The Islamic banking system - Not conductive to the start-up of young, innovative business firms

TABLE OF CONTENT:

1. Introduction

2. The Problem of the Prohibition of Interest (riba) and Alternatives

3. The Meaning of the Higher Supervisory Religious Board for Young Enterprises

4. PLS Concepts: Mudaraba and Musharaka –
And Why Banks Shy Away From These Concepts
4.1. Mudaraba - “Sleeping Partnership”
4.2. Musharaka - “Sharing”

5. Other Forms of Loans in Islamic and their Limited Applicability for Young,
Innovative Enterprises
5.1. Qard Hasan - “Credit Without Interest” - Not Available for Business Financing
5.2. Ijara – “Leasing” / Ijara wa-Iktina - “Hire-Purchase” - Just Suitable in Exceptional Cases
5.3. Murabaha – “Trade Financing” – Feasible Just for a Minority of Entrepreneurs and at the Cost of Deriviation from the Original “Halal” Concept

6. Conclusion and Proposals for Improvements Inherent to the System

Notes

Bibliography

Appendix A: The Three Main Principles of Islamic Economics

Appendix B: Institutions in Islamic Economy

Appendix C: The Islamic Banking System

1. Introduction

The contemporary Islamic banking system, a relatively young institution, gains influence not only in the Islamic world but also in non-Muslim countries with big Muslim communities. The first Islamic bank, Dubai Islamic Bank, was erected in 1975. Today about 265 Islamic finance institutions operate in more than 70 countries, and their assets have increased more than 40-fold since 1982 to exceed $230 billion. More and more western banks erect Islamic branches; the first was Citibank in 1996. ^[1]

We have to raise the question, what influence this banking system has on the start-up of young, innovative businesses, inside and outside of Muslim countries. A negative influence would hinder these businesses to develop – if not counterbalanced by other measures like state involvement, e.g. by providing special funds for these businesses. In non-Muslim countries, it would constrain religious Muslims from participating in the contemporary economical changes, determined by an opening-up of markets and privatisation, which require the start-up of new businesses.

The Islamic banking system operates according to Islamic law; hence several Islamic restrictions, the most important of which is the prohibition of riba =interest, limit its freedom to develop suitable financing instruments for the support of young, innovative businesses.

These restrictions enlarge the risk of the bank, especially when financing these businesses, so the bank either avoids these businesses or tries to bend the Islamic law and tries to operate – de facto – like a conventional bank. In this case, however, the bank will face problems with the Religious Supervisory Board, an integral part of every Islamic bank, which may declare the bank to be in opposition of Islamic law (Sharia) and shut down its operations.

The Islamic banking system is a relatively young concept and the scholars can be divided into three main camps. The first consists of Muslim scholars, like Chapra^[2], Siddiqi^[3] or Ahmad^[4], who support the concept of Islamic banking and are concerned mainly with the theoretical and ideological aspect, but lack an analytical research. The second group analyzes Islamic Banking from a theoretical point of view, like Mirakhor^[5], Khan^[6] or El-Ashker^[7]. The third group comprises Western scholars, like Wilson^[8], Nienhaus^[9], Kuran^[10] and Kazarian^[11], although this topic was largely neglected by Western scholars for many years. Kazarian provided an interesting analysis of Islamic versus traditional banking. But also Muslim scholars like Al-Omar/ Abdel-Haq^[12] provide us with studies and analysis from a practical point of view.

This paper will not discuss the ways a government can balance these negative impacts of Islamic banking, e.g. by setting up public development institutions which provide special funds for young, innovative entrepreneurs. It is also not my aim to discuss whether the Islamic values create a better society, even at the cost of reduced development of innovative businesses. It is my aim instead to focus on the influence of Islamic banking on the financing of young, innovative businesses in the start-up phase.

In order to analyze these influences, I will first briefly describe the most important element that determines the religious framework of Islamic banks: The prohibition of riba, and the absence of interest-based financial instruments. I will prove that the institution of a Higher Supervisory Religious Board has a negative influence on planning reliability, both for banks and entrepreneurs, and increases transaction costs.

Next, I will look at the interest-free financing instruments of Islamic Banking suitable for the start-up of young, innovative enterprises:

1) Musharaka (partnership) and mudaraba ( silent partnership ). I will analyze these Profit-loss Sharing (PLS) concepts and identify the factors that make them unattractive for banks, especially when financing young, innovative business, leading banks to avoid such financing.

2) Murahaba (Trade Financing) and ijara/ijara al-waktina (Leasing). I will analyze these mark-up activities and identify why these concepts – preferred by banks – are suitable only for financing very special cases of young businesses, and are not an option for the majority of young entrepreneurs.

Finally I will present ideas on how to improve the system without violating Islamic law, but also show the limits of this system.

2. The Problem of the Prohibition of Interest (riba) and the Alternatives

Literally translated riba means ‘usury’ and not ‘interest.’^[13] Other authors claim that riba literally means increase, addition, expansion or growth.^[14] The ban of riba is one of the most important pillars of Islamic Economy. It is mentioned in many verses in the Quran and reduces the forms of loans available for young, innovative enterprises to PLS concepts, which bear a high risk for the bank in case the enterprise fails.^[15]

Originally this prohibition arose from the days of Mohammed. During that period it was common to double and redouble debts when the debtor could not pay back in time.

This procedure led to effective enslavement of a substantial number of people; hence the purpose of the Quran was to ban this ancient Arabic practice of riba.^[16] It did not differentiate between consumer credits and investment credits.^[17]

Today the prohibition of riba means predominantly a prohibition of interests and not a prohibition of usury. Other forms of usury, for instance overpriced sale of commodities, are not forbidden by the prohibition of riba.^[18] In the early days of Islam, however, it was not clear if riba means all kinds of interest or just usury.^[19] Islamic Economists today tend to include all kinds of interest in the prohibition of riba^[20], led by the general conviction that interest promotes all kinds of egoistic behaviour, opposed to what a good Muslim society should be like. Financial institutes, who lend out money to a higher rate than offered for depositors are regarded by one scholar as “abominable creatures who fatten on the labour of others.”^[21]

It could be argued, regarding the problem of inflation that did not exist when the Quran was written, that the prohibition of riba applies to real interest, not to nominal interest.

The prohibition of riba has one main advantage for the bank: The Sharia-conform operation of the bank will attract Muslims that are not allowed to use other banks. Hence, advocators of this prohibition argue, as seen above, only in religious and ethical ways. But opinions about the main goal of an Islamic bank differ. We see these contradicting goals i.e. in the official purposes of the Jordan Islamic Bank, which claims that its goals are to make profit, but also to keep the laws of the Sharia.^[22]

From a purely economical point of view, however, this system causes several problems. The bank has to develop loans without interest, which are nevertheless profitable for the bank. These concepts are Islamic-conform Profit-Loss-Sharing concepts or mark-up activities. For the latter, the banks are only allowed to demand a “service fee”, which is not allowed to be connected to the amount of money given as a loan but only to the service provided, so it can only cover, if at all, short-time loans of a low value.^[23]

The prohibition of riba does not only cover interests for regular forms of loans, but also forbids the bank to pay interest on bank deposits, which are de facto credits given to the bank. Hence the prohibition of riba influences the financing by banks as well as the refinancing of banks.

Regarding the lending-out of money, a conventional form for innovative, young business to finance the start-up, the A.L.M. Abdul Gafoor claims: “… these types of loans bring no income to the banks and therefore naturally they are not that keen to engage in this activity much. That leaves us with investment financing and trade financing. Islamic banks are expected to engage in these activities only on a profit and loss sharing (PLS) basis. This is where the banks’ main income is to come from and this is also from where the investment account holders are expected to derive their profits from.”^[24]

Schumpeter takes a common point of view, when he claims that conventional bank credit is necessary for industrial development.^[25] The director of the Pakistan Institute of Development Economics, Syed Nawab Haider Naqvi doubts that an interest-less economy will invest optimally and claims that state intervention is necessary for the optimal allocation of resources.^[26] Optimally allocation of resources means, as seen above, the promotion of young, innovative businesses, which are necessary for economical growth. The role of innovative entrepreneurs for economical development is a common point of view, as stated in the principles of the Gründerforum, a German institute for furthering young entrepreneurs: “Innovative entrepreneurs, however, are the root of economical growth, because an economy can only develop by regularly innovations”.^[27]

The predominantly opinion in Islamic economical thought, however, is, that PLS concepts are an efficient alternative to interest^[28], some authors, like Khan, even claim they are superior to conventional banking.^[29]

Many scholars, however doubt this opinion, stressing that in the PLS-concept of mudaraba: ”the financial risk is borne entirely by the bank”^[30] and in case of the other predominant PLS concept, musharaka they claim “…this seems to make investment in general less attractive.”^[31]

Kuran claims, that though PLS concepts:”in many markets and for various types of lenders, borrowers, savers and investors…is the preferred mechanism for allocating returns even when interest is a legal alternative” and accents that PLS is integrated in the arab culture and “…has been practiced since long before Islam, it hardly follows, though, that it is reasonable to make profit sharing the basis of all productive ventures. ^[32]

When we take a closer look at the PLS-concepts of musharaka and mudaraba, we will see that these concepts are not suitable for young, innovative enterprises, because these businesses are too risky for the bank. Hence, the bank will consider them not feasible. Hildebrandt confirms this, claiming that Islamic banks:”…concentrate on conventional businesses instead of realising new, innovative concepts.”^[33] In paragraph 5 we will analyse the PLS concepts of mudaraba and musharaka regarding its deficits and the problems deriving out of the fact that banks tend to avoid these financing in general and especially for young, innovative businesses.

But first we will take a closer look at the meaning of the Higher Supervisory Religious Board and its meaning for young, innovative enterprises.

3. The Meaning of the Higher Supervisory Religious Board for Young Enterprises

Islamic banks have different boards of trustees than western banks. On the one hand there is a religious board of trustees working for the business firm and on the other hand the Higher Supervisory Religious Board (HSRB), which supervises the banks; it is responsible for ensuring that the Islamic banks works strictly according to the requirements of the Sharia in their policies and day-to-day operations. This board has the authority to make decisions and issue decrees (fatwa).The existence of a Higher Supervisory Religious Board is the precondition for a bank in order to be accepted as a member of the IAIB (International Association of Islamic Banks) and the adherence of a bank to the decisions of the board is the precondition to be allowed to claim that it is operating within the principles of Sharia.

In order to develop a central regulation board, that is setting standards for the Islamic banking system and for the regulation of this system as well as for the development of new ways of management, many Islamic states founded in November 2002 in cooperation with the IMF (International Monetary Fund) and the Islamic Development Bank the Islamic Financial Service Board (IFSB). This Service Board holds conferences and workshops in order to reach a common standard, but does not replace the HSRB of the banks.^[34]

We have different reports of how many persons this board contains. Mengers, Assistant Director of the Institute of Islamic Banking and Insurance in London, claims the Higher Supervisory Religious Board has to contain not less than thirteen Islamic scholars.^[35]

But when we look at other countries we see that the structure of Sharia supervision board in reality varies a lot. Comparing two banks, the BIB (Bahrain International Bank) and the FIBB (Faisal Islamic Bank of Bahrain), we see that the in the BIB the SSB (Sharia Supervision Board) contains 4 members, representing the main schools of thought, in addition the BIB employs a qualified religious supervisor, reporting both to SSB and to the general manager. The FIBB employs board members from five different countries, which means at least five members. ^[36]

The existence if this board is often described, but little is said about the consequences of this board for economical development; maybe because it is a relatively young institution and still developing.

A big problem is the scarcity of scholars, who furthermore are mainly conservative. There is a lack of progressive scholars, able to confront with the economic problems. Makkawi, CEO of Dubai Bank, claims:”The biggest hurdle is scarcity of scholars and (Sharia) boards. We need to institutionalize the rulings, the standards and fatwas (religious edicts)," ^[37] Experts, like Sheikh Nizam Yacoubi, who sits on the Sharia (Islamic law) boards of several Islamic banks and institutions, criticizes that Islamic finance has been adopting a highly conservative and cautious approach while pondering entry into new areas of investment, services and products: "Islamic banks have so far been cautious. We want them to become more aggressive ... we have plenty of investment opportunities in our countries, we should not remain at a standstill, we must develop ourselves within Sharia framework ... Like anything human, Islamic banking needs to be revised."^[38] New areas of investment, service and products, the areas of young, innovative businesses, suffer from the caution of Islamic banks to invest in their businesses.

Taha al-Tayeb, head of Islamic Banking at the Bahrain Institute of Banking and Finance, criticizes the complicated process Islamic banks have to follow: "The problem is that every standard must involve Sharia, accounting and banking considerations and must be approved by Sharia boards," ^[39] This process increases the transaction costs, both for the bank and for the entrepreneur, because it lengthens the time until a project can start. In addition, we have the possibility that a contract is considered to be legal by the religious board of the enterprise but rejected by the bank, there is no possibility to foresee in advance what a religious board will decide and so the planning security suffers compared with a conventional bank. For less religious Muslims, who have conventional banks as an alternative, it is less attractive to deal with an Islamic bank because it is not possible to predict the decision of the board and this might make the company loose time (and money) if their project is turned down.

Especially for young, innovative businesses the conservative “Weltanschauung” causes a problem because a bank will prefer to invest in areas which are “halal”(not violating the Sharia) and shy away from new businesses, which need to be proven “halal” first. This increases the transaction costs because it might require a longer time until the decision of the HRSB is made.

4. PLS Concepts: mudaraba and musharaka – And Why Banks Shy Away From These Concepts

The Profit-Loss-Sharing concepts, mudaraba and musharaka are not only determined by the prohibition of riba, but also have to operate according to other Islamic principles.

Mudaraba and musharaka are bound to the principle, that there should be no reward without risk bearing. This principle is applicable to both labour and capital. As no payment is allowed to labour unless it is applied to work, no reward for capital should be allowed unless it is exposed to business risks. Hence, these concepts bear a high risk for the investors/banks, especially in case of risky young, innovative businesses. Wilson accents the problem of the high risk of mudaraba for the bank, claiming:”for the bank’s point of view this arrangement is a great risk, although it also offers potential great returns.”^[xl] Young, innovative businesses have a high failure rate. According to an internet paper for young entrepreneurs, published by the University of Essen, the success rate of start-ups is only 50% after a period of four years.^[xli] In the PLS concepts of Islamic banks the bank would loose all money invested in case of a failure. In case of a success, however, its profits are limited.

We will examine these principles in the next paragraph, when taking a closer look at the PLS concepts musharaka and mudaraba and analyse why they hinder Islamic banks from financing young, innovative enterprises.

4.1. Mudaraba – “Sleeping Partnership”

The concept of mudaraba describes a partnership between the bank and the borrower according to the profit-loss-sharing principle (PLS). The bank gives the money and the enterpriser gives his labour force and experience. Theoretical this concept means that the bank and the enterpriser set up an enterprise together and the bank is taking part as a sleeping partner. United Arab Emirates Civil Transaction Act No. 5 of 1985 defines mudaraba as follows:” A mudaraba is a contract whereby the person owning property puts in a capital and the mudarib puts in effort or work, with a view to making a profit.”^[xlii] The enterpriser can use the money according to the conditions of the contract and the profit will later on be shared between the bank and the mudarib according to a quota previously fixed in a contract.

In case of a loss only the bank, as the financer, will loose money. The client guarantees to return the funds only if he is negligent in the use of the funds or if he breaches the conditions of the mudaraba^[xliii] The bank is not allowed to ask the mudarib for a guarantee for economical success, today however many banks move around this Islamic law and ask for guarantees.^[xliv]

The concept of mudaraba is similar to that of a company with sleeping partners. It is, however, limited in its function as a credit, because it does not only examine the credibility of the creditor but also the chance of success of the enterprise. Hence, borrowing becomes very difficult, especially if the business is young and innovative and the bank does not have knowledge in the segment of the market the business is working in. Granting a loan becomes risky, a main disadvantage accented by many scholars like Mattes, who claims: “Für die Bank ist das mit erheblichem Überwachungsaufwand und Risiko verbunden“(„…for the bank this (concept) means an enormous effort of supervision and risk“)^[xlv]. In order to minimise the risks and the costs for information and management training (supervision), the bank will invest mainly in projects that are similar to those who have already received funds and have been successful, and so it will narrow the field of economic activities. An optimum of allocation and the promotion of new enterprises will not take place and the country will be in a backward position in comparison with other countries which develop new economies and are up-to-date.^[xlvi] Furthermore the banks will prefer businesses with well-known trustworthy entrepreneurs and not with young businessmen

Some scholars, however, emphasize the advantage of mudaraba, especially for developing countries and according to Wilson: „countries with a predominant Muslim population are without exception part of the third world and regarded, both by themselves and others, as less developed countries”^[xlvii] Authors like Kazarian claim that mudaraba will provide funds without any collateral requirement, hence new entrepreneurs will be reached and the volume of investments will increase^[xlviii] Furthermore they argue that the financial risk is borne by the bank, hence risk-adverse entrepreneurs – which form the majority in developing countries – will start an enterprise.^[xlix] This thesis will only be right if we guess that an Islamic bank does not operate primary profit-oriented, but aims to promote economical development of a Muslim community and not maximizing the profits of its depositors and shareholders.

Excurs: Profit-Orientation of Islamic Banks

Advocates of the Islamic banking system assume that the decision-making process of Islamic banks is primarily influenced by Islamic values. Many Islamic scholars argue that an interest-free system will contribute to the socio-economic development in Islamic countries and the profit-orientated conventional banking system can not give this contribution, they claim:” The primary goal of Islamic banking is not to maximize the profit as the interest-based banking system does, but rather to render socio-economic benefits to the Muslims”^[l].

But when we look at the goals of the banks as well as their criterions regarding PLS partnerships, we see that the decisions of Islamic banks are primarily profit-orientated. If the banks would really be interested in economical development of Muslim countries this could counterbalance the disadvantages of this banking system, by forcing them to invest in businesses that help an economy to develop, even at the cost of losses. But the banks are bound also by the coercive to maximize the profit, we can see this in the goals of the Jordan Islamic Bank. Three out of four goals, written down in the official purpose of the bank, are connected to profit-maximization, while only one is connected to the observance of Islamic law.^[li] Abdul Halim Ismail, the manager of the Bank Islam Malaysia Berhard, affirms this profit-oriented aim of an Islamic Bank, claiming: “ As a devout Muslim, my utility objective, as the manager of the bank, is solely to maximize the profit without using financial instruments based on interest.”^[lii] Wilson also accents the profit-orientated role of an Islamic bank, claiming: ”Islamic banks are of cause commercial in nature and not charitable institutions: Like other banks they aim to make profits for their shareholders…in their case profits are arguably even more important as this determines the return to those with savings and investment accounts.”^[liii]

Al-Suwaidi, who advocates mudaraba, calls it “one of the most successful and popular forms of business association ever devised”.^[liv] But he also reduces this to cases, in which the investor (Islamic bank) and the mudarib fulfil certain conditions, like being trustworthy, able to manage a project and the project has to be carefully analysed, feasible, and proper followed-up. He fails to give reasons for his conclusion that this contract is “one of the most successful”, emphasizing mainly the difference that – in contrast to conventional banks – the borrower does not have to pay back the principal in case of a loss. This principle, however, is only an advantage for the borrower. Al-Suwaidi does not give reasons why a bank should invest in something that is not profitable for it. Furthermore there is no evidence that this contract is popular, when we look at the percentage of mudaraba in Islamic financing.

When we take a look at the statistics, we see that in general Islamic banks shy away from PLS-related investment and engage mainly in marked-up related transactions. In Pakistan, for example, in 1996 mark-up activities represented 90% of all banks´ financial transactions.^[lv] Similar percentage are reported also from the Bank Islam Malaysia Bhd (BIMB), mudaraba represented less than one per cent of the total financing throughout the examined period between 1985 and 1991, musharaka financing was at 1.2% in 1984 and declined to 0,01% in 1991.^[lvi] A similar situation exists also with Islamic banks outside Pakistan and Malaysia^[lvii]. In Bahrain, only one of the three Islamic banks, the AIIB, has mudaraba investments, but they are only 1.6% of the Islamic financing., while musharakas represent 8.4% of Islamic financing for AIIB (Al-Baraka Islamic Investment Bank), 4,5% for the second Islamic bank in Bahrain, BIB (Bahrain Islamic Bank) and less than 1% for the third bank, FIBB (Faisal Islamic Bank of Bahrain).^[lviii] Both Murabaha and Ijara are mark-up concepts that are preferred by Islamic bankers to avoid business risk.^[lix] Both of them are not suitable for young, innovative businesses, which need a long-term financing during the start-phase.

A theoretical study of the effectiveness of mudaraba, by Elias G. Kazarian concludes that the concept of mudaraba is ineffective.^[lx] He points out the main problems , inherent to the system of mudaraba:

The borrower does not have to provide collateral, so he does not prove that he is really convinced that his project is profitable and the bank has difficulties to screen how serious the entrepreneur is. Especially in countries with a mixed banking system the entrepreneurs will prefer to try to finance risky projects by Islamic banking like mudaraba.

He bank has to select the experienced from the less experienced entrepreneurs and the risky projects from the less risky, as it is impossible for a bank to judge the risk of a project it will mainly avoid risks by narrowing the field of economical activities to conservative fields, in which the bank staff is trained and experienced. Furthermore the bank will prefer entrepreneurs that have proven their abilities and avoid new entrepreneurs; hence, an optimal allocation of resources will not be ensured.

The effort incentive problem: a mudaraba contract determines the share in the outcome of investments for the entrepreneur in advance. The payment scheme does not induce the right incentive for the entrepreneur to provide the level of effort needed for the maximisation of outcome

In this study we see that a mudaraba is not only ineffective but factors inherent to the system also hinder young, innovative entrepreneurs from being financed.

As a result of the lack of qualified staff, the banks are reluctant with financing partnerships that require a good knowledge of the economy and the economical analysis instruments, as mudaraba in general and especially in young innovative markets. Al-Suwaidi also accents the problem of assessing the credibility of the mudarib , when he claims that the mudarib:“should be both trustworthy and able to manage the project. Equally important is proper analysis of the investment and proper follow-up of the project. This is because after the mudaraba contract is signed the mudarib is empowered to act with a certain degree of freedom. The investor (Islamic bank) does not have the right to issue instructions or restrictions that have the effect of paralyzing the agent’s liberty of action or frustrating his goal of achieving a profit through acts of commerce, laid down in the mudaraba contract”.^[lxi] This makes this concept very labour-intense and risky for the bank.

An example of a failure caused by the abuse of Islamic law by borrowers and the high supervisory coasts shows us the following case-study: The concept of mudaraba was used in the late 1980-ies by the organisation “Save the Children” in Pakistan/Afghanistan programmes. But in this case, as twelve similar projects in Pakistan and Afghanistan, it returned only a negligible portion of its operating costs, which were relatively high due to the level of monitoring the approach required. The organisation explains the reasons for this failure mainly with the dishonesty of the clients and the high monitoring costs needed to avoid dishonesty and to assess the risk of a project in advance. The clients would claim business failure; for example a client would claim that an animal purchased with the capital had died and wolves had made of with the carcass. ^[lxii] Studies from Pakistan also complain about the abuse of Islamic law by borrowers, they complain that the culture of bookkeeping is not common among small entrepreneurs. So cheating can be committed very easy.^[lxiii]

The Organisation “Save the Children (SC) “regards mudaraba unsuitable for most micro- enterprise lending. A study of a mudaraba in Jordan by “Save the Children” brought the same result; SC advises the use of mudaraba“only in exceptional cases involving high dependable borrowers with excellent ideas and capabilities who lack capital.”^[lxiv]

The Islamic banks are aware of this disadvantage and some changed the concept of mudaraba. The bank can set up an account for the mudaraba, the bank itself holds the disposal rights of this account and so the bank can make the payments to the seller and the mudarib cannot use the funds for other purposes.^[lxv]

In general, however, the banks shy away from these PLS-concepts and prefer mark-up activitities, as proven above. We can see that mudaraba is not very common, less than 2%

(see above). If the banks would operate as a social welfare institution, mudaraba would be a good concept for furthering young, innovative businesses - in case they are honest and have enough incentive to put effort in their project, an incentive that is not given by this concept.

But since the banks are bond to profit-orientation they simply avoid this concept because

the current form of mudaraba makes it very risky for the bank. Either the bank has to change the concept, like asking for a guarantee – which is violating the Sharia – or it just will stay away from this kind of financing.

The small percentage of use of mudaraba makes it difficult for small, risky, enterprises in areas that are not well-known by the bank to get a loan for starting a business.

This hinders economical development in these areas and influences the economical development of the whole state. The state will develop mainly in conservative sectors, with projects of old, well-known companies, for example in the areas of business centres or transportation.

New, young and small enterprises, like they are common in new economy, will have difficulties in the starting phase and require additional help by the government.

4.2. Musharaka – “Sharing”

The second profit-loss-sharing concept in Islamic banking systems is musharaka.

In opposition to mudaraba this concept enables the bank as well as the enterpriser to contribute money and labour force in the partnership. The profits are distributed, like in a mudaraba, according to a quota previously fixed in a contract; this quota is not related to the proportion of participation of the two partners. Losses are shared in proportion to the capital contribution.^[lxvi] The classical concept of musharaka equals more the idea of investment capital than a bank credit.

The concept of musharaka does not allow the bank to ask for guarantees from the borrower for economical success, but this does not prevent Islamic banks to do so. Wilson concludes that Pakistani banks undermine the genuine musharaka agreement by reducing their part of the risk. The client is liable to pay back the capital supplied by the bank. In case of a loss, the bank is entitled to shares of the company equalling the amount of loss incurred by the bank.^[lxvii]

Moreover, in reality the Islamic banks draft the contracts in a way that puts most of the risk on the enterpriser. The bank furthermore has some security, because if mismanagement is proven, the entrepreneur may be financially liable.^[lxviii] One common practice to reach more security in Sudan is, for example, to ask the borrower for a check against “negligence or misuse of funds” which is in the form of a post-dated cheque issued by the borrower for an amount equal to the bank’s share.^[lxix]

Musharaka is used both for short term trade finance and for longer term sharings, during which the bank either stays involved until the musharaka is paid off or de-invests in favour of the enterprise or a third party. A musharaka can be used to finance the whole incorporation of an enterprise or just for particular projects of an enterprise.

For western economic thinking it is difficult to understand, why the profit sharing should be independent from the invested capital, why one of the partners should carry a possible loss that is bigger than his possible profit. This will make investment in general less attractive, because the proportion of profit and loss is not equal. Wilson claims that for a business the concept of musharaka opens up the possibility for an Islamic finance without unlimited liability, but for the bank’s point of view this arrangement is a great risk, although it also offers potential great returns.^[lxx]

We can suggest that banks will predominantly finance less risky businesses and well-known entrepreneurs; the following case study from Jordan proves this:

This musharaka, a typical example for the use of musharaka in Jordan, concerns a building centre, financed by the Jordan Islamic Bank from 1982 – 1992:^[lxxi] Jordan Islamic Bank financed since its foundation in 1978 a number of 86 projects with musharaka, most of them commercial building projects. Usually the bank constructs a commercial compound on a piece of land owned by the borrower and after the construction is completed, the bank rents out on the following basis: 25% of the revenue goes to the bank, and 75% belongs to the owner, from which he settles the bank’s loan until the balance is zero. After this the bank withdraws and the project belongs to the owner.

For these projects the bank developed some determinants of receiving a loan, which include an examination of a suited place, a known reputation of the borrower and a feasibility of the project, which means that the loan must be possible to be paid off within 5-8 years.

The building center project of this case study belonged to Mr. Suleiman Abdu. The project was studied by the bank and found feasible according to the determinants (see above).

The bank provided loans amounting J$ 736 617 during the construction period (1981 – 1983). Until 1992 the loans had been totally paid off and the ownership was transferred to the borrower. The revenues generated until 1992 amounted J$ 1 064 835.

The following table illustrates how the repayments were made:

Abbildung in dieser Leseprobe nicht enthalten

This table does not show an exactly distribution of the profits according to the former mentioned 25%/: 75% distribution norm. The case study does not explain these aberrances, which might result from special paragraphs of the contract, from taxes to pay, from paper work cost or stamp duty, but in general it provides us with a typical example of a musharaka.

We can conclude from this case study that a success rate of more than 75% is required in order to make the musharaka profitable for the bank: The banks invests 736 units, looses all money with the the probability of a total loss is (1-q), and wins in case of a success q 243 units. This calculation is balanced if: q*245 = (1-q)*736or q*981 = 736 or

q = 736/981 = 0.75..

The success rate has to be more than 75%.(For an exact description of determinants not included in this simplified calculation, see^[lxxii]) This high success rate is not reached by the average young, innovative enterprise.^[lxxiii] Hence, banks will stay away from financing these risky enterprises unless the bank employs experts that can assess the probability of success properly and in every single case. Even then it will be difficult to assess the chances of an enterprise in a new market or the management qualities of a young entrepreneur properly. In opposition to Venture Capitalists, who invest in risky businesses with a high profit in case of success, the Islamic banks are limited – both in time and in percentage - regarding their participation in the profits.

This case study of Jordan illustrates that loans provided as musharaka are given mainly to conservative sectors of economy like building projects.

It proves furthermore that young entrepreneurs will have difficulties being found feasible, because their reputation is not yet known and this is one of the points the banks is checking in order to find the project feasible.

The problem of the reputation is an important topic. Many musharakas failed, especially when lending out to less experienced and less well-known entrepreneurs:

Khaldi reports from the experiences of Dawaimeh Self-Help Group, a co-operative of 159 members in a Palestinian Baqaá Camp located in Jordan. To decrease the risk of the loaner, the cooperative, only registered co-operative members are eligible for loans and as collateral they have to bring at least two reputable guarantors and should sign promissory bank notes.

The report provides us with two failed musharakas, one of them being the investment in a car for driving lessons. The co-operative paid J$2000 and the client – Mohd Atallah - J$7000, so the co-operative would be taking part in the profits on a basis: 2000/7000 x per month. In addition the client is paying off the loan with J$200 per month. The joint venture ended after disputes with the client because he did not pay back the loans and only social pressure could force him to pay again. Another failure was connected to a car for driving lessons, too.

This car was purchased by Juma Ali Mohd for driving lessons with a loan of J$ 2000and it was agreed to divide the profit according to the formula given in the previous case.

The borrower, however, stationed the car at a well-known driving school and claimed that it was never used, hence made no profits. In the end the co-operative sold the car for J$ 1520.

This is a high loss compared with only 60 J$ profit in another musharaka of this co-operative which was successful.

A case study from Sudan concludes that musharaka is limited in its radius: “musharaka, therefore, seems to be more viable to a limited number of medium or larger scale investments which can be monitored and profits or losses easily identified.”^[lxxiv]

In order to counterbalance this difficulties and further economical development of young small enterprises, the Jordan Islamic Bank has started to give special loans under mudaraba or musharaka financing for applicants who aim at starting their own small enterprises.^[lxxv]

This method is, however, “only used for exceptional cases involving very reliable borrowers with feasible business ideas, and potential entrepreneurs who lack the capital needed to start their own businesses”.^[lxxvi] Here we see again the problem that a bank is the institution to judge whether a project is feasible or not. Bank staff can not judge the feasibility of a young, innovative business properly because this needs well trained experts in this market and a bank can not employ experts for every market. That would increase the wages to pay and thus the transaction costs. This special loans seem to be an instrument for furthering young enterprises but the addition ”…only used for exceptional cases” means that they are not available for most of the entrepreneurs. Hence, the bank will prefer conventional businesses and “reliable”, which means well-known elder entrepreneurs who already proved their feasibility.

The musharaka is a risky form of business for the bank, but in opposition to the mudaraba, the client contributes shares to the shared business and is participating in case of a failure in a loss, so the bank has a larger guarantee that he will do his best to make the business run successfully and the incentive to put effort in the business is increased. The unequal proportions of potential loss to potential profit, nevertheless, make this concept not very profitable to the bank. The bank has to invest a lot of knowledge, time and caution in an examination of the client, it operates more as an advisor and manager than as a classical bank.

We see in this example also the trend of Islamic banks to put risk on the client, which makes the musharaka more feasible for the bank, but on the other hand derives from the Islamic ideology which originally developed the concept of musharaka.

In Pakistan, for example, the Small Business Finance Corporation (SBFC) operated in a way that many financing institutions used in order to bypass the risk of musharaka for the financing institution. On the paper they showed their dealings in terms of profit sharing but in practice the basis of calculations was mark-up. If the profit reached by the client exceeds 15% the cooperation accepts the clients’ accounts as such, if it does not reach 15% the client is bound to pay 15%. This practice is nothing but conventional interest-charging. ^[lxxvii]

4.3 Islamic Banks Shy Away From Profit-Loss-Sharings, Especially With Young, Innovative Enterprises

Partnership financing has one big advantage for small entrepreneurs, in case of a loss he does not have to pay back the money to the bank. But this advantage is also one of the main reason that hinder banks to finance small innovative entrepreneurs by the means of musharaka or mudaraba. The bank has to invest a lot of knowledge and time in this partnerships, it has to operate not only as an ordinary bank but also as a manger, a management-trainer.

Nevertheless some authors claim that a musharaka has also advantages for the bank. The most obvious is that it protects the lender against inflation.^[lxxviii] This argument is mainly used in order to prove that musharaka is a good concept, but when we take a look at the numbers of musharakas, it fails.

In general Islamic banks tend to engage predominantly in marked-up related transactions and shy away from PLS-related investment. In Pakistan in 1996 mark-up activities represented 90% of all banks´ financial transactions.^[lxxix] This is an increase in the percentage of mark-up activities in comparison to a report of the State Bank of Pakistan from 1984, when mark-up activities represented only 77.2% and musharakas 4%.^[lxxx] Akhtar concludes that “despite the theoretical claims about the superiority of mudaraba and musharaka for commercial banks in Islamic countries, the banks in Pakistan preferred mark-up based financing (mainly murabaha – See paragraph 5.3). A similar situation exists, according to Akhtar, with Islamic banks outside Pakistan.^[lxxxi]

In addition we see a tendency to short-term financing, not suitable for the start-up of young, innovative businesses, which need a long- or medium-term finance. Kazarian, as one of many authors, concludes that: “Islamic banks concentrate on short-term and less risky operations”^[lxxxii].A term structure of investment by 20 Islamic banks, published by the International Association of Islamic Banks in 1988 shows, that 68,4% of all investments were short-term investments and only 9,8% medium or long-term investments, like musharaka or mudaraba..(20% were real estate investments, 0,9% social lending).^[lxxxiii] In conventional banking systems, credits provided especially for the start-up of young, innovative businesses have an average run time of 5-7 years; conventional banks provide credits which enable the entrepreneur to start the payback after 7 years, so he has enough time to bridge the difficult start-up period.^[lxxxiv]

In addition to the small percentage of PLS financing, most musharaka financing took place with larger firms and conventional corporations and there was no noticeable improvement in the risk-averse behaviour of financial institutions from the point of view of small businesses.

Hildebrandt criticizes that :”( Islamic) banks concentrate on conventional businesses instead of developing innovative, new concepts”.^[lxxxv] An examination of financing in Pakistan concluded that, “Although the state bank of Pakistan has fixed mandatory targets…these measures have not motivated the banks to provide finance to small firms.” ^[lxxxvi]

BIMB, as a typical example of Islamic banks and the difficulties they face, claims that there is often a lack of trustworthy and honesty among the entrepreneurs concerned. Either they did not declare all their profits or lacked the skills to run the business.^[lxxxvii] Studies from Pakistan claim that the culture of bookkeeping is not common among small entrepreneurs. So cheating can be committed very easy.^[lxxxviii] Some banks tried to reduce these risks by setting up lists of reliable clients, known from former transactions, who could recommend new clients. Conventional banks do not have to examine the expected profits of the client, because the credit is not connected to the profits. In the case of a special credit for young, innovative entrepreneurs, provided by the Mittelstandsbank, Germany, the entrepreneur is liable as an individual and does not have to present guarantees.^[lxxxix] Thus the bank ensures its security without having to invest a lot of time and efforts in supervision of the enterprise financed, because he is personally responsible for the payback, even if the enterprise fails.

A general problem in much of the MENA region is that the quality of institutions, including the legal system and property rights is low. A study of financial development in the MENA region by IMF (International Monetary Fund) claims: ”For instance, in several countries, the judicial system is susceptible to political pressure and long delays, resulting in poor legal enforcement of contracts and loan recovery. Property rights enforcement also tends to be weak. This hinders commercial activity and investment, and hence growth.”.^[xc] This will further contribute to the avoidance of risks by banks, because in case of mismanagement it will be hard for the bank to prove that the borrower has to pay back the money.

Another problem is the lack of medium and long terms funds, needed to finance mudaraba and musharaka, long term financing involves higher risks and need qualified bank staff, which is lacking. ^[xci] The shift in asset allocation towards medium and long-term investment and equity participation requires further structural changes, because it is very labour intensive for the bank, connected with more involvement and the need of good trained bank staff. It furthermore requires adequate legal systems and enforcement.

[...]

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^[1] www.politikforum.de; www.islamicbanking-finance.com

^[2] Chapra, M.U., Nature of the Economic System in Islam; in: Islamic Quarterly, Vol. 14, No.2; See also: Chapra, M.U., Objectives of the Islamic Economic Order

^[3] Siddiqi, M.N., Muslim Economic Thinking: A Survey of Contemporary Literature; in: Ahmad, K., Studies in Islamic Economics;

See also: Siddiqi, M.N., Islamic Approaches to Money, Banking and Monetary Policy: A Review, in: Ariff, M (ed.) , Monetary Policy in an Interest-Free Islamic Economy – Nature and Scope, in: Ariff, M.(ed.), Monetary and Fiscal Economics of Islam, International Centre for Research in Islamic Economics

^[4] Ahmad, K. (ed.), Studies in Islamic Economics, The Islamic Foundation

^[5] Khan, M. S./ Mirakhor, A. (eds.), Theoretical Studies in Islamic Banking and Finance

^[6] ibid

^[7] El-Ashker, A.A., The Islamic Business Enterprise

^[8]Wilson, R.(1995), Economic Development in the Middle East; Wilson, R.(1990), Islamic Financial Markets;

^[9] Nienhaus, V., The Performance of Islamic Banks Trends and Cases; in: Mallat, C.,Islamic Law and Finance; Nienhaus, V., Islam als Urasche von Unterentwicklung; in Paraskewopoulos (ed.),Wirtschaftsordnung und wirtschaftliche Entwicklung“, pp. 362 – 376

^[10] Kuran, T., The Economic System in Contemporary Economic Thought; in: International Journal of Middle East Studies, Vol. 18 No. 2, pp. 135-164; Kuran, T., Behavioural Norms in the Islamic Doctrine of Economics; in: Journal of Economic Behaviour and Organisation, No. 4

^[11] Kazarian, E. G., Islamic Versus Traditional Banking

^[12] Al-Omar, F. /Abdel-Haq, M., Islamic Banking

^[13] It is written in the Quran: “But Allah hath permitted sale and forbidden usury” (Q11:275)

^[14] Al-Omar, F. /Abdel-Haq, M., Islamic Banking, p. 8

^[15] Those verses claim: Those who devour riba will not stand except as he stands who has been driven

to madness by the touch of Satan. This is because they say: trade is only like riba, but Allah has permitted trade and forbidden riba …Allah will deprive riba of all blessing (Q 2:275-276).

“O Ye who believe! Fear Allah and give up what remains of your demand for riba, if you are indeed believers: If you do not, take notice of war from Allah and its Apostle, but if you turn back, you shall have your capital sums; deal not unjustly, and you shall not be dealt with unjustly. If the debtor is in difficulty, grant him time till it is easy for him to repay. But if you remit it by the way of charity, that is best for you if only you knew (Q 2:278-280).

O you who believe! Devour not riba, doubled and multiplied, but fear Allah, that you may prosper! (Q 3:130)

^[16] Kuran, T., The Economic System in Contemporary Economic Thought, p. 149

^[17] Hildebrandt, W.P., Islamische Wirtschaftsideologie, p.13

^[18] But they would probably be opposed to the principle of work and productivity, a basic principle of Islamic Economics, that claims that wages have to be related to the amount and category of the labour performed. Concerning the balance out of expenditures and income the Quran says “ Do not let thy hand be mancled to thy neck, nor open to its fullest extend ( Q 17:29)

^[19] The extensive doubts of the early Muslims about this topic are documented by Fazlur; see: Fazlur,R., Riba and Interest, Islamic Studies,3,1, pp. 1-43; in: Kuran, T., The Economic System in Contemporary Islamic Thought: Interpretation and Assessment, p.149, in: International Journal of Middle East Studies, Vol. 18, No.2 (Mai, 1986). Pp. 135-164

^[20] Nienhaus,V. Islam als Ursache von Unterentwicklung, p.362

^[21] Yusuf, S.M., Economic Justice, p. 86; in Kuran,T., The Economic System in Contemporary Islamic Thought, p. 149

^[22] www.jordanislamicbank.com.

^[23] and even in this case it violates the Sharia because a service fee has to be connected just to the service provided, deriving from the principle of work and productivity that connects work to earnings and prohibits any exceeds. So a bank is not allowed to limit the amount of the loan with arguing that it would have to increase the service fee, if the client asks for a higher loan.

^[24] Gafoor,A. A.L.M. Interest-free Commercial Banking, published online: http://users.bart.nl/~abdul/chap4.html#4.1.1, first published 1995

^[25] Schumpeter,J., Wirtschaftliche Entwicklung, p. 148

^[26] Naqvi, S.N.H., Interest Rate and Intertemporal Allocative Efficiency in an Islamic Economy, in: Ariff, M. (ed.) Monetary and Fiscal Economics of Islam, International Centre for Research in Islamic Economics, pp. 75-95

^[27] www.gruenderforum.de

^[28] Kuran, T., The Economic System in Contemporary Islamic Thought: Interpretation and Assessment, p. 150, in: International Journal of Middle East Studies, Vol. 18, No.2 (Mai, 1986). pp. 135-164

^[29] Khan, M. S./ Mirakhor, A. (eds.), Theoretical Studies in Islamic Banking and Finance, p.245

^[30] Kazarian, E.G., Islamic Versus Traditional Banking, p. 221

^[31] Huthmann,A., Eigenarten des Islamischen Bankensystems, Marburg, 2002, p. 6

^[32] Kuran, T., The Economic System in Contemporary Islamic Thought: Interpretation and Assessment, p. 152, in: International Journal of Middle East Studies, Vol. 18, No.2 (Mai1986). pp. 135-164

^[33] Hildebrandt, Wirtschaftideologie, p. 16

^[34] See: http://www.ifsb.org. Members are i.e.: Central Bank of Egypt; Bank Indonesia; Central Bank of the Islamic Republic of Iran; Islamic Development Bank; Central Bank of Jordan; Central Bank of Kuwait; Bank Negara Malaysia; State Bank of Pakistan; Qatar Central Bank; Saudi Arabian Monetary Agency; Monetary Authority of Singapore; Bank of Sudan; Central Bank of the United Arab Emirates

^[35] Mengers, R., Islamic Banking in Europe - the Reintegration of Faith and Economy,5th SLIM Annual Lecture; 15th May 2002, Southwark

^[36] Lewis, M.K./ Algaoud, L.M., Islamic Banking, Cheltenham/Northampton, pp. 180/181

^[37] Daily Star (1.10.2004), Experts say Islamic finance needs regulation, Beirut

^[38] ibid

^[39] ibid

^[xl] Wilson,R. , Economic Development in the Middle East, p. 117

^[xli] Universität Duisburg Essen, Campus Essen:“ICE Hilfen No. 6“; published online: www2.pim.uni-essen.de/ice/download/ice-hilfen-nr.6.pdf

^[xlii] United Arab Emirates Civil Transaction Act No. 5 of 1985, translated into English by Whelan,J./ Hall,M., p. 3.1-187; in: Al-Suwaidi, Finance of International Trade in the Gulf

^[xliii] Iqbal,Z,/ Mirakhor,A., Islamic Banking, Occasional Paper 49, International Monetary Found

^[xliv] Nevertheless it became a common practice of Islamic banks today to ask for this guarantee. Hence, the risk for the banks is limited but the range of action and the rights of disposal of the borrower are also limited very much.

^[xlv] Mattes,J.,Ökonomie im Islam; in: BDA – Bundesvereinigung Deutscher Arbeitgeberverbände e.V. (ed.), Kirche und Wirtschaft; available online: http://www.bda-online.de/www/bdaonline.nsf/ID/ImpressumDE?Open

^[xlvi] Kazarian, E.G., Islamic Versus Traditional Banking, p. 102

^[xlvii] Wilson,R., Saudi Arabia: The Islamic Development Bank´s Role as a Pan-Muslim Agency; in: Wilson,R. (ed.), Islamic Financial Markets

^[xlviii] Kazarian, E.G., Islamic Versus Traditional Banking,p.95

^[xlix] Kazarian, E.G., Islamic Versus Traditional Banking, Colorado/Oxford, 1993, p. 95

^[l] Islamic International Bank for Investment and Development, annual reports, Cairo, pp. 153-155; in: Kazarian, E.G., Islamic Versus Traditional Banking, p. 54

^[li] www.jordanislamicbank.com.

^[lii] Interview made by Kazarian, E.G. with the manager of Bank Islam Malaysia Berhad, Dr. Abdul Halim Ismail, 10. August 1986. The opinion of Ismail is also stated in his article: Ismail, A.H.(1986), Islamic banking in Malaysia: Some Issues, Problems and Prospects, an unpublished manuscript, Bank Islam Malaysia Berhard, Kuala Lumpur; in: Kazarian, E.G., Islamic Versus Traditional Banking, p. 54

^[liii] Wilson,R., Economical Development in the Middle East,p. 117

^[liv] Al-Suwaidi,A., Finance of the International Trade in the Gulf, p. 75

^[lv] Al-Omar, F./ Abdel-Haq, M., Islamic Banking, p. 99

^[lvi] Al-Harran, S., a proposal for musharaka finance for fishing people in Malaysia, in: Harper, M., Partnership Financing for Small Enterprises, London, and p.46.

^[lvii] Akhtar, M.R., Musharaka Financing for Small Enterprises in Pakistan, in: Harper, M., Partnership Financing For Small Enterprises, p.39

^[lviii]Lewis, M.K./ Algaoud, L.M., Islamic Banking, p.177

^[lix] http://islamic-world.net/economics/ijara.htm

^[lx] Kazarian, E.G., Islamic Versus Traditional Banking, pp. 100-106

^[lxi] Al/Suwaidi,A., Finance of International Trade in the Gulf, p. 75

^[lxii] Aziz,B. et al.., Group-guaranteed lending and saves for Afghan women, in: Harper, M., Partnership Financing For Small Enterprises, p.54

^[lxiii] Aktar, M.R., Musharaka Financing for Small Enterprises in Pakistan; in: Harper,M., Partnership Financing For Small Enterprises, p. 40

^[lxiv] Aziz,B., et al.., Group-guaranteed lending and saves for Afghan women, in: Harper, M., Partnership Financing For Small Enterprises; in: Harper,M., Partnership Financing For Small Enterprises, p.54

^[lxv] Saeed, Islamic Banking and Interest, pp. 56-58

^[lxvi] Warde,I., Islamic finance in the global economy, p. 137

^[lxvii] Wilson,R., Islamic Financial Markets, p. 186

^[lxviii] Warde,I., Islamic finance in the global economy, p. 137

^[lxix] Abdallah, M.G-E., Partnership Financing For Small Enterprise – Problems and Suggested Improvements, p. 58 , in: Harper, M., Partnership Financing For Small Enterprises, p. 56-62

^[lxx] Wilson,R., Economic Development in the Middle East, p. 117

^[lxxi]Hamdan,M., Musharaka financing for small enterprise under the Jordan Islamic Bank’s lending programme: in: : Harper, M., Partnership Financing For Small Enterprises, pp. 19/20

^[lxxii] This calculation is simplified and excludes the following determinants:

^[lxxiii] www.greunderforum.de

^[lxxiv] Nourain,A., ACORD musharaka credit programmes in Sudan; in: Harper, M., Partnership Financing For Small Enterprises, p. 34

^[lxxv] Hamdan,M., Musharaka financing for small enterprise under the Jordan Islamic Bank’s lending programme, in: : Harper, M., Partnership Financing For Small Enterprises, pp. 19/20

^[lxxvi] Hamdan,M., Musharaka financing for small enterprise under the Jordan Islamic Bank’s lending programme, in: : Harper, M., Partnership Financing For Small Enterprises, p 20

^[lxxvii] Akhtar, M.R., Musharaka Financing for Small Enterprises in Pakistan, p. 39 in: Harper, M., Partnership Financing for Small Enterprises, p.35-42

^[lxxviii] Abdallah, M.G-E., Partnership Financing For Small Enterprise – Problems and Suggested Improvements, p. 59, in: Harper, M., Partnership Financing For Small Enterprises, pp. 56-62

^[lxxix] Al-Omar,F./Abdel-Haq,M., Islamic Banking, p.99

^[lxxx] Akhtar, M.R., Musharaka Financing for Small Enterprises in Pakistan, p. 39;in: Harper, M., Partnership Financing for Small Enterprises, p.35-42

^[lxxxi] Akhtar, M.R., Musharaka Financing for Small Enterprises in Pakistan, p.39 in: Harper, M., Partnership Financing for Small Enterprises, p.35-42

^[lxxxii] Kazarian, E.G., Islamic Versus Traditional Banking, p. 227

^[lxxxiii] source: Aggregate balance sheets prepared by the International Association of Islamic Banks(1988) , Bahrain

^[lxxxiv] www.mittelstandsbank.de; www.gruenderzentrum.de

^[lxxxv] Hildebrandt, Wirtschaftsideologie, p.16

^[lxxxvi] Akhtar, M.R., Musharaka Financing for Small Enterprises in Pakistan, p. 39 in: Harper, M., Partnership Financing for Small Enterprises, pp.35-42

^[lxxxvii] Al-Harran, S., A proposal for musharaka finance for fishing people in Malaysia, p. 46; in: Harper, M., Partnership Financing For Small Enterprises, pp. 45-51

^[lxxxviii] Akhtar, M.R., Musharaka Financing for Small Enterprises in Pakistan, p.39; in: Harper, M., Partnership Financing for Small Enterprises, London, 1997, pp. 35-42

^[lxxxix] www.mittelstandsbank.de; www.gruenderzentrum.de

^[xc] Creane,S.et al., Financial Development in the Middle East and North Africa ;published online:www.imf.org

^[xci] Al-Harran, S., A proposal for musharaka finance for fishing people in Malaysia, p. 46; in: Harper, M., Partnership Financing For Small Enterprises, pp. 45-51