Group No: 4

Report Topic: Islamic Banking Financing Terrorism or Meeting Economic Demand.

Question and Answer Part.

Question no-1: Terrorism or economic growth which one is accelerated

by Islamic Banking?
Ans: In spite of the cases of certain Islamic banks being involved in some way in financing
terrorist activity, there is little proof that the Islamic banking industry is connected to terrorism
any more than are conventional banks. Furthermore, the recent surge in the Islamic financial
sector is due to the growth in petroleum-related wealth, a Muslim piety, and portfolio
diversification. Islamist groups, particularly the Muslim Brotherhood, have played an active role
in the spread of Islamic banking, but the industry seems to be moderating many would-be
extremists and increasing the financial opportunities for much of Islamic society. This does not
mean, however, that there are not aspects of the industry that should be monitored. Like
conventional banks, Islamic banks must be wary of and report transactions that seem out of the
ordinary or are for nefarious intent. The authoritarian states of the Middle East and North Africa
tend to be more open economically than politically. Consequently, Islamic financiers have greater
access to the government and business elites than other Islamists, enjoying a greater degree of
autonomy than political parties. While states may permit Islamic banking as a means of improving
legitimacy with its Muslim constituency, the bridging capability of Islamic financiers between the
state and businesses could help precipitate social and economic change in these illiberal
countries. Islamic bankers tend to promote a more “politically neutral form of Islamism” that has
a greater chance of being tolerated than the more militant forms associated with the Islamist
movement.207 The Islamic banking experience has been different for all countries, especially in
the Persian Gulf. While seen as a force of moderation, it has been used as a tool for advancing
Islamism, though a socially-focused, non-violent form. The popularity of Islamic banking with the
general Muslim populace is due to shari’a-compliant business practices being more attractive
than interest-driven conventional banking.Contrary to the idea of Islamic banking’s nefarious
connections, Malaysia hasused this new financial sector as a means of providing jobs to many of
its Islamists who were graduates in religious studies, turning them “away from the path of
revolution.”209 This was also the case in many parts of the Middle East. Although groups like the
Muslim Brotherhood used Islamic banks as a tool for advancing their Islamic agenda, there is little
evidence to connect the more socially-concerned agendas or the actual deposited funds with

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terrorism. Additionally, the more salutary effects of giving the potentially-radicalized Islamists
financial opportunities and involving the traditionally disenfranchised members of society in the
modern financial system more than outweigh the anecdotal suspected involvement of Islamic
banks in financing terrorism. This being said, one must be aware that the forces of capitalism
seem to be tempering an Islamist ideology that tends to be anti-western.A synergy that has
developed between the rising Islamic capitalists in the Muslim world and the ulama could grow
into one that is capable of persuading Muslims to turn their backs on the extremist theories of
jihad. While not “transforming the spirit of puriIsla Islamic banking is providing a pious alternative
to devout Muslims “who may prefer to forsake politics for business.” One could argue that Islamic
banking is a means of enfranchisement for the previously disenfranchised Muslim who may have
been attracted to a more radical form of Islamism as an outlet for his economic, if not political,
grievances. Islamic financiers may be taking the first step toward building the civil societies
necessary for building democratic institutions in authoritarian states. 210 The United States
should abandon its unfounded fears of Islamic banking and its supposed ties to terrorism and do
all that it can to bring this nascent financial industry into the international system. As a means of
leverage, it could alter its laws to make Islamic banking possible in the United States in return for
greater scrutiny of operations abroad. The zakat collection must be more closely monitored to
ensure that the collected funds are flowing to legitimate charities that do not support terrorism.
Additionally,although hawala is not inherent to Islamic banking, most of its operations take place
in.

Question no-2: Does Islamic Bank contribute to economic growth?

Ans. Islamic banking is a financial system whose aim is to fulfill the teachings of the Holy Quran,
operate on principles of Shari’ah strictly avoiding interest including profit and loss sharing and
directly involved with core values and social justice.“Islamic bank is a financial institution whose
statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah
and to the banning of the receipt and payment of interest on any of its operations”. Banking in
the modern world has adopted many, innovations but very recent and most remarkable
innovation has been the system of Islamic banking. A bank is a financial institution where people
secure their money and use this institution as a source of possible finance. Banking in the form
in which it exists now-a-days is comparatively of recent origin. Before the advent of modern
banking, direct finance, where the owner of capital deals directly with the user of capital, was
the customary mode of transference of funds from savers to investors. Nowadays, banks are
organizations engaged in various functions i.e., receiving, collecting, transferring, paying, lending,
investing, dealing, exchanging, and servicing money and claims to money both locally and
internationally. Islamic banking are become the fastest growing segments in the international
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financial system. Islamic banks showed stronger resilience during the global financial crisis due
to their anchoring in the real economy and barring from investing in financial derivatives. Global
financial crisis-causes of greed, interest, gambling, speculation and corruption. Role of
speculation is the formation of the crisis. Moral failure is the one and only origin of the crisis.
Interest is the root of all exploitation. The large number of economic ills, including poverty, social
and economic injustice, inequality of income and wealth, economic instability and inflation of
monetary aspects are all in conflict with the value system of Islam.
It is the responsibility of the money and banking system to contribute the achievement of social-
economic development and hence eliminate such economic ills. the principle goal and functions
of the Islamic banking system include economic well-being with full employment and maximum
rate of economic growth, equal distribution of income and wealth and as a result socio-economic
justice and the generation of sufficient savings and their productive mobilization and stability in
the value of money.

Question no-3: Does Islamic Bank finance in terrorism? Why or why

not? Explain with relevant information.
Ans : Yes , some of the Islamic Banks finance in terrorism.
Islamic Bank is a bank that regulates its activities according to the teaching of Islam. Some recent
surveys found that some Islamic Banks are financing for terrorists. A recent report of the US
Senate Permanent Subcommittee on Investigation, a Congressional watchdog panel, has
revealed a highly disconcerting development. The report stated that two Bangladesh based
banks, Islamic Bank Bangladesh Ltd (IBBL) and Social Islamic Bank Ltd (SIBL), were involved in
terror financing. The British banking giant HSBC supplied dollars to IBBL and SIBL despite evidence
of their links to terror financing. HSBC did not submit these two banks to enhanced monitoring
for suspicious transactions despite recommendation by HSBC’s own Financial Intelligence Group
(FIG). Moreover, SIBL’s ownership stakes were held by two terrorist organizations.

Islamic banks have been tied to terrorist organizations through various Islamic charities of Islamic
banking is the financing of Islamic terrorism. A synergy that has developed between the rising
Islamic capitalists in the Muslim world and the ulama could grow into one that is capable of
persuading Muslims to turn their backs on the extremist theories of jihad. While not
“transforming the spirit of puritan Islam,” Islamic banking is providing a pious alternative to
devout Muslims “who may prefer to forsake politics for business.”
This is the reason why Islamic banks finance in terrorism.

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