To begin with the subject "the Components of Islamic Banking", we may quote an accepted definition of Islamic bank. "An Islamic bank is a financial institution whose statutes rules and procedures expressly state its commitment to the principles of Islamic Sharia and to the banning of the receipt and payment of interest on any of its operations." The emergence of Islamic banking system could meaningfully replace conventional banking and pave the way towards Islamisation of our entire economic system to remove all sports of social and economic inequalities and establish social and economic justice for all.

In that it is quite obvious that the components of the Islamic banking must be set incommensurate with the objectives towards Islamisation of economic system as permissible under Islamic Shariah. Since it is difficult to change the system overnight nor is it desirable, a modest beginning should be made, it is in that context
that an Islamic bank, primarily a commercial one promote our aforesaid cause and its components might include the following:-

1. Deposits

(A) In the present interest based banking system deposits play the foremost part. This will continue to play the same role in Islamic banking also. But as against present practice of receiving deposits at zero to different rates of interest depending on nature of account and terms of deposit as to time, etc., the Islamic bank will accept deposits from various sources on Mudarabah Accounts.

Under Mudarabah Accounts person or persons opening such accounts With the bank will share profit at predetermined ratio and also loss will be borne by him or them and their liability will be limited and they will not be able to take part in management of the bank.

The accounts may be accepted on various forms mainly based on time and frequency of withdrawal; present savings, current and term deposits may be entertained under Mudarabah accounts with modification and adjustment. In matters of sharing profit of the bank the accounts shall be weighted under agreed principle laid down by central bank for such weightage details of which may be worked out.

Success of the Islamic bank will, however, depend on public confidence. The following factors will work in favour of the new bank in securing public confidence:-

— the new bank will be managed by people of high integrity and reputation;

— it will enjoy the status of a scheduled bank;

— it will have no problem of liquidity;

— no record of bank's failure in the country in the past;

— success of Islamic bank in other Muslim countries;

— participation and support of depositors reluctant to receive interest from present banking system.

(B) Capital: It may be derived from public issue of shares of limited liabilities and Government equity, if any, depending on the organisational structure and ownership pattern of the proposed bank.

Islamic bonds or debentures may also be sold out for mobilising resources for the bank on definite profit and loss sharing basis.

(C) Reserve: It is a part of net profit set-aside for accumulation as reserve and it is necessary for the bank to increase its image and prestige.

(D) Borrowing: Islamic bank may also mobilise resource by resorting to borrowing from central bank or from any banking Institution.

2. Deployment of Resources

Success of any organisation not to speak of banking organisation depends on how effectively it can use its resources. Even in Islamic banking, resource management will be major work involving rationalisation of liquid cash requirement, statutory deposits, investment and loans portfolios. To ensure a fair rate of return for all it is imperative to maintain a steady rate of profitability in banks normal business operations which can ensure minimum social justice through equitable distribution of profits avoiding frustration and unethical concentration of profit.

Loan portfolios of Islamic banking can be broadly classified as under:-

(A) Profit and Loss Sharing Basis: Bank can provide loans to individual or group of individuals or any corporate body on profit and loss sharing basis. Bank can accept share of profit without questioning if the profit is normal one. In case it appears doubtful, bank can appoint Accountant and Auditor to prove into the affairs of the business. Bank can also take part in the management of the business of the loanee. Though loans on profit and loss sharing basis can be widely used to cover the credit requirement of large majority of business and industrial community, its efficiency first be tested in some selected field as in Pakistan. As a matter of expedience loans on this basis are being granted for construction of residential houses, where House Building Finance Corporation are taking their share of profit derived in the shape of rent.

(B) Leasing Banking: Leasing is resorted to long-term financing. According to lease agreement specific asset selected by the leasee is hired by the leasor (bank) from the supplier, the leasor retains the ownership title but the leasees can use the assets for the period of contract against payment of rentals. Rentals are sufficient to amortise the capital outlay of the leasing bank and provide profit for the bank.

Islamic Development Bank is currently financing member countries in acquisition of capital goods or fixed assets on leasing terms and In one of its latest deal of this nature, it has financed Bangladesh in procuring a ship for its merchant fleet.

In this way Islamic bank can identify precise project or group of projects which are economically viable, for financing under this principle.

(C) Investment Auctioning Banking: In case of long term financing of project requiring huge capital investment, bank may form consortium, finalise and formulate investment projects of various shapes and sizes and ask for tender from the prospective entrepreneurs who are capable of implementing the project (run the same with profit). A price for the project will be fixed including profit of the bank and the project will be awarded to the highest bidder provided the bid price is higher or at least equal to the fixed price.

The total outlay of the project will be repayable within a specified period of time.

Islamic bank may form a cadre of industrial advisers and promoters with adequate executive and organisational capabilities for this purpose. Bank may itself set up high yielding projects and after running it for some time dispose of the same at current rate plus a lumpsum amount of profit for the bank. The price may be paid at a time or on instalment basis. In case of payment on instalment basis bank may become a joint owner on profit and loss sharing basis, profit and loss being calculated on the outstanding amount of instalments.

(D) Murabaha Banking: It can be defined as a sale on deffered payment basis:—

This loaning can be resorted to where other methods of financing are not useful. For providing Agricultural loans to farmers this method of financing can be employed. Fertilizers, seeds, implements, powerpumps etc, may, be supplied under this loaning scheme. In that case a normal profit can be added to the price of materials supplied in kind.

(E) Hire Purchase Banking: Under this system bank may finance purchase of assets on joint ownerships with the loanee with provision for security and surety. Bank receives instalments for payment of capital and share net rental value of the asset in proportion to their outstanding investment.

(F) Interest-free Loaning Banking: Projects of social interest and community development undertaken by Government may be financed free of interest by the commercial banks provided subsidy is given by the government to the banks to cover up their loss. The subsidy may be at a rate fixed by the central bank considering opportunity cost of the fund or at the rate of average profitability of the bank during the financial year. Food procurement programme of the government or any other project for development of economic infrastructure in the country can be covered by this scheme.

(G) Deposit and Investment in Central Bank: Like conventional bank, the Islamic bank also can keep a portion of its deposit with central bank on statutory requirement. It also may invest in central bank towards purchase of securities issued by the latter.

(H) Qarde Hasanah i.e. Consumption Loan: Though in conventional banking there is little scope for consumption loan, but there will be provision for consumption loan in Islamic banking. This type of loan will be given to certain group of people who are otherwise handicapped for any professional activity. As a matter of fact Islamic central bank may frame guidelines for identification of such group of people to be eligible for consumption loan.

According to Islamic Sharia 25% of wealth possessed by any body in any financial year is to be distributed among the destitutes. In Islamic bank such Zakat fund may be built up and consumption loan may be disbursed from such fund.

3. Export and Import Business: Islamic bank may also finance foreign trade and facilitate exchange of foreign currencies towards meeting international obligations. In such cases the bank can finance the importers or exporters on definite profit and loss sharing basis. Bank's operation may cover either single commitment or a number of commitments over a period of time.

4. Agency Service: Islamic bank may entertain agency business and realise service charge at specific rate stipulated by the central bank.

5. Inland and Foreign Remittance: Remittance business may be carried on by the Islamic bank against realisation of service charge at different rates.

6. Miscellaneous Service: Proposed Islamic bank may undertake any type of banking activity not specified above and can realise some charge as covered under Sharia.

In short every economic activity not prohibited by the Holy Qur'an and the Prophet (SM) may be financed by Islamic bank.

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BIBLIOGRAPHY

I. Abdul Jabbar Khan: Islamic Commercial Bank.