A pounds as paid capital, and after 40 years

A Brief History of Islamic Banking and Finance The first modern Islamic banking institutions were founded by Dr. Ahmad al-Najjar 1963 in Mit Ghamr (Egypt), a small rural institution acting as a farmers’ saving bank. In 1971, Dr. Abdul Aziz Hegazy, the Egyptian prime minster at that time, initiated the incorporation of a new financial institution called Nasser Social Bank (based on Islamic Banking fundamental) to help small entrepreneurs and individuals set up businesses to assist them in generating jobs and creating a social micro-economy. The Nasser Social Bank had the responsibility of collecting zakat “the Islamic wealth-tax” and other zakat from individuals. The bank was founded in 1971 with 18 million Egyptian pounds as paid capital, and after 40 years in 2011 the bank’s business exceeded 1.

4 billion Egyptian pounds.Major expansion came in the 1970s due to growing economies in the Muslim world as well as the rising desire for implementation of Islamic values in all spheres, including the economic and financial aspects. The Gulf Estates “The Oil producing countries GCC” promoted the Islamic Banking business movement. Following the dissolve of the Soviet Union in 26 December 1991, and withdraw of the Communist Economic System, leaving only the Capitalist financial system to dominate the World financial system. The global financial system is in need of anther alternative financial system that is ethical and supports the entrepreneurs who are the real economy creator and to compete with capitalist financial system.

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  The Islamic Financial system has now spread beyond the Muslim world into the West, and is particularly strong in Malaysia and Indonesia. Islamic financial instruments are increasingly accepted internationally, including non-Islamic countries. In Pakistan, Sudan, Malaysia and Indonesia the Islamic Financial system was reorganized in the 1980s to bring it into conformity with Islamic law.Islamic banking neither lends nor borrows; it is based on partnership arrangements between the bank and the entrepreneur, inspired by Islamic law. Its products include Mudarabah (profit sharing), Murabahah (advance purchase with later sale at marked-up price), Ijarah (leasing or long-term credit), and Musharakah (equity sharing).

Grameen Bank Founded in 1983 by Dr. Mohammed Yunus as a corporate bank in Bangladesh, Grameen is a microfinance organization and community development bank that makes small loans without requiring collateral. The system of this bank is based on the idea that the poor have skills that are under-utilized.

A group-based credit approach is applied which utilizes the peer-pressure within the group to ensure the borrowers follow credit discipline. The bank also accepts deposits, provides other services and runs several development-oriented businesses including fabric, telephone and energy companies. Another distinctive feature of the bank’s credit Programme is that a significant majority of its borrowers are women. In October 1983, the Grameen Bank Project was transformed into an independent bank by government legislation. The organization and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize in 2006.

The Spread of Islamic BankingThe major expansion in Islamic banking came after the successes of the Nasser Social Bank model as an Islamic bank and the motivation of economists as well as wealthy individuals. They intended to develop the Islamic banking system globally to convey back the will of Allah of Riba-free economy (interest-free economy). Following the success of the first Islamic Bank in Egypt (Nasser Social Bank) Dr. Abdul Aziz Hegazy and others instigated the establishment of the Islamic Banking system, their target is to get the countries with high Islamic populations to built on the success of the first Islamic Bank in Egypt to commence Islamic Banking system in their countries. Dr. Abdul Aziz Hegazy throughout his reputation and expertise, he managed to promote the Islamic Banking system to several heads of Islamic Countries in particular King Faisal of Saudi Arabia.

The first Islamic Bank multinational Islamic Bank was Islamic Development Bank IDB in 1973(The bank was founded in 1973 by the Finance Ministers at the first Organisation of the Islamic Conference, now called the Organisation of Islamic Cooperation, with the support of the king of Saudi Arabia at the time (King Faisal), and began its activities on 20 October 1975. There are 56 shareholding member states). Following the success of IDB Bank several banks started such as Dubai Islamic Bank in 1975, Faysal Islamic Bank in Egypt in 1977, the Kuwait Finance House in the same year, the Jordan Islamic Bank in 1978, and the Bahrain Islamic Bank in 1979. The impetus came in part from the oil-revenue boom in the Arabian Gulf and the growing economic muscle of the more conservative Muslim Gulf states at the expense of the more secular Arab nationalist movement.

There was a growing dissatisfaction with Arab socialism, especially amongst the young, and a feeling that there should be a greater emphasis on Islamic values in all spheres, including the economic and financial.