A division that provides Islamic banking services for a conventional bank is called an ‘Islamic window.’ The services offered by such Islamic windows differ from one bank to the next and there are those that offer full Islamic banking services for their clients, while others only offer specific services such as [Islamic] investment and financing. The importance of Islamic window [divisions] within the administrative and operational structure of the bank also differs from one bank to the next, and so in some banks the Islamic window may be affiliated to the operational or funding division, while in others it may fall directly under the prevue of the Executive Chairman or Managing Director.
Islamic windows are viewed mostly as a support division, rather than an operational division [in their own right] since their work is limited to developing Islamic banking services in cooperation with the various other departments of a bank. Islamic windows also manage the relationship between the bank and the Islamic Shariaa authorities, with regards to the sanction and monitoring of services, in addition to undertaking the process of educating the bank’s staff on Islamic banking, and training them on the [Islamic banking] services that the bank provides.
Islamic windows are increasingly important within conventional banks since customers are increasingly interested in these kinds of services, and so the role of an Islamic window may grow to the extent that the bank may become a full Islamic bank in itself. This may occur, either due to the demands placed on the bank, or as a result of the banks conviction in the success of the Islamic banking experience, and the [business] viability of conversion into an Islamic bank. However the existence of such mixed [financial] institutions has raised a number of disputes among [Islamic] scholars, between those that believe in the permissibility of such institutions as long as they provide [financial] services in accordance with Islamic Shariaa and so long as there are Islamic Shariaa regulatory bodies to monitor them, while others feel that these types of [financial] institutions are unacceptable, as they would cause crowding within the Islamic banking sector, and result in unequal competition between conventional banks [with Islamic windows] and Islamic banks. In addition, these conventional banks are vague on the subject of Islamic Shariaa regulation, and seek to avoid this, as their motivation for providing these [Islamic] services is profit and nothing else. Many owners of Islamic banks who have monopolized this industry for a long period of time share a similar view, as well as some [Islamic] regulatory bodies that have prohibited conventional banks from operating Islamic windows in Kuwait and Dubai for example, even though most other countries allow this.
Personally, not only do I believe in the permissibility of conventional banks operating an Islamic window division, I also call for conventional banks to be encouraged to open Islamic windows, so long as the general system allows for the operation of conventional banks. There are a number of interests in allowing this, namely choosing the lesser of two evils [i.e. conventional banks, and conventional banks that operate an Islamic window]. This allows for owners of conventional banks to experience the Islamic banking model first hand, and get to know its benefits. This may result – as I mentioned before – in conventional banks becoming Islamic banks, either due to the demands placed on the bank, or following a decision from the banks governors. In any case this will have a positive result on the [Islamic banking] industry.
The ensuing benefits of allowing conventional banks to operate Islamic windows include; breaking the monopoly held by Islamic banks on the industry, thus expanding the circle of those that benefit from the industry, as well as the options available to Islamic banking customers. This in turn will lead to the accelerated development of the services offered in the [Islamic banking] industry. This is what happened [previously] when conventional banks began to offer Islamic banking services during the Islamic banking boom over the previous seven years. In addition to this, there was an improvement in the services and prices offered by Islamic banks as a result of competition. Despite this, I believe that it is up to the regulators to place further restrictions on conventional banks that wish to operate Islamic windows or services such as:
– Appointing an Islamic Shariaa institute, or a consulting firm that specializes in Islamic banks and which has specialists in Islamic Shariaa law, to approve the services and products that the bank offers. Also, the appointment of such institutes or consulting firms should be confirmed by the General Assembly of the Bank.
– That the bank has a specialized department for Islamic Shariaa Law regulation, which include a number of qualified legal observers commensurate with the volume of work undertaken by the bank.
– That there is a separation in the bank’s accounts between its Islamic banking operations and its conventional banking operations.
-That the bank’s Islamic finances are recorded in accordance with standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions [AAOIFI].
– The existence of policies and operational procedures for the banks Islamic windows, and the Islamic services offered by the bank, which are separate from conventional banking procedures.
– That the bank discloses its Islamic operations in annual and four-yearly financial reports, as well as the disclosure of accounting methods used for registration and risk, and how these risks are managed.
– That the bank sends reports of its Islamic financial operations, along with its annual financial report, to the Islamic Shariaa Institute [that it has previously appointed].
– Finally, that the bank ensures that the staff who carry out these [Islamic financial] operations are qualified to do so.
All in all, 320 banks operate an Islamic window around the world, according to a report by the General Council for Islamic Banks and Financial Institutions [CIBAFI]. 22 of these banks operate in Britain, first and foremost of which is HSBC, which offers Islamic banking services through its Amanah service that was established in 1998, and which today manages a [financial] portfolio of 19 billion dollars of Islamic financial assets across the globe.