STARTING A LARIBA BANK IN A RIBA BANKING WORLD
We need to clearly differentiate between two important approaches to
the start up of a "LARIBA" bank.
These are:
1.The establishment of a "LARIBA" bank within a master plan
of a perfect Muslim society which is governed by a government and operating
by a full fledged and complete Islamic LARIBA financial system, and
2.The establishment of a "LARIBA" bank which follows the
Islamic LARIBA laws and which is independent of the other parts of the
society at large, in a society which does not operate according to the
Islamic laws.
This approach assumes that the transformation to a full Islamic society
governed by Islamic laws and ethics will take time.
The first approach will result in applying the prohibition of RIBA
in the banking system in its totality.
Yet, in the second approach, the prohibition of RIBA will be applied
only to the particular LARIBA bank.
We all live in this second option.
In fact, regardless of whether a government is in a Muslim land, or
non-Muslim land, most every one, with a very few exceptions, does not
apply Islamic laws in their entirety.
That is why one needs to find a format that is legally acceptable from
the point of view of Islamic law in our efforts to establish an Islamic
LARIBA bank in a world which is not governed, in most cases, by Islamic
laws.
The following three conditions are thought to be necessary and required
to achieve our goal:
1.The LARIBA bank should not violate the rules and laws of Islamic LARIBA
banking and financing and the spirit of Islamic economic principles.
2.The LARIBA bank should operate and compete in all aspects of the
banking business with the other RIBA banking institutions in the community.
The LARIBA bank should be designed to have the flexibility, operating
creativity and the financial products "manufacturing" ability
to attract customers (Muslims and non-Muslims) and to keep them.
It should aspire to make a clear and distinguished difference in the
lives of the citizens of the community at large.
3.The LARIBA bank should be operated as a profitable business entity.
In particular, the LARIBA bank should offer superior services and returns
as compared to the RIBA banks.
In addition, the LARIBA bank should play an important role which is
felt by the community at all levels, especially at the grass roots level.
The LARIBA bank in its active effort to serve the community will become
the force behind capital accumulation from the community and in using
that capital to finance projects and services which will make a difference
in the economic well-being of the community.
This is done through job creation for members of the community and
others outside the community.
4.The LARIBA bank should be more sensitive to risk management than the
RIBA banks.
So, in its efforts of capital accumulation, the LARIBA bank, in its
slow and gradual effort to get established, should target a smaller
percentage of the assets and savings of the community to be used in
LARIBA financing.
It should also be made clear to the participating investors, that because
of the start-up nature of the LARIBA bank venture, there is a risk of
loosing all or part of their assets.
But on the other hand, it should be made clear both operationally and
to the investors that the bank will apply careful due diligence and
portfolio diversification methods and will keep enough reserves for
potential losses in order to minimize the possibility of loosing money
while paying acceptable returns on the investment.
5.The LARIBA bank should start by a core group of shareholders who
believe in the dream of having a bank and/ or a finance company which
operates according to the LARIBA system.
They should satisfy the following requirements:
5.1 They should be hand picked to form a homogeneous group with the
same vision, dreams, social and personal backgrounds as well as the
same investment and business temperament.
5.2.They should be financially well-to-do (but not necessarily very
rich).
This will make them able to meet any run on the LARIBA bank in case
a rumor or an unexpected event occurs.
This way the LARIBA bank will always be able to meet any requests for
withdrawal of investors' deposits
5.3.They should come with a highly diversified actual "hands-on"
experience in the business fields to be targeted for financing by the
LARIBA bank.
This way, the bank will be able to evaluate the projects by owners/experts
who are looked upon as managing their own funds and who are in actual
operational sense the "managing partners" (not employees)
of the LARIBA bank.
5.4.They should be willing to accept no pay or low pay for their services
to reduce the overhead expenses of the LARIBA bank.
Especially, when the LARIBA bank is in its infancy and the assets under
management are still small.
6. The LARIBA bank should structure its capital such that the core
group of share holders' capital and/or investments represent at least
50% of the total assets under management.
This way the LARIBA bank can meet any unexpected run on its deposits.
(As mentioned above under 5.2)
7. Deposited (investors') assets in the LARIBA bank are looked upon
as liabilities of the shareholders.
This way every shareholder/member of the board of directors and bank
management will make sure to carefully evaluate every project to be
financed by the LARIBA bank to minimize their perceived personal liability.
8. Investments made by the LARIBA bank should be shorter term in the
beginning (3-5 years) to assure enough cash flow to meet any demands
for withdrawals by investors.
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SECTION II
Historic Review and Details of
The Modern Monetary System and The European Monetary Union
This section summarizes the history of developing the most sophisticated
monetary system in the world; i.e. the American monetary system, and
the policies of the U.S. Federal Reverse Board to manage the economy
in the U.S. through monetary adjustments and interest rates on the U.S.
Dollar.
Chapter 5 reviews the historic development of the system, and the concept
of creation of credit in the banking system.
In an effort to shed some light on the effect of monetary policy on
inflation and the use of monetary policy to enhance major political
goals, a case study on the post World War II international monetary
system is reviewed in chapter 6. Chapter 7 review Europe's efforts to
unite as a case study for all these nations with homogeneous and converging
social and human values and with integrated market and economic potentials
on their way to realize the same dream of unity as that of Europe.
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