Islamic Banking and Finance: Fundamentals and Contemporary Issues

Monzer Kahf

3.6 Adherence to the Shari[ah and Doing Good Deeds

In this final sub-section we discuss two issues that distinguish Islamic
banks from other banks: (1) The effect on customers of transparency in
adherence to the Shari[ah and (2) contribution to charity and
social/community welfare.

The reports of Religious Supervisory Board have always accompanied the
annual reports of the management. Those reports have ranged from stunning
brevity of less than two lines in the case of bank G to details that reached two
pages in the case of bank C. Both in summary and detail, the reports have
always carried expressions that do not tell the reader more than “the bank’s
operations are in compliance with the noble Shari[ah”, and nothing on issues
that interest the reader such as the relationship between the depositors and
the shareholders. The Shari[ah report on bank C for example says that the
management has promised to implement in future the recommendations
made to it by the Shari[ah board. There is no reference to what those
recommendations were or why they were made.

With regard to zakah, sadaqah and other voluntary donations, the Islamic
banks have their share in such giving. A number of Islamic banks leave the
distribution of zakah to shareholders while only a few take the responsibility
of distributing zakah on behalf of the shareholders. Hence, only four banks
reported zakah distribution. This does not mean that other banks do not have
donations and voluntary charity outside zakah on which shareholders are left
to take charge. Table 20 shows these contributions:

Table 20: Average Zakah and Sadaqah in

Some Islamic Banks 1998-2001

BANK Average

Zakah and

Sadaqah

Average

Equity

Zakah and

Sadaqah/

Equity (per

cent)

Average

Profits

Zakah and

Sadaqah/

Profits

B 0.08 26.90 0.29 2.10 3.81

C 2.45 1070.00 0.23 84.30 2.91

D 0.26 54.20 0.48 3.90 6.67

G 2.13 204.55 1.04 46.08 4.62

The ratio of zakah and sadaqah to equity hovered between less than one
tenth to two fifth of the 2½ known rate in the noble Shari[ah. Also, the ratio
of zakah and sadaqah to profits ranged between 2.9 per cent and 6.7 per cent,
whereas zakah rate on those profits should be subjected at a rate similar to