Attitudes of Libyan Banks towards Islamic Methods of Finance *

By Gait, Alsadek H.; Worthington, Andrew C. | Current Politics and Economics of Africa, April 1, 2018 | Go to article overview

Attitudes of Libyan Banks towards Islamic Methods of Finance *


Gait, Alsadek H., Worthington, Andrew C., Current Politics and Economics of Africa


Introduction

While Islamic finance has been practiced for many centuries, it is only in the last few decades that Islamic financial institutions (including banks) offering Sharia-compliant products and services have become more widespread and important. Indeed, even in Muslim countries it is only very recently that a full range of analogous Islamic finance products and services has evolved in direct competition to conventional banks and other financial institutions. These products and services include, among others, Mudarabah, Musharakah, Murabaha, Bai muajjall, Bai Salam, Istisna, Ijarah, and Quard Hassan (ElGamal 2000; Gait and Worthington 2014b).

Clearly, for Islamic products and services to enter and evolve in new markets, some key considerations are the attitudes, perceptions, and knowledge of existing financial institutions and their management and staff towards these new methods of finance, the demographic impact on these attitudes towards Islamic financing methods and the likelihood of engaging in Islamic finance. For conventional financial institutions, the presence of other operations offering Islamic financial products and services may also affect their competitive position and new marketing strategies. It may also influence their decision to introduce Sharia-compliant products and services themselves. Similarly, for new Islamic financial institutions, the attitudes and knowledge of the existing workforce can play an important role in the success of these institutions as they seek to enter the local labour market and interact and compete with other financial institutions in a dual-banking system encompassing both conventional and Islamic financial institutions.

Libya provides an interesting context to examine these issues. First, while the majority of the population are Muslims, there are presently no Islamic financial institutions operating in Libya. Second, the new Libyan government has continued the move towards the liberalization and reform of the country's financial system and part of this process foresees the contribution of Islamic financial institutions, products and services. Finally, there is no published work on the influence of demographic factors on Libyan bank attitudes towards Islamic methods of finance and the probability of applying Islamic methods of finance by Libyan banks. The purpose of this chapter is then to survey the attitudes of banking staff in Libya, as reflective of the attitudes of Libyan banks as a whole, on the potential use of Islamic methods of finance and the likelihood of adopting Islamic financing practices.

Certainly, progress toward the development of Islamic banking in Libya has intensified in recent years, especially since 2011 with the ousting and death of the country's former leader, Muammar Gaddafi, and the collapse of his 42-year "First of September 'Al Fateh' Revolution" and the 34-year-old Jamahiriya state. For example, in 2008, 2010 and 2012, the Academy of Postgraduate Studies in Tripoli organized a series of conferences on 'Islamic Monetary Services' that served to increase the general level of awareness of Islamic banking in the country. During this time, the Libyan Central Bank and the Jomhouria Bank also investigated the potential for Islamic financial products and services in Libya (Baej and Worthington 2014).

As for the legal system, even though Libyan Civil Law No. 74 prohibited Riba (interest) as did Civil Law No. 86 for Al-Gharar (contracts of uncertainty) in the early 1970s, few legal mechanisms existed in Libya facilitating the introduction of Islamic banking. However, Banking Law No. 1 in 2005 technically eased the granting of licenses for commercial, specialized, financing, investment and other banks, and a subsequent amendment by the National Transitional Council (NTC) as Law No. 46 of 2012 provides a detailed section on Islamic banking. This includes the definitions of an Islamic Bank, Islamic Banking, the Central Shariah Advisory Board in the Central Bank, the Shariah Advisory Board(s) for Islamic Bank(s), Shariah Auditing administration, Islamic banking branches, and Islamic banking windows. …

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