Mit Ghamr: the History and Operating Mechanisms of the World’s First Islamic Bank

Abstract

This article examines the origins and early operations of the world’s first Islamic bank—the Local Savings Banks initiative, widely known as the Mit Ghamr Bank. Mit Ghamr is notable not only for translating core principles of Islamic finance into workable institutional practice, but also for anticipating key features of socially oriented microfinance: it operationalized “banking for the poor” roughly two decades before the establishment of the Grameen Bank in Bangladesh. The first branch opened in July 1963 in the Egyptian town of Mit Ghamr under the leadership of Ahmad al-Naggar, a young economist and entrepreneur influenced by the West German savings bank model. The Mit Ghamr experiment marked an important turning point in the provision of financial services in developing contexts, combining interest-free financial instruments with a development-oriented approach to mobilizing savings and allocating capital that was closely attuned to the socio-cultural environment of its clients. Al-Naggar’s contribution consisted not only in devising practical mechanisms for non-interest-based finance, but also in articulating a coherent economic justification for their adoption, emphasizing prospective benefits for both the state and depositors. Special attention is devoted to the longstanding debate over whether Mit Ghamr should be classified as an “Islamic bank,” given its significant institutional and operational differences from contemporary Islamic banks in both Muslim-majority and non-Muslim settings. The article argues that today’s Islamic banking should be understood as one stage in the continuing evolution of Islamic finance rather than its final form. It concludes that the Mit Ghamr experience remains analytically and practically relevant for contemporary financial institutions, whether operating on interest-based or interest-free principles.