Modern Shariah-compliant Islamic banking has been operating since the 1960's when the first ‘social bank' launched in Egypt. Since then, over 250 Islamic banks and financial institutions have been established worldwide.
Current estimates put the size of the global market at between US$200-300bn, with a growth rate of 10-15 per cent a year.
In the west, Islamic banking has traditionally been thin on the ground but a recent surge in demand for Shariah-compliant products has prompted several conventional banks to sit up and take note.
This demand coincides with increased financial resources among Muslims, particularly those from oil producing countries. With the need for financial products to protect their growing wealth, combined with a disenchantment from conventional financial models, many Muslims (and some ethically oriented non-Muslims), want a financial system which incorporates their ethical values.
Islamic banking applies the principles of Shariah to financial transactions. The overriding feature is the prohibition of ‘Riba’. Riba is the Arabic term for the excess over and above the capital of a loan; in other words – interest. In Islamic finance, conventional bank accounts, loans, mortgages and credit cards all fall down on this point.
As well as prohibiting riba, Islamic banking:
- Prohibits any economic activity which is deemed morally or socially damaging.
- Prevents the accumulation of wealth in just a few hands (through inheritance laws) to the detriment of society as a whole.
Almost every Islamic bank has a committee of religious advisers to give opinions on new products and services. |
