Diversification of Islamic Financial Insturments
11
In 1970s, institutional involvement also increased. Some examples include the Islamic
Research Academy Al-Azhar conference, the Finance Ministers of the Islamic Countries
conference held in Karachi in 1970, the First International Conference on Islamic Economics in
Makkah in 1976, the International Economic Conference in London in 1977, and an Egyptian
study in 1972. In the Karachi conference, delegates from Egypt proposed that an international
Islamic bank be established, and delegates from Pakistan proposed that an international union
for Islamic banks be established.
Nasser Social Bank was established in Egypt in1971 by Presidential Decree 66. The bank‘s
charter clearly identified that it was an interest-free bank. Also, Act 13 of the decree stated that
the bank would not be subject to the regulations applied to conventional banks. The purpose of
the bank was to broaden the social solidarity among citizens and to create a competent and
just society. The bank‘s capital was formed from funds allocated by the president of the
republic from outside the state budget resources specified for this purpose. In addition, money
was allocated from public bodies and economic units. However, the Nasser Bank Law did not
mention that the bank had to adhere to shariah. Still, because the bank was a member of the
International Union of Islamic banks, it was considered an Islamic bank.
In 1974, the finance ministers of all Islamic countries held a convention on the establishment
of the Islamic Development Bank (IDB). The IDB was considered to be the first international
Islamic bank that was established, albeit in part, by members of the OIC. The bank began
operating in 1977, and since then it has played a pivotal role in the development of the Islamic
banking and finance industries. The purpose of the bank is to foster the economic development
and social progress of member countries and Muslim communities individually as well as
jointly in accordance with the principles of shariah. As of June 1992, the bank‘s paid-up capital
was 2billion Islamic dinars (an IDB accounting unit that is equivalent to one special drawing
right of the International Monetary Fund). From July 1992 to December 2000, the bank
increased its capital to 6billion Islamic dinars. In 2001 the bank increased its capital from6
billion to 15 billion Islamic dinars (USD 20.55 billion).
Phase 3: The Spread of Islamic Banks, 1977 to Present
The International Association of Islamic Banks was established in 1977. The CEOs of the
Islamic banks agreed to establish the International Union of Islamic Banks in 1997, with the
headquarters in Makkah. The aim of this union was to strengthen cooperation and increase
coordination among Islamic banks. However, although the union still exists, it has not begun
operations. This changed in July 1999 when the International Association of Islamic Banks was
reorganized and renamed the General Council for Islamic Banks and Financial Institutions
(CIBAFI), Bahrain was chosen as its headquarters.
With the development and awareness of Islamic finance globally, Islamic banks mushroomed
over the last four decades, with Islamic banks present in nearly 50 countries globally. The
following chapter further dwells on the state of Islamic banking, Islamic capital markets and
Takaful currently.