Бас редактор Байжуманов М. К

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In the late nineteenth century, the interest-based western banks started their expansion 
across the Muslim world. It coincided with period of western colonization of Asian and African 
nations. European banks initially opened their branches in Istanbul and Cairo. However, opening of 
those banks in Muslim countries incited the local population resistance, which resulted in Islamic 
communities’ refusal to work with the interest-based banks. The major reason for that was the 
religious prohibition on interest.
Having noticed the Muslim nations protest to the interest, International Monetary Fund 
suggested establishing Islamic banks in some Muslims states. Further, International Monetary 
Fund aimed to attract Muslims to the banks as this would allow central bank controlling money 
supply. Such suggestion was made not for religious, but economic purpose.
Hence, evolvement of Islamic banks was driven by Muslims’ need for interest-free banking 
system. In addition, during that period some religious scholars issued fatwas saying “it is not sinful 
to work with western banks”, “western banks’s charged interest is not that interest prohibited in 
Islam”. But this did not suppress the people’s resistance to the interest as riba (interest) is issue 
clearly solved in religious texts. The interest prohibition was known not only to Islamic scholars, but 
also to ordinary persons.
Islamic banks evolved mainly thanks to Muslim nations’ need. However, Islamic banks 
formation was not easy. The numerous laws were required to be amended to meet Islamic banking 
standards. This does not mean Arab countries laws restricted or suppressed Islamic banks 
operations.
Islamic banks were not compliant with applicable laws because they were made to meet 
needs of the western banks. That was a reason why Islamic banks initially were incorporated 
based on separate special laws. At early state it was difficult to regulate Islamic banking until 
systematization. There was no single sample or experience Islamic banks could rely on. Everything 
was created from scratch. Lack of special financial experts complicated the situation. Due to lack of 
Islamic banking specialists the Islamic banks initially would recruit those who worked in 
conventional western banking system.
Despite Islamic banking system evolved in the twentieth century, their tools were used long 
before. Islamic banking financial operations are rooted in Islamic laws concerning trade and 
transactions. Hence, certain financial tools came to existence despite there were no Islamic banks. 
The prophet’s companion Zubayr ibn al-Awam was a pioneer in Islamic banking. He was the first to 
take money as deposits, further invested and increased it. Zubayr ibn al-Awam was a companion 
who became well-known for trading skills and commitment to Amanat (entrusted property). For this 
reason, people would entrust their property to Zubayr. However, Zubayr took the people’s assets 
not as trust but debt. There are two advantages of taking someone’s property as debt. First, in line 
with Islamic law a person is not always responsible for keeping an entrusted property in the original 
form. For instance, a person will not be held liable in case of loss of entrusted property for reasons 
beyond his or her control. This means, entrusted person will not pay compensation in case of loss 
or damage for reasons beyond his or her control. Second, Islamic law prohibits using an entrusted 
property. Hence, according to amanat principle a property is entrusted for being kept, but not being 
used. Keeping it in his mind, Zubayr ibn al-Awam took property as debt. By taking property to trust 
he could not use for his own benefit and this ultimately would result in losses. That is why Zubayr 
would take someone’s property as debt and used it to benefit. Such scheme has the following 
advantages:
1) Individual is responsible for entrusted property and consequently compensates in case of 
damage (unless for reasons beyond his or her control). This is good for property owner;
2) Debt agreement – property is handed over to borrower’s possession and further can be 
used for making profit.
Hence, taking property as debt has advantages for both parties. In doing so, Zubayr ibn al-
Awam used people’ property for his trading activity and paid debts when due. Zubayr’s actions laid 
foundation for modern day Islamic banking. His son Abdullah ibn Zubayr narrated: “To those who 
wanted to entrust property my dad answered: I do not accept property as amanat as I fear it may 
be lost. If you want to leave your property, leave it as debt. I will return you in original form”. In 
addition, Abdullah ibn Zubayr narrated that his father left huge amount of debts after his death and 
certain portion of inherited property was used to pay off those debts [1].
Also, in the fifth decade hijri, securities were introduced into circulation when Marwan ibn 
Hakam was Medina governor. Medina administration would distribute securities which gave 

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welfare recipients rights to take money from state budget at certain period. The securities had 
welfare recipient’s full name, amount of money and issue date written on them. After a while some 
individuals started selling such securities at lower price before payment day and Aisha demanded 
to prohibit it. According to the religious ruling, selling securities at prices lower than their prices is 
considered an interest. The city governor banned to sell securities at prices lower than their price. 
Thus, the prophet companions’ experience laid foundation for the modern-day Islamic bank 
operations and principles.
As for currency exchange, it evolved in the Islamic world in the eighth century. There were 
currency exchange officers in each Muslim city, namely Damascus, Badgad, Cairo, Aleppo, Mosul, 
Ray, Wasit and others. Even though the gold and silver were used simultaneously, sometimes one 
of them was used only for payment purposes. This created a huge demand for currency exchange 
officers. The currency exchange also facilitiated international trade.
Back then, the currency exchnage officers provided the following services:
1) Currency exchange;
2) Accept people’s money for safekeeping. They would take traders’ money and give them 
promissory cheques. The currency exchnage officers did not deal with money entrusted by people;
3) they would give special document confirming amount of entrusted money. Each currency 
exchange officer had his own seal. This document was called in Arabic “ ّكﺻ – sakk”. Hence, 
modern word “checque” derived from Arabic “ ّكﺻ”. Besides, before issuing checques the currency 
exchange officers took samples of their owners’ signatures. Those, who entrusted their money, 
used the cheques for settlement purposes in trading operations. In turn, traders handed over the 
cheques at end of week to currency exchange officers to take their due money.
4) Suftaja, confirming documents. They were alternatives to the modern day letter of credit 
applied in international trade. Suftaja required a currency exchange officer to give certain amount 
of money to another currency exchange officer coming from different country. Suftaja was widely 
applied by traders during their travel outside their countries as it was more secure to transfer 
documents for long distance trips rather than paper money.
In Muslim states currency exchange officers did not lend entrusted property as it was 
mentioned above the Islamic law prohibits using property given as amanat. However, few centuries 
later the western currency exchange officers turned entrusted property into source of profit by 
lending it at interest. To be specific, in X-XI centuries after the Europeans conquered the 
Mediterranean Muslim countries, they embarrassed the Muslim currency exchange and money 
saving principles. The first currency exchange activity started in the northern Italy. Italian currency 
exchange officers accepted having their clients sit on the benches. This is how Banco word 
appeared in Italian language meaning a bench. Europeans, engaged in currency exchange 
operations, over the years noticed those, who entrusted their money, did not money demand it 
back for long period. Thus, those bankers lent free money at interest without the owners’ 
permission. This was the first pre-condition which resulted in evolvement of modern era interest-
based banksd [2].
The attempts to bring economic, financial and banking system into compliance with Islamic 
law can be examined based on 3 major periods: 1) until 1950; 2) 1950-1990; 3) from 1990 to 
modern days. In the XIX and early XX centuries in Malaysia, Pakistan, India and other states were 
the western colonies. During the colonial period these countries were deprived of their century-long 
national traditions and religion. Under slogan of modernization the old customs were replaced by 
new legal tradition. Having gained their independence from the western colonialism, the Muslims 
countries immediately started reviving their cultural traditions and introducing Islam in all aspects of 
life, especially into economy. The first opposition to interest-based system dates to XIX century 
when Barclays Bank raised funds for the Suez Canal construction in Egypt. The Muslims protested 
to the interest-based bank opening. The next protest sparked in 1903 after the religious ruling was 
issued. It prohibited taking profit accrued on the postal saving scheme applied at that time. 
Following such protests, Anjuman Imdad-e-Bahmi Qardh Bila Sud (Interest-free credit society) was 
established in Indian city Hyderabad in 1923. This financial institution lent interest-free money to 
low-income population from the donations and profit generated after selling skins of sacrifice 
animals. In the early XX century the Muslim society protest to interest-based banks intensified day 
by day. This situation stimulated establishing alternative banking system within Islamic law. 
Ultimately, the financial expert launched researches to create Islamic law-based banking system. 
Islamic scholars such as Ahmad al-Najar (Egypt), Muhammad Bakir al-Sadr (Iraq), Anwar Iqbal 

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Kureshi (Pakistan), Muhammad Nejatullah Siddiqi (India), Muhammad Uzair contributed 
extensively to lay down theoretical foundation of Islamic economy and banking system [3, 838 p.]. 
In late 1950 Muslim scholars and economy experts founded theoretical base of Islamic model for 
financial transactions. In 1953 Islamic economy experts first defined interest-free banking based on 
bilateral agreement called mudaraba and wakala. In 1954 Muhammad Uzair’s book “Interest Free 
banking” was published in English in Pakistan. The book was translated into Arabic and published 
in 1956 in Damascus. Afterwards, in 1961 Muhammad Baqir Sadr’s book was published in Beirut. 
In his book Muhammad Baqir suggested introducing Islam compliant agreements instead interest-
based contracts applied by the conventional banks. In addition, similar books were published in 
English, Arabic and Urdu. These books helped to shape theory for Islamic banking [2].
The demand has been rising for Islamic banking services since 1960. In 1958 after gaining 
its independence Malaysia started reviving Islamic traditions, the nation demonstrated huge 
interest in its ancestors’ religion. In particular, savig money for pilgrimage was extremely critical. 
For solving this issue, the Malaysian government established a saving fund. As the fund was 
meant to enable people to save money for the pilgrimage, it was important to ensure its 
compliance with Islamic rules. The special effort was made to prevent interest when investing the 
clients’ money. In 1962 жылы Tabung Hajji Saving Fund was established in Malaysia. Tabung 
Hajji can be labeled the first modern Islamic bank because it raised clients’ money, meant for the 
pilgrimage, and increased it by investing into agriculture, production and stock market. Besides, the 
fund offered current, saving and infant saving accounts to low-income people.
During that period other Muslim nations also had idea of investing the clients’ money in 
various projects to generate profit. Pakistan and other Muslim states attempted to incorporate 
small investment institutions to implement such ideas. The good example is local saving and 
investment institutions established in Mit Ghamr town, Egypt. Those institutions were established 
at initiative of Ahmad Abdulaziz an-Najjar, Cairo University professor. Ahmad Abdulaziz an-Najjar 
called this project saving and investment banks. The first bank opened in Mit Ghamr town in 1963 
[2]. This bank would accept farmers’ little capital and used it to invest in traders based on 
mudaraba scheme. Afterwards, the bank launched its branches in neighboring towns and villages, 
increased range of services. 9 branched were opened for short period. Sometime later for political 
reasons the Egyptian government shut down the bank in 1967. The bank clients reached 251 152 
within four years. 61 % of the bank clients were ordinary persons without any savings [4]. 
The Malaysian and Egyptian experience inspired and encouraged Muslims of that time to 
establish Islamic banking system. In those days, Arab world press claimed the conventional banks 
did not have alternative and there was no other way than using their services. Such opinions made 
Muslims lose their courage. However, the Malaysian and Egyptian experience broke down those 
stereotypes and proved it was possible to establish interest-free banking model. This was a huge 
stimulus to progress ahead. Based on Mit Ghamr town experience the Egyptian government 
established Nasr Social Bank. The bank financed small projects, raised and allocated zakat to 
people in need. Thus, the bank dealt with social issues. Nasr Social Bank put it efforts to comply 
with Islamic rules during its operations.
The modern era Islamic banking model was first created in July 1975. In 1973 during 
Islamic Conference Organization summit in Jeddah to finance big projects several Muslim 
countries heads suggested establishing an international bank taking as example the European, 
Asian African banks of reconstruction and development. This initiative was supported and 
endorsed by eight members of the Islamic Conference Organization on December 15, 1973. The 
special work group was created to prepare international agreement on Islamic bank. The 
agreement was signed by 25 members of the Islamic Conference Organization in 1974. The 
agreement allowed the bank to operate in member states of the Islamic Conference Organization. 
The most important moment was that the second paragraph of the agreement requires the Islamic 
bank to strictly comply with Sharia. Each member state paid 2 billion USD worth contribution to 
form capital of the bank. In 2011 the bank capital reached 60 billion USD. The bank is governed by 
board made up by 11 states’ delegates. The board has six permanent and five rotating elected 
member states. The permanent member states are Kingdom of Saudi Arabia, Kuwait, United Arab 
Emirates, Libya, Turkey and Iran. The other five are elected among other member states with 
minor shareholding. Islamic Development Bank was established in 1975 and started its operations 
in 1976. The first financial transaction was trading Algerian crude oil to Bangladesh using 
murabaha scheme. The bank mainly dealt with governments, not individuals [2].

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Islamic banks, established in Dubai, were pioneers in servicing individuals. Dubai Islamic 
Bank was incorporated based on UAE Central Bank permission in 1994 and started its operation 
the same year. The bank accepts individuals’’ money for saving to current accounts based on 
lending agreement. For those who intended to make profit, it offered deposits with period of no less 
than three periods. The accumulated financial resources are further used to finance various 
projects based on mudaraba scheme. The bank was mainly engaged in buying lands in Dubai.
Faisal Egypt Islamic Bank was established upon special permission of Egyptian President 
Muhammad al-Faisal in 1977. The bank was incorporated based on special law drafted by 
Egyptian Government as Egypt did not have laws back then to comfort Islamic banking.
Sami Hamud established Jordan Islamic Bank that year. Salih Kamil, founder of giant 
financial enterprise Dalla al-Baraka, promoted opening of this bank. Sami Hamud personally 
managed Jordan Islamic Bank and made murabaha as its major financial tool. In a follow-up 
Kuwait Financial House and Faisal Jordan Islam Bank, other Islamic banks and financial 
institutions evolved. The number of Islamic banks increased during the eightieth. In 1980 Berhad 
Malaysia Islam Bank, in 1981 Bahrain Islam Bank were established. Islamic financial institutions 
were incorporated in Sudan, Bangladesh, Guinea, Turkey and other Muslim countries. Since 1983 
some Muslims states have been attempting to move from conventional to Islamic banking system. 
Pakistan was the first Muslim state to have put such effort. At initial stage Pakistani banks started 
with introducing deposits based on Profit and Loss Sharing scheme. Afterwards, the law was 
passed to make domestic banking operations compliant with Islamic rules. Thus, the country’s 
banking system became totally Islamic. At that time Pakistan National Bank developed twelve 
various Islamic banking tools and their use guidance for the second-tier banks. The guidance was 
developed at proposal of Pakistan Islamic Council. However, in early XX century the banking laws 
were amended again with Pervez Musharaf coming to office in Pakistan. The law introduced by 
Pervez Musharaf entitled the domestic banks to opt between Islamic and conventional banking 
system. This resulted in state banks return to the conventional financial system.
In the 80s of last century Iran changed its banking system totally to Islamic standards. Such 
step was also made by Sudan National Bank in 1992.
Islamic banks evolved in big numbers starting the nineties in UAE, Saudi Arabia, Kuwait, 
Turkey, Malaysia, Pakistan, Egypt, Tunisia. In addition, Kazakhstan, Kyrgyzstan, Indonesia and 
Brunei started focusing on Islamic banking. The conventional banks initiated providing Islamic 
banking services to meet needs of the local Muslims in numerous countries.
At early stage Islamic banking services were not transparent due to lack of special Islamic 
banking audit system. International Accounting and Auditing Standards were not in compliance 
with Islamic banking principles as they did not include religious principles and specifics of Islamic 
finance. In a follow-up Accounting and Auditing Organization for Islamic Financial Institution 
(AAOIFI) was established, approving 18 standards at the beginning. However, AAOIFI service is 
applied in limited number of countries only despite having high standards.
Having observed development of Islamic financial system, the western banks decided to 
open Islamic windows. Islamic window is a department providing Islamic financial services in 
western banks. In doing so, the western banks intended not to lose their clients. Islamic windows 
were then opened even by the leading banks, one of them being Hongkong and Shanghai Bank 
(HSBC). The bank is penetrating Islamic financial market. In 1996 in Bahrain the Citibank opened 
City Islamic Investment Bank. Afterwards, UBS Bank incorporated Swiss Union Bank Noriba. In a 
follow-up the conventional banks opened numerous Islamic banks in the Gulf region. American 
Express Bank Ltd., American bank, ANZ Grindlays, BNP - Paribas, Chase Manhattan, Kleinwort 
Benson opened their own Islamic windows. Saudi Arabia National Bank, Kuwait United Bank, 
Riyadh Bank were banks which have opened the highest number of Islamic windows [6]. 
Islamic financial system gained importance in Kazakhstan over the last years. In his speech 
on IOC 38th session in Astana in 2011 former President Nursultan Nazarbayev noted “Islamic 
economic model demonstrated stability and viability during global financial crisis”. On February 12, 
2009, former President signed the law to regulate operations of the Islamic banking and other 
Islamic financial institutions. Some Islamic banks were incorporated under supported of former 
President Nursultan Nazarbayev, with approving road map. In 2010, Kazakhstan and UAE agreed 
to establish Al Hilal Bank, the first Islamic Bank in Kazakhstan and CIS. Al Hilal Bank was 
incorporated in 2008 by Abu Dhabi Government investment department to offer banking products 
and services in line with Sharia principles and rules. Having demonstrated high results Al Hilal 

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Bank opened its branch in Kazakhstan to expand internationally. In Kazakhstan Al Hilal has a head 
office in Almaty. Also, the bank has branches in Nur-Sultan and Shymkent. In first seven years Al 
Hilal dealt with corporate clients only. In 2017 it started servicing individual clients. Having 
launched its operation on Kazakh market in 2010, the Al Hilal is recognized as stable and reliable 
bank. It was assigned А+ by Fitch Rating and A2 by Moody’s. Al Hilal provides the below services:
1) Debit and Debit Hajj Cards;
2) Money operations (cash banking services and money transfer);
3) Deposits (Waqala and mudaraba).
In addition, in late 2018 Al Hilal Bank launched Islamic mortgage program in Kazakhstan 
[7].
Zaman Bank is the second Islamic bank operating in Kazakhstan. It was established as 
Zaman private bank in Almaty on June 6, 1991. In 1998 it was dislocated from Almaty to Pavlodar 
due to change of its shareholders. In 2003 its branch was opened in Almaty. In 2013 Zaman Bank 
started shifting from conventional to Islamic banking model. Ultimately, in late 2013 it built 
partnership with Islamic Corporation for the development of the private sector (ICD). In 2014 in 
cooperation with UAE Al Maali Islamic Financial Consulting Company and Malaysian Zicolaw Law 
Firm the Zaman Bank JSC managed to develop procedure and mechanism of shifting to Islamic 
banking system on legal basis. In doing so, Zaman Islamic Bank promoted to the banking law to be 
amended in 2016. The law allows the conventional banks shift from conventional to Islamic 
banking system. On July 13, 2016 Zaman Bank received permission from the Kazakhstan National 
Bank to shift to Islamic Banking system on its own and subsequently it was granted a license of 
Islamic bank on August 17, 2017. The bank currently offers mudaraba and waqala Islamic deposits 
to its clients [8]. Apart from the above-mentioned banks there are Al-Saqr finance, Kazakhstan 
Ijara Company and other Islamic financial institutions.
To conclude, Islamic banks are developing rapidly. Islamic financial system drew attention 
of the western banks especially after 2008-2010 global financial crisis that shook the world. At that 
time Islamic banks efficiently overcame the crisis and demonstrated sustainability. Each their 
financial operation is backed with real asset and this ensured their resilience. Following that global 
financial crisis, the western economists re-examined principles of the capitalist system and turned 
their eyes on Islamic economic model. Some European countries even considered establishing 
Islamic banks as alternatives to the conventional banks. Such proposals also included amending 
numerous laws and normative standards to comfort Islamic banking system. Thus, Islamic banks 
became widespread not only in Muslim states, but also in the western world, which shows they 
offer huge perspectives.
Nowadays more than 700 Islamic financial institutions are operating in 90 countries of the 
world. Islamic finance is expanding rapidly on the global financial market. Islamic banks operate in 
line with Islamic law.
In modern era Islamic banks serve as alternatives to the conventional banks: current and 
saving accounts, deposits; offers financial tools, cash banking, payment services, money transfer, 
treasury and others, make investments in various economy sectors such as manufacturing, 
trading, agriculture and other Islamic-compliant purposes. Within more than fifty years of 
incorporation the Islamic banks have been operating based on principles of honesty, sincerity, 
sustainability, morality. In Islamic finance each transaction is backed with real asset and this is its 
key features. This facilitates the real economy growth.
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7. Al Hilal Bank web site, URL http: // https://alhilalbank.kz/kz. [Accessed on: 02.02.2019]. 
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ISSN 1607-2774 
Семей қаласының Шәкәрім атындағы мемлекеттік университетінің хабаршысы № 4(92)2020 
370 
ИСЛАМ БАНКИНГІНІҢ ТАРИХЫ 
Н. Стамбакиев 

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