner and then returns to the rabb al-mal the principal and the pre-agreed share of the profit. He keeps for himself what remains of such profits. The following characteristics of mudaraba are of significance:
• The division of profits between the two parties must necessarily be on a proportional basis and cannot be a lump-sum or guaranteed return.
• The investor is not liable for losses beyond the capital he has contributed.
• The mudarib does not share in the losses except for the loss of his time and efforts.

Briefly, an Islamic bank lends money to a client - to finance a factory, for example - in return for which the bank will get a specified percentage of the factory's net profits every year for a designated period. This share of the profits provides for repayment of the principal and a profit for the bank to pass on to its depositors. Should the factory lose money, the bank, its depositors and the borrower all jointly absorb the losses, thereby putting into practice the pivotal Islamic principle that the providers and users of capital should share risks and rewards."

Al-Sweidi explained that the new bank will be the largest Islamic bank in the world and will fill the gap in the largest power exporting area in the world as governments of the region will invest large sums of the standard oil revenues in ports, highways and resorts.

He added that foreign banks finance giant projects in the Gulf region at the meantime, but this would change with the existence of a local bank of this size.

Previous Stories:
  Islamic banks open in Syria during 2006   (1/27/2006)
  Conference of Islamic Banks and Establishments in March   (1/18/2006)
  Bahrain Dow Jones indexes inaugurated   (7/6/2005)
  Qatar national bank opens branch for Islamic banking   (6/23/2005)
  On the capital of Bahraini banks   (1/6/2005)
  Bahrain to establish an International Islamic financial market   (11/15/2001)

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