The 1980's witnessed the largest bank
failures in the history of the United States.
The deterioration of the savings and loans
industry along with the banking industry itself
brought about many pressures for the bank and
the savings and loans to compete.
Another parallel event was the emergence of
the money market accounts, by which checking
accounts could earn interest on their deposits.
With the high interest rates prevailing in
the early eighties, many banks and saving and
loans associations resorted to speculative
lending hoping to achieve higher returns and
hence pay the money market accounts, the
certificate of deposits and savings accounts
those high rates prevailing at that time.
When the economy turned from bad to worse and
with the recessions of 1987, 1989 and 1990's
many of the speculative lending practices were
exposed.
Many of the troubled banks and savings and
loans blamed the economy to be the real reason
for their failure.
It is the author's belief which is based on
real life experience, consulting for and
communicating with many friends and associates
in the banking industry, that the real reason
for the failure was the lack of moral
responsibility on the part of both the lender
(lending officers) and the borrower.
The real honest businessman was deprived the
opportunity of getting his/her loan approved
only to find the money going to spectaculars
with special connections to the loan officers or
the bank management.
The result is well known and the damage done
not only to the financial markets but also to
whole economy will take years to fix.
It is the author's belief that if communities
were to flourish again and for the economy to
restructure in a fundamental and lasting way,
moral community banks should be tried once
again.
History shows that such banks (and building
and loan societies) were the real locomotives of
community developments in the U.S. out of the
depression of the 1930's.
That does not mean that the regional and
large money center banks have no place in the
economy.
Indeed they would be the buyers of the
community loan portfolios developed by the
community banks.
The step wise approach towards realizing this
goal is to create financial institutions which
have the capacity of circulating the community
savings within the community to activate its
economy through financing projects and
businesses, and in the process creating job
opportunities for the community members and
others.
The bank would be an honest-to-goodness
community development bank which makes money
available for non-speculative and economically
productive schemes.
This is essentially the foundation upon which
the concepts of LARIBA (Islamic) banks are built
on.
These concepts are much needed in every part
of the world.
And because the LARIBA system originated in
the Islamic doctrine it becomes the
responsibility of the Muslim communities in
America and the West to provide a living example
of such a system.
If successful, it will present America and
the world with an important contribution towards
the happiness and prosperity of all people,
Muslims and non-Muslims.
And the result would be a closer society
which harmonious in its relationships, fair and
moral in its dealings, and most productive
because it was done right.
This book addresses the LARIBA (Islamic)
Banking system.
When we describe the Islamic Bank as a LARIBA
Bank, we mean the bank which follows the LARIBA
Islamic system.
Many translate RIBA as interest (The word
LARIBA consists of two parts "LA" which means No
and "RIBA" which means to grow, connotating the
concept of money growing just because it is lent
out regardless of the purpose of lending it.
The LARIBA system is a development banking
system at heart).
We define LARIBA as a system which involves
the creation of money (monetary system), the
creation of credit (banking and financing) and
the total economic system (collection of Zakah,
distribution of inheritance, and most
importantly savings).
The contents of the this book are based on
the author's practical experience accumulated
through the start up, organization and
development of American Finance House-LARIBA in
Pasadena, California since 1987, in addition to
the author's experience in interacting,
consulting and doing business with many Islamic
banks world-wide.
It is our hope that this preliminary effort
will be the beginning of a series of in-depth
writings on each of the concepts discussed in
this book.
In conclusion, we ask Almighty God to accept
this effort and to forgive us any unintended
errors or misconceptions of His system, the
LARIBA system of banking and finance.
