An investigation into the establishment of an Islamic banking enterprise in the Tshwane and surrounding areas

Abstract

Muslims in South Africa live within the framework of a Western economy in which the notion of interest plays a pivotal role. This system does not seem to comply with the strict interpretation of Islamic law, since the Quran prohibits any dealings on the basis of interest and strongly condemns those who continue to deal in interest-based transactions, warning them of a “notice of war from Allah and His Apostle”. Muslims are therefore faced with the dilemma of either participating in the current prevailing economic system and thereby violating the Quranic injunctions prohibiting interest or Riba, or completely withdrawing from participation in this system and conducting their business transactions in accordance with Islamic injunctions. This study is an attempt to examine whether an Islamic banking enterprise within the greater Tshwane area could survive and even flourish in the long term if it were operating within the parameters of Islamic law, thus in the absence of the interest factor. The research methodology employed was that of qualitative research, and the study consists of both a literature and an empirical study. It became evident from the literature review that a bank’s survival within the Western economic order depends on the confidence that its depositors have in it. In an Islamic economic system the ethical and legal components distinguish it from other systems. The most striking feature of the Islamic banking environment is the so-called profit and loss sharing system (PLS). The literature study was complemented by an empirical study. Respondents were interviewed in three categories: Muslim businessmen, Islamic bankers and Islamic religious leaders. An analysis of data from the respondents revealed that they were of the opinion that there was a need for an Islamic bank in order to avoid any interest-based dealings and to operate strictly in accordance with Islamic law and principles. Based on the literature and field study a simple model of an Islamic banking enterprise was constructed which could function within the greater Tshwane area and within the South African economic context, but which would be based on Islamic Shariah principles. In constructing this model due cognisance was taken of the fact that it would prove to be a very difficult task to amend existing banking laws to provide for the easy entry and functioning of an Islamic bank. Based on the literature and empirical study it was concluded that to provide for the easy entry and functioning of an Islamic banking enterprise, it should not be structured or named as a bank but rather as a finance company which would then be able to offer most of the services that are offered by traditional banks but without having to comply with the strict regulations as applicable to traditional banks. The dissertation’s final conclusion and recommendation was thus that an Islamic bank should operate not as a bank but as a finance company, thereby accomplishing its pivotal role to enable Muslims to use these indispensable services successfully while complying wholly with Islamic Shariah law.