*
\nSecond, we analyze how an Islamic bank can enhance rural development by channelling funds from savers to investors.
\n\n
*
\nThe Islamic banking system can render services to the rural people in the following ways. In this regard, Islamic banks can learn valuable lessons of loan management from the existing Grameen bank. First, the financial institutions are not only active in the large busi-ness centers of the country but work in the rural areas and not only with the big landlords but especially with the people. Second, the Islamic banks offer their customers different types of deposits to meet with their different savings motives, the majority of funds thus mobi- lized should be invested in the local community in developmental projects.
\nManagerial Finance 66
\nTo establish a bank in a village or a small town is very unusual, and those who have this intention will probably face some difficulties to raise the capital and to find suitable staff for their project. The uncertainties about the commercial feasibility of such a project are sub- stantial, and the profit expectations for the capital owners are not very promising for the ini- tial years. But at least there is a hope that in the long run the dividends may become competitive if the bank suceeds in initiating economic development in the local community and is able to create its economic development in the local community and is able to create its own group of self-employed people and new entrepreneurs whose activities and ven- tures it finances. To attain this goal the bank could, for example, pay special attention to the financing of productivity improving devices for small craftsmen, peasants, traders, etc., who had practically no chance to get loan from a conventional bank due to their lack of col- lateral.
\nThe bank should not care so much about (existing) collateral but give more importance to the personal qualities and capacities of the clients. The financing decisions should not de- pend on physical capital (collateral) but primarily on the “human capital” of the client. The expectation is that there should be no substantial defaults since the clients are aware of the fact that they have no alternative for future financing. The objective of the Islamic bank should be to change the behavior of the people (to “educate the masses”), to integrate the ru- ral population into the financial system, thus widening the basis for the national capital for- mation. The Islamic bank should also decentralize the system in order to create self-supporting regional sub-systems to improve the individual as well as the collective economic situation of the majority of people living in rural areas.
\nThe employment of substantial parts of the funds in the same community where they have been mobilized does not mean, however, that the banks in rural areas should work in isolation and have no relations with the big business in the commercial centers. On the con- trary, it is of high importance for the smooth functioning of local Islamic banks in smaller communities that they can take recourse to an inter-bank market in order to place (short term) surplus funds (for which they have no immediate use) or to get funds immediately when there is an unexpected need of liquidity. A cooperation of rural Islamic banks with interest-free commercial banks in the big business centers seems to be necessary. This im- plies that there should be different types of Islamic banks in order to develop a banking sys- tem that performs all the macroeconomic functions that are accomplished by conventional interest-based banking system.
\n\n
\n
5.2.2. The Deposit Growth of IBBL
\nIslami Bank gives special importance on savings. According to its charter, the objectives and principles of the savings policy of the Islami Bank are: 1. To encourage people to save; 2. To develop a sustained savings habit among the people; 3. To mobilize deposits through the operation of following accounts: (i) Current Deposit Account; (ii) Profit and Loss Shar- ing Savings Deposit Account; (iii) Profit and Loss Sharing Term Deposit Account; (iv) Profit and Loss Sharing Short Notice Deposit Account; (v) Hajj Savings Account (a special
\nManagerial Finance 70
\nProfit and Loss Sharing Deposit Account to facilitate performance of Hajj by fixed income group). 4. To operate all accounts, other than Current Account, on the basis of Profit-Loss Sharing; 5. The Bank accepts Current Deposit on the principle of Al-Wadia and profit-loss Sharing Term Deposit, Profit-Loss Sharing Short Notice Deposit and Hajj Savings Deposit on the principle of Al-Mudaraba; 6. The Bank distributes 75% of its investment-income among the Profit and Loss Sharing Depositors.
\n*the mobilization of domestic savings through Islamic banking
\n*For Indonesia, the global sukuk market in particular has become an alternative source of funding for infrastructure and other investments. Indonesia has already issued a debut international sovereign sukuk and a number of rupiah-denominated sukuk for the domestic retail market
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