Islamic banking and finance

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Islamic banking, Islamic finance (Arabic: مصرفية إسلامية masrifiyya 'islamia), or Sharia-compliant finance[1] is banking or financing activity that complies with Sharia (Islamic law) and its practical application through the development of Islamic economics. Some of the modes of Islamic finance include mudarabah (profit-sharing and loss-bearing), wadiah (safekeeping), musharaka (joint venture), murabahah (cost-plus), and ijarah (leasing).

Sharia prohibits riba, or usury, generally defined as interest paid on all loans of money[2][3] (although some Muslims dispute whether there is a consensus that interest is equivalent to riba).[4][5] Investment in businesses that provide goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also haram ("sinful and prohibited").[citation needed]

These prohibitions have been applied historically in varying degrees in Muslim countries/communities to prevent un-Islamic practices. In the late 20th century, as part of the revival of Islamic identity,[6][Note 1] a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community.[8][9] Their number and size has grown, so that by 2009, there were over 300 banks and 250 mutual funds around the world complying with Islamic principles,[10] and around $2 trillion was Sharia-compliant by 2014.[11] Sharia-compliant financial institutions represented approximately 1% of total world assets,[12] concentrated in the Gulf Cooperation Council (GCC) countries, Bangladesh, Pakistan, Iran, and Malaysia.[13] Although Islamic banking still makes up only a fraction of the banking assets of Muslims,[14] since its inception it has been growing faster than banking assets as a whole, and is projected to continue to do so.[11][15][16]

The industry[ambiguous] has been lauded[by whom?] for returning to the path of "divine guidance" in rejecting the "political and economic dominance" of the West,[6] and noted as the "most visible mark" of Islamic revivalism;[17] its most enthusiastic advocates promise "no inflation, no unemployment, no exploitation and no poverty" once it is fully implemented.[15][16] However, it has also been criticized for failing to develop profit and loss sharing or more ethical modes of investment promised by early promoters,[18] and instead merely selling banking products[19] that "comply with the formal requirements of Islamic law",[20] but use "ruses and subterfuges to conceal interest",[21] and entail "higher costs, bigger risks"[22] than conventional (ribawi) banks.

  1. ^ Khan, Ajaz A., Sharia Compliant finance| halalmonk.com
  2. ^ Maududi, Sayyid Abul Ala. "Tafhim al-Qur'an - The Meaning of the Qur'an". Retrieved 8 October 2023.
  3. ^ "Islamic Banking Principles". Institute of Islamic Banking and Insurance. Archived from the original on 28 September 2017. Retrieved 8 October 2023.
  4. ^ Farooq 2005, pp. 3–6.
  5. ^ Khan 2013, pp. 216–226.
  6. ^ a b Usmani, Introduction to Islamic Finance, 1998: p. 6
  7. ^ Farooq 2005, p. 7.
  8. ^ Rammal, Hussain Gulzar; Zurbruegg, Ralf (23 August 2007). "Awareness of Islamic banking products among Muslims: The case of Australia". Journal of Financial Services Marketing. 12 (1): 65–74. doi:10.1057/palgrave.fsm.4760060. hdl:10453/71109. SSRN 1854427.
  9. ^ Saeed, A. (1996). "Islamic Banking and Interest: A Study of the Prohibition of Riba and its Contemporary Interpretation". Leiden, Netherlands: E. J. Brill.
  10. ^ "Sharia calling". The Economist. 12 November 2009.
  11. ^ a b "Islamic finance: Big interest, no interest". The Economist. The Economist Newspaper Limited. 13 September 2014. Retrieved 15 September 2014.
  12. ^ Mohammed, Naveed (27 December 2014). "The Size of the Islamic Finance Market". Islamic Finance.
  13. ^ Towe, Christopher; Kammer, Alfred; Norat, Mohamed; Piñón, Marco; Prasad, Ananthakrishnan; Zeidane, Zeine (April 2015). Islamic Finance: Opportunities, Challenges, and Policy Options. IMF. p. 11. Retrieved 13 July 2016.
  14. ^ Yueh, Linda (18 July 2014). "Islamic banking: Growing fast but can it be more than a niche market?". BBC News. Retrieved 14 April 2015. Even in countries where Islamic banking has a strong foothold, such as the Gulf states and in South East Asia, its share rarely accounts for more than one third of the market. In Indonesia, the world's most populous Muslim country, Islamic banking currently has less than 5% market share.
  15. ^ a b Warde, Islamic finance in the global economy, 2000: p. 21
  16. ^ a b Khan 2015, p. 87.
  17. ^ Farooq 2005, p. 33.
  18. ^ Khan 2013, p. 303.
  19. ^ Qureshi, D.M. 2005. Vision table: Questions and answers session. In Proceedings of the First Pakistan Islamic Banking and Money Market Conference, 14–15 September, Karachi
  20. ^ Fadel, Mohammad. 2008. Riba, efficiency, and prudential regulation: Preliminary thought. Wisconsin International Law Journal 25 (4) (April) 656
  21. ^ Khan 2013, pp. xv–xvi.
  22. ^ Khan 2013, p. 400.


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