The contemporary Islamic finance industry is now in its fourth decade and, during that period, has developed extremely rapidly. In the past few years, overall market growth has been estimated at between 15-20 percent annually1, although individual Islamic banks have reported even faster growth.
A lexicon of Islamic finance
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Islamic banking is a new phenomenon that has taken many observers by surprise. The whole banking system has been islamized in both Iran and Pakistan.
Integrate into global financial markets or develop parallel system?
Publicly traded companies that buy, develop, manage, maintain, and (rarely) sell real estate properties.
OCC #867, 1999 : “… lending takes many forms … Murabaha financing proposals are functionally equivalent to, or a logical outgrowth of secured real estate lending and inventory and equipment financing, activities that are part of the business of banking.”
Islamic law (Shariah) does not require that the seller of a product be Muslim, or that its other services be Shariah compliant as well. This is the considered opinion of our Shariah Supervisory Committee.
Can one extend the analysis to say that the credit component should be noncommutative (minimal net interest income)?
Islamic finance is a prohibition-driven industry, aiming to avoid the prohibitions of riba and gharar. It is well accepted in Islamic jurisprudence that riba and gharar do not affect the legal validity of non-commutative financial contracts.
The theory of Islamic banking is often attributed to Uzair (1955), and later literature that focused on a mutual-fund style double-tiered silent partnership model, c.f. Siddiqi (1983).
Islamic finance started with mutual-fund (mudaraba-based) model of financial intermediation, highly inefficient due to information asymmetries.
Most observers of the Islamic Finance movement over the past two decades will acknowledge (and perhaps lament) the great rift between the early and current literature on “Islamic Economics” on the one hand, and the reality of Islamic Finance on the other. In this regard, I would like to present a simple explanation of this difference.
This introductory guide is meant to address the Muslim who is familiar with the fundamental tenets and sources of legislation in Islam. The reader is not assumed to have elaborate prior knowledge of Islamic nancial contracts, but a certain degree of nancial sophistication will be required.
Almost all contemporary writings in Islamic Law and/or Islamic finance proclaim that Islamic Law (Sharia) forbids interest.
Sheikh Kamel does not fancy the word customer or depositor and prefers to use the term ‘partner’. “Those people who place their money in Al-Baraka bank or any other Islamic bank are considered shareholders of these banks. This means if these banks prosper so will they”.
Conventional banks charge and pay interest, and the HSBC Group, or which we are a part, is a conventional bank.
“Often the true grounds of legal decision are concealed rather than illuminated by the characteristic rhetoric of opinions.
Islamic Finance as it exists today is a prohibition-driven industry, which attempts to provide Muslims with permissible analogues of conventional financial services and products that are generally deemed impermissible in Islamic jurisprudence.
The prohibition of Rib¯a in Isl¯am is perhaps the topic most studied in Islamic Economics and Jurisprudence of financial transactions. Therefore, any attempt to provide a fresh perspective on this issue must seem initially to be futile.
The domestic Islamic community in the United States is increasingly demonstrating the depth of its numbers. Unlike any other newly emerging community, a consistently large block1 of Muslims seeks to regulate their affairs according to Islamic rules.
This is not a full survey of the field, and it is not a religious guide. It is the
work of a single individual, who does not claim any religious authority beyond that which is derived from quoted texts.
Corporate governance in banking has been analysed almost exclusively in the context of conventional banking markets. For example, there has recently been some discussion of the role 'market discipline' exerted by bank shareholders and depositors in constraining the risk taking behaviour of bank management.
Remarks at the 2005 Arab Bankers Association of North America (ABANA) Conference on Islamic Finance: Players, Products & Innovations in New York City.
Before the Seminar on Legal Issues in the Islamic Financial Services Industry.