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Home arrow Business & Finance arrow The art of RF (riba-free) Islamic banking and finance

Bank Regulators

Bank regulators are required by law and their job description to make sure that the depository institutions (banks) under their jurisdiction operate according to regulations and that the laws of the land are upheld to the fullest in a safe and sound way to preserve the assets of the citizens and the reputation of the system. Regulators have been willing to listen graciously and with great interest, and to entertain new products and service ideas.

The first attempts to engage the banking regulators in the West were made in the United Kingdom, when Al-Baraka Bank was started in London in the mid-1980s. The charter was withdrawn later by the U.K. bank regulators because of a number of violations and the fact that the owner entity — Dallah Al-Baraka in Saudi Arabia — though licensed there to operate as a finance and investment company, did not have a licensed operating banking institution that was chartered by the central bank of the country of origin, Saudi Arabia.

Another attempt was later made by a Kuwaiti bank (United Bank of Kuwait) at its U.K. branch in London and its U.S. branch in New York. The New York branch representatives explained to the regulators — the Office of the Comptroller of the Currency (OCC), in this case — how their finance scheme and model for home mortgages, called Al-Manzil, worked.[1] After long evaluation, research, and deliberation, the OCC concluded, based on the detailed supporting documentation supplied by the applicant, that there was no difference between the proposed scheme and the regular interest- based contract, and pronounced it acceptable.

When an entity (like Fannie Mae, Freddie Mac, the IRS, or the OCC) decides that a new product or scheme looks fine, they list it under the category of exceptions to the norm. This term was used by Fannie Mae and Freddie Mac in order to accept the modified Shari'aa-compliant contracts. That is well and good in good times, but that “exception” can be taken away any time, rendering the RF bankers' many years of effort worthless. That is not what we are aiming to do. The challenge, for those who believe in RF banking and way of life, is to devise legal documents that abide by the laws of the land, using ways and means that comply with the regulations and the laws of the land while not violating the basic values of the Judeo-Christian- Islamic value system and Shari'aa law.

  • [1] OCC, Interpretive Letters #806 (1997) and #867 (1999). Please visit These letters were written regarding the United Bank of Kuwait's A1 Manzil Program: The OCC has issued two opinion letters, one on murabaha and the other on ijara home financing by the United Bank of Kuwait (UBK), which has since been merged into what is now Shamel Bank in Bahrain; the federal branch was closed in the early 2000s, only two years after it started offering these contracts.
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