Is­lamic bank­ing emerges as ex­pand­ing sec­tors of global fi­nan­cial in­dus­try

The Pak Banker - - Company & Boss News -

NEW YORK: Is­lamic bank­ing has emerged as one of the most rapidly ex­pand­ing sec­tors of the global fi­nan­cial in­dus­try, with ex­pec­ta­tions that it will play a grow­ing role in the years to come.

Banks and fi­nan­cial in­sti­tu­tions that com­ply with Is­lamic law (sharia) showed im­pres­sive re­silience dur­ing the fi­nan­cial cri­sis that hit the world econ­omy at the end of 2008, knock- ing out dozens of con­ven­tional banks, par­tic­u­larly in the United States. This en­cour­aged even coun­tries with Mus­lim mi­nori­ties, such as Bri­tain, Ger­many, the US and France, to add Is­lamic banks to their con­ven­tional bank­ing in­dus­try.

The size of the global Is­lamic bank­ing in­dus­try is be­lieved to have grown from about 820 bil­lion dol­lars at the end of 2008 to more than 1 tril- lion dol­lars in 2010. Lat­est stud­ies in­di­cate that the steadily grow­ing Is­lamic bank­ing sys­tem could reach 1.5 tril­lion dol­lars in 2012 and 3 tril­lion dol­lars by 2015.

"I be­lieve Is­lamic banks stand to gain more ground in fu­ture, thanks to the con­fi­dence they have come to en­joy dur­ing the fi­nan­cial cri­sis," Jor­da­nian econ­o­mist Jawad Anani told the Ger­man Press Agency dpa.

He at­trib­uted their re­cent suc­cesses to the abun­dant liq­uid­ity that they man­aged to se­cure in spite of the fi­nan­cial melt­down.

"The suc­cess­ful per­for­mance of Is­lamic banks dur­ing the world cri­sis en­abled them to at­tract funds from for­eign con­ven­tional banks, which hur­ried to open win­dows for Is­lamic fi­nance and bonds," said Anani, who runs an eco­nomic con­sul- tancy bureau in Am­man. Is­lamic banks play a sim­i­lar role to those per­formed by con­ven­tional banks. But there are fun­da­men­tal dif­fer­ences.

The un­der­ly­ing con­cept in Is­lamic bank­ing and fi­nance is jus­tice, which is ac­com­plished through the shar­ing of risk. Stake­hold­ers are un­der obli­ga­tion to share prof­its and losses and to re­frain from deal­ing with ex­or­bi­tant in­ter­est rates, which Is­lam con­sider tan­ta­mount to usury. The Is­lamic fi­nan­cial sys­tem emerged more or less un­scathed from the global fi­nan­cial cri­sis, mainly due to its strict pro­hi­bi­tion of in­vest­ments in risky in­stru­ments like toxic as­sets and de­riv­a­tives, which have ad­versely af­fected their con­ven­tional com­peti­tors.

"The Is­lamic fi­nan­cial sys­tem has proved to be the least af­fected by the fall­out of the global cri­sis, thanks to its strict man­age­ment of fi­nan­cial in­stru­ments, its fo­cus on fi­nanc­ing real op­er­a­tions and keep­ing away from spec­u­la­tion," Kholoud Saqqaf, deputy gover­nor of the Cen­tral Bank of Jor­dan said in early De­cem­ber dur­ing a con­fer­ence in Jor­dan to as­sess the suc­cess of the Is­lamic fi­nan­cial sys­tem.

Not only rich coun­tries were im­pressed by the per­form- ance of the Is­lamic fi­nance. Cash-stripped states have also shown in­ter­est in the fledg­ling sys­tem.

Jor­da­nian Fi­nance Min­is­ter Mo­ham­mad Abu Ham­mour said re­cently that his govern­ment was mulling the is­suance of hun­dreds of mil­lions of dol­lar-de­nom­i­nated sukuk Is­lamic bonds "as a new win­dow of bor­row­ing on the ba­sis of the Is­lamic sharia." -PB News

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