FYI
"Even if I (me and you) am/are not from the finance related
professional field, as a Muslim, I am interested in the services offered at
the Islamic Banks, how far we have come in this development and what
potentials remain to be explored an how me , a common person/layman, can
benefit/use it for a halaal maintenance."
From: [log in to unmask]
ISLAMIC ECONOMICS BULLETIN
Indian Association of Islamic Economics
Vol.9, No.4, July-August 1999
PERFORMANCE AUDITING FOR ISLAMIC BANKS
By Muhammad Akram Khan
There are over one hundred and fifty Islamic institutions handling
billions of dollars and employing thousands of persons and providing
financial services to Muslims and non-Muslims all over the world. The
pace of development of these institutions is commendable. These
institutions are busy in innovating new methods of business and
experimenting with shari’ah -supported financial instruments. Despite
that, there is a valid criticism on their current approach of concentrating
mainly on those modes of finance which bring them a relatively risk-free
fixed return such as murabahah and ijara. The original thinking that
Islamic banking should be based on the concept of profit-loss sharing or
mudarabah has attracted a very small percentage of the business of the
Islamic banks The Islamic banks feel hesitant to adopt profit loss
sharing as it involves monitoring of the client’s performance very closely
which is both expensive and cumbersome. They feel that the present
state of accounting integrity and moral training of their clients leaves
much to be desired. In these circumstances, they would be invoking a
very high risk. As a result, the Islamic banks have devoted most of their
attention to those modes of finance, which bring them an assured return.
Another criticism on Islamic banks is that they are very much like
conventional banks so far as their role in the uplift of the society is
concerned. The original rationale of the Islamic banks entailed a very
active role for these institutions in promoting equitable distribution of
wealth, industrialization, self-reliance and moral values in financial
matters, But they have not paid much attention to these highest
objective. Instead they become indifferent to the end-use of funds, once
they have provided the finance and remain concerned with their mark-
up or return. This makes them very much similar to the conventional
banks. The Islamic banks, in their turn contend that they do not have
enough means to play the proposed higher role. In the absence of
sufficient data and analytical tools they are forced to depend on the
conventional methods of control and management. The Islamic banks
can adopt performance auditing in two areas:
1. They can view their own performance against a broader criteria which
covers physical, financial, social and shari’ah considerations. This will
help them improve their efficiency and effectiveness and makes them
more competitive in the international market.
2. They can use this technique to review the performance or their client
with relation to the planned outputs. The Islamic banks need not do this
on their own. They can agree with their clients for arranging performance
audits at the end of a fiscal period by practicing firms of auditors.
Part
of the cost of performance audits can also be borne by the investors.
The report of auditors can focus on the fact that the client used the
finance of the bank with due regard for economy, efficiency and
effectiveness. Such an assurance from and independent auditors will be
more satisfying to the savers whose funds the banks supplied to the
entrepreneurs as well as to the banks themselves whose concern remains
supreme about the proper utilization of funds. Performance audit of such
business concerns who take money on the basis of profit-loss sharing
or mudarabah will disclose their diseconomies and inefficiencies. At this
stage, it will be possible for the banks to identify cases where the
negligence was willful. In such cases, part of the losses can be
transferred to such entrepreneurs. An arrangement of this sort will
enable the Islamic banks to adopt musharakah and mudarabah on an
increasing scale. This will also scale down criticism on the Islamic banks
regarding the choice of the modes of financing.
NEW BOOKS & ARTICLES
BOOKS
1. Gran, P., Islamic Roots of Capitalism - Egypt 1760 - 1840, Syracuse
NY, USA : Syracuse University Press 1997.
2. Hayes,. S.L. (III) and Vogel F.E., Islamic Law and Finance, Religion
Risk and Return, London: Kluwer Law International, 1998.
3. Sato Trugitaka, State and Rural Society in Medieval Islam: Sultans,
Muqta’s and Fallahum, Leiden Netherlands: E.J. Brill, 1997.
4. Usmani, Muhammad Taqi, An Introduction to Islamic Finance,
Karachi, Idaratul Ma’arif, 1998..
5. Vadillo, Ummar Ibrahim, The Return of the Gold Dinar, : A Study of
Money in Islamic Law, Cape Town , South Africa, Madina Press, 1996.
6 Zakat - Islamic System of Social Justice, Hyderbad: India, MEDNET:
Mustafa Educational Network Trust, 1997.
ARTICLES
1. Dadkhah, Kamran M., “Ahmad Kasravi on Economics”, Middle
Eastern Studies (London), Vol. 34 No. 2. 1998, pp. 37 - 59.
2. El-Gamal, Mahmoud, A., “The Survival of Islamic Banking : A Micro
Evolutionary Perspective”, Islamic Economic Studies (Jeddah) , Vol. 5,
Nos 1 & 2, November 1997 & April 1998, pp. 1 - 19.
3. Khan , Muhammad Akram, “Performance Auditing for Islamic banks”
Islamic Economic Studies (Jeddah), vol. 5, Nos 1 & 2 November 1997 7
April 1998, pp. 23 - 36.
4. Obaidullah, Mohammed, “Capital Adequacy Norms for Islamic
Banks”, Islamic Economic Studies (Jeddah), , vol, 5, Nos 1 7 2 November
1997 & April 1998, pp. 23 - 36
5. Quis Soumay Permlla, “Towards an Islamic Ecosomology, “ Islamica
(London). vol , No. 4 1998 pp. 19-32.
6. Qadri, S.M., “The Quran and Interest in the Islamic Society”, in
Mohammed Taheer (ed ) Studies in Quran. New Delhi, India: Anmol
Publications 1997.
7. Tawfiq, M. Amin, “The Awqaf in Modern Egypt,” The Islamic
Quarterly (London), vol XLII, No. 4 1998.
----------------------------------------------------------------------------
To unsubscribe/subscribe or view archives of postings, go to the Gambia-L
Web interface at: http://maelstrom.stjohns.edu/archives/gambia-l.html
----------------------------------------------------------------------------
|