The Saudis, The Muslim Brotherhood, And Islamic Banking - EWI EXCLUSIVE | by J. Millard Burr

Wednesday, February 20th, 2013 @ 6:39AM

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The early successes of Arab/Muslim-owned banking in Europe and the Arabian Peninsula, and the establishment of an economic foundation that modernized the Kingdom of Saudi Arabia, were both the work of Faisal bin Abdulaziz Al-Saud (1906-1975). Prince Faisal served as Saudi Arabia’s de facto ruler during the last years of King Saud’s reign, and then as King Faisal he led Saudi Arabia from 1964 until his assassination by a family member in March 1975.

As king, Faisal rescued the country from bankruptcy.  He instituted banking reforms and helped modernize and expand the nation’s economy by opening commerce to Saudi families outside the Royal family.

During Faisal’s lifetime, both the incipient Arab banking sector and the international Muslim Brotherhood (Ikhwan al Muslimun) benefitted immeasurably from his patronage.

When the Muslim Brotherhood was attacked in Egypt, first in the 1950s and again in the 1960s, Faisal welcomed their presence in Saudi Arabia. They were useful both at home and abroad as Saudi Arabia initiated a campaign to counter Gamal Abdel Nasser’s Arab socialism and a threatening pan-Arabism.

Faisal was also instrumental in using Ikhwan intellectuals in developing the Arab/Muslim-owned conventional banking network, and he attracted such noted individuals as Hasan al-Turabi (Sudan), Yusuf al-Qaradawi (Egypt), and Abd al-Sattar Abu Ghaddah (Pakistan).

IKHWAN BANKING IN EUROPE

By the mid-1970s, there was a confluence of events that was to change ineluctably the destiny of the Arab World. In Egypt the moribund Ikhwan was reviving under the benign rule of Nasser’s successor, President Anwar Sadat.  It was also alive and well in Saudi Arabia and the Gulf states, where a cadre of educated Egyptian Ikhwan not only served as teachers and clerics but was taking a leading role in banking and investment.

Many of the educated Ikhwan who fled Nasser’s Egypt and prospered in Saudi Arabia found employment in an emerging Middle East banking sector that was expanding due to the massive influx of petrodollars. Tangentially, in the mid-1970s the Ikhwan, though small, was also alive and well in Europe. There, expatriate Brothers, many of whom were experienced money-managers, were about to take the lead in moving the Brotherhood into the closed world of Western banking and finance.

Following a meeting of major Ikhwan leaders held in Lugano, Switzerland, the decision was taken to found the International Islamic Bank of Investment and Development (IIBID).  Established in Luxembourg in 1977, the initial investment in the Bank totaled $100 million, which represented the issue of one million shares. Beginning as a holding company, its leadership would later admit that Luxembourg had been chosen because the Ikwan had encountered “difficulties in obtaining a banking license in other [European] countries.”

While the Bank did not lack for investors, the IIBID (which is still located in Luxembourg) was both organized and administered by the Ikhwan’s secret leadership. Called the “Gamaat” (group) by insiders, Ikhwan members were “the main motivators behind setting up experiments in Islamic financing on a nationally and internationally viable scale.” In the Ikhwan’s own words it was admitted that “The theory and practical requirements needed to set up an Islamic banking system came from amongst the ranks of the Ikhwan.” For public consumption the IIBID showed a board of directors with twelve impeccable members. In reality,Gamaat administered the bank.

Among the first stockholders was the United Arab Emirate’s Ministry of Awqaf (charitable donations), and it ceded its voting rights to the Corporation, i.e., the Muslim Brotherhood leadership.  A minor investor was the Ikhwan movement of Abu Dhabi, while a major plunger was the well-funded Kuwait Investment House (KIH). Founded in 1977, the KIH was the largest and most successful of the early Arab entities that invested in banks based on Islamic rather than Western principles. The KIH was then, and afterward, known as a “Brotherhood” entity.  In the years ahead, it was bound to grow given Kuwait’s vast petroleum resources.

Given the murkiness that attended the early Islamic penetration of European banking, it is unclear if the Ikhwan ever gained a controlling interest in the Luxembourg operation–or even if they cared to do so. In reality, the Luxembourg operation satisfied a variety of interests, and the aims of its Saudi investors (Faisal/Rajhi/Baraka) coincided quite nicely with the aims and objectives of the Ikhwan al-Muslimin.

Once situated in Europe, the Ikhwan would take every advantage given it to expand throughout the continent. (On the growth of Islamic banking see, “Mohamed Ariff, “Islamic Banking,” Asian-Pacific Economic Literature, September 1988, pp 46-62.) The IIBID’s first Chief Executive Officer was Dr. Jamal al-Din Attia, a lawyer and Egyptian Muslim Brother.  In turn, Attia was a close associate of Yusuf Nada, a man who would soon emerge as the Brotherhood’s chief European banker.

 

By 1983 the IIBID had helped in the establishment of eleven Islamic banks, including the Kibris Islamic Bank of Cyprus, and the Islamic Bank of Vienna, Austria, and a number of insurance companies.  And it was under the leadership of Attia, that by then the IIBD was seen as one of the more successful institutions operating both in the Arabian Gulf “and the West.”  (See Arabia, February 1984, page 52.) Its shareholders included the Saudi Al Baraka Group, the Ministries of Awqaf of Kuwait and Abu Dhabi, the Tadamun Islamic Bank of Sudan, and the Kuwait Finance House.

In the Ikhwan’s own words, the IIBID was the motivation for the creation of “experiments in Islamic financing on a nationally and internationally viable scale.”  In sum, as cited above, “The theory and practical requirements needed to set up an Islamic banking system came from amongst the ranks of the Ikhwan.” In 1982 the IIBID–which by then was known as the Islamic Finance House–made a major move, opening to the public the Islamic Bank International of Denmark. Operating from Copenhagen, once it obtained its bank license it disguised its Islamist purpose and announced that it would conduct “all banking activities” expected of Western banks.

As implied above, the IIBID would operate under a variety of names, at least in English. After being known as the IIBID, it changed its name to the Islamic Banking System International; after that, it changed its name to the Islamic Finance House. Meanwhile, it continued to acquire new investors.  (See A. W. Haqiqi and F. Pomeranz, “Accounting Needs of Islamic Banking: Survey of Islamic Banking Operations”).

In the following decade IIBID itself was either unable, or chose not to fight a take-over attempt led by the very successful Al Rajhi Bank of Saudi Arabia. The Al Rajhi, joined by the Faisal Islamic Bank and Al Baraka interests, gained control of the operation. While the chairs in the boardroom were shuffled, the Islamist sentiment remained unchanged, and there was no indication from Egypt or elsewhere that the Ikhwan was unhappy with the change.

 

Four years later, when the umbrella Luxembourg Islamic Finance House Universal Holding S.A. was founded, Islamic banking had begun to take off. The Finance House was servicing many of the thirty Islamic banks in operation worldwide at that time. By then the movement to Islamicize the banking systems had its greatest success outside the Arab world as both Iran and Pakistan had adopted Islamic banking en toto.

During the 1980s, when bailing out 747 failing savings and loan banks (S&L crisis) cost the American tax payer $87.9 billion, Islamic banks were touted by some as being the wave of the future.

The Bank of Credit and Commerce International (BBCI), owned by the Pakistani Aga Hasan Abedi, was talked about as youthful and dynamic. Even Saudi Arabia had limited the activity of foreign banks that operated there.  (On the growth of Islamic banking in that period see, “Islamic Banking,” Mohamed Ariff, Asian-Pacific Economic Literature, September 1988, pp 46-62.) By then Islamic banks had captured close to a 20 per cent market share in Egypt, Kuwait and Sudan and roughly l0 percent in Jordan and Qatar. (In contrast, in Muslim Turkey, Islamic banks accounted for less than 1 per cent of the market.)

As mentioned, among other early investors in the IIBID was the Al Baraka group, a financial operation funded in 1969 by Saudi Sheikh Saleh Abdallah Kamel.  Created as the Dallah Al Baraka Group LLC, it was credited with taking the first steps to modernize Saudi Arabia’s banking institutions along purely Islamic lines.

While still a young man, the Mecca-born Kamel was named advisor to the Saudi Minister of Finance.  From there he moved on to become a powerful figure in Saudi banking circles all the while maintaining control of his own very powerful Dallah Al Baraka, the Jordan Islamic Bank, the Iqraa International Foundation, and the Al Shamal Islamic Bank of the Sudan.

Regardless of the banking institution in question, Kamel set a pattern that was followed by most Islamist banks; wherever Kamel was active the Muslim Brotherhood had a friend. Even today, you’ll find Muslim Brothers wherever an Islamic bank operates.

FURTHER READING: MB Islamic Banking in Action

1. Egypt’s MB Plan to Close Budget Gap with Sukuk

Adnan Ahmed Yousef, chairman of Al Baraka Bank Egypt, … said, “We’ve been working with the government for years to get them to sell dollar- denominated Islamic bonds, known as sukuk.” Global sales of sukuk, which held by financial institutions that comply with Sharia law climbed to $5.2 billion in 2011 compared with $4.4 billion in the same period last year, according to data compiled by Bloomberg.

However, “The banking system in Egypt will not be converted to the Islamic system,” the Brotherhood’s Badr el Din said.

2. Conventional and Islamic Banking

3. Charity’s bank accounts closed over Hamas ties

4. Banking woes for SA charity suspected of financing Hamas

5. Turkey’s Islamic banks consider subordinated sukuk issues

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Categories: EWI Exclusives, Shari'a Banking & Finance

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