The Art of Islamic Banking and Finance: Tools and Techniques for Community-Based Banking

(Tina Meador) #1

The phone call lasted more than 60 minutes. At the end of the call, he said,
‘‘Can I come to visit you?’’ He flew from Washington, DC to meet everyone
at LARIBA in Pasadena, California. Over lunch, he told us that he was
looking for ‘‘blood’’ and illegal activities and that he was extremely
impressed with what he experienced. He published a wonderful article
about us at LARIBA inUSA Todayon the front page of the Money
section.^11


Bank Regulators Bank regulators are required by law and their job descrip-
tion to make sure that the depository institutions (banks) under their juris-
diction operate according to regulations and that the laws of the land are
upheld to the fullest in a safe and sound way to preserve the assets of the
citizens and the reputation of the system. Regulators have been willing to
listen graciously and with great interest, and to entertain new products and
service ideas.
The first attempts to engage the banking regulators were made in the
United Kingdom, when Al Baraka Bank was started in London in the mid-
1980s. The charter was withdrawn later by the U.K. bank regulators be-
cause of a number of violations and the fact that the owner entity—Dallah
Al Baraka in Saudi Arabia—though licensed there to operate as a finance
and investment company did not have a licensed operating banking institu-
tion that was chartered by the central bank of the country of origin, Saudi
Arabia.
Another attempt was later made by a Kuwaiti bank (United Bank of
Kuwait) at its U.K. branch in London and its U.S. branch in New York. The
New York branch representatives explained to the regulators—the OCC, in
this case—how their finance scheme and model for home mortgages, called
Al Manzil, worked.^12 After long evaluation, research, and deliberation, the
OCC concluded, based on the detailed supporting documentation supplied
by the applicant, that there was no difference between the scheme and the
regular interest-based contract, and pronounced it acceptable.
When an entity (like Fannie Mae, Freddie Mac, the IRS, or the OCC)
decides that a new product or scheme looks fine, they list it under the cate-
gory ofexceptions to the norm. This term was used by Fannie Mae and
Freddie Mac in order to accept the modified Shari’aa-compliant contracts.
That is well and good in good times, but that ‘‘exception’’ can be taken
away any time, rendering the RF bankers’ many years of effort worthless.
That is not what we are aiming to do. The challenge, for those who believe
in RF banking and way of life, is to devise legal documents that abide by the
laws of the land, using ways and means that comply with the regulations
and the laws of the land while not violating the basic values of the Judeo-
Christian-Islamic value system.


240 THE ART OF ISLAMIC BANKING AND FINANCE

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