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Exploring the Ethical

By the Grace of God, KFH was able to apply the Kuwait Central Bank’s Reports System that ensures ful- filling the Central Bank’s requirements with respect to data and information consistency and compatibility that reflect the Bank’s financial position and its customers’ base as a part of its adherence to instructions regarding the Central Banks’ controls in application of the Islamic Banks’ Law No. 30 of 2003. This positively reflects the Islamic financial march, improves the performance effi- ciency, strengthens the Bank’s local and international transparency, and strengthens Kuwait’s progress as a major Islamic financial service provider (KHF Annual Report 2004, p. 10).

The 3-year mean EII under this dimension ranged from 0.17 to 0.84, with the lowest for ABB and the highest for DIB. Only two IBs clearly stated no involvement in non-permissible activities. Three IBs disclosed that they have introduced new products and services for all 3 years while two others mentioned this once. Only two IBs clearly indicated that the new products had been approved by the SSB and further stated the basis of the Shari’ah concept for the new product, reinforcing the legitimacy of their new product:

The Al Khair financing scheme... approved by the Bank’s Shari’ah Board, which is patterned along the lines of the Shari’ah Tawaruk which has been approved by the Islamic Fiqh academy of Makkah Al Mukaramah... (ADIB Annual Report 2002, p. 7).

Since most of the products offered by IBs are in Arabic terms, three IBs provided a glossary or a list of definitions of the products in the report to familiarise non-Arabic speakers to the products. All IBs disclosed details of their investment and financing activities. However, the financing activ- ities of KFH as stated in the following statement raises concern on the legitimacy of its claim of adhering to Islamic principles when clearly there is

a combination financing:

of conventional



...participated in financing the purchase of an Airbus plane for Emirates Airlines in cooperation with international Islamic institutions... This deal combined conventional and Islamic financing, which is a concept pioneered by KFH in the Equate financing transaction. This represented a significant achievement for the Islamic banking industry (KFH Annual Report 2002, p. 17).

Identity of Islamic Banks


Interestingly, KFH did not communicate details of their financing activities in 2003 but did so in 2004 with a different tone:

The Company signed two leasing agreements. The first USD70 million leasing agreement is to buy two aircrafts in which the Bank’s contribution amounted to USD35 million while the Bank’s share amounted to USD35 million in the second USD98 leasing agreement to increase the Bank’s business activities in this sector to USD500 million. The Bank issued (MALC) Fund for subscription last year whose assets are expected to reach USD600 million (KFH Annual Report 2004, p. 12).

Dimension: Zakah, charity and benevolent loans

The highest EII under this dimension for three consecutive years goes to BIB, followed by ABB, ADIB and KFH. The lowest EII for 2002 was DIB and in 2003 and 2004, ARB. The lower level of communication by ARB in the latter years may be attributed to disputes regarding zakah. The 3-year mean EII ranged from 0.22 to 0.76, the lowest being ARB and the highest BIB.

For Muslims, payment of zakah is one of the acts of worshipping God. Besides zakah, God encourages man to spend their wealth on charity. Payment of zakah is not the responsibility of the IBs but that of the shareholders in Saudi Arabia, Kuwait and the United Arab Emirates, as stated below:

... the management of the Bank is not authorized to pay Zakat directly, the responsibility of paying Zakat is that of the shareholders (ADIB Annual Report 2002, p. 10).

Although zakah should be recognised as a religious levy rather than tax as understood in the current business world, ARB seems to treat zakah as a tax burden rather than a duty to fulfil one of the five pillars of the Islamic faith. The following statement indicates their underlying view on zakah:

The Department of Zakat and Income (DZIT) issued zakat assessments for the years up-to 1998, which the Corporation appealed. The assessments and the zakat status for the years up-to 1990 has been finalized. The Corporation did not receive any assessments from the DZIT for the years after 1998. The Corporation’s management believes that zakat provisions have been made for the expected zakat payments relating to prior years up to December 31, 2000 (ARB Annual Report 2002, p. 39).

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