Saturday, March 15, 2008

Islamic Finance Expands

SOURCES: Financial Times

In the past, Islamic finance has been mostly limited to commercial banking in specific regions, like the Middle East and Malaysia. Islamic finance has been limited because the strict interpretation of the Koran forbids the utilization of interest in business dealings. However, the past few years have been a change of pace. Islamic markets have recently expanded due to the Gulf’s financial liquidity from oil and the increasing Muslims looking for only religiously endorsed products. Many have been stunned by the growth.

One Islamic scholar from the Dubai Islamic Bank called the past decade of growth extraordinary. The Islamic financial market’s innovative ideas have played a strong role in the market’s growth.

New contributors, investors around the world and large western financial institutions, have played a helpful role. The growth in the Islamic financial market has raised serious concerns. As a result, there is a heightened need for additional regulation and supervision. The UK has played a key role in Islamic finance. There are two Islamic banks currently in the UK. There, Islamic bonds are advertised to international investors.

There are $300 billion controlled through Islamic laws and 280 institutions. These institutions include commercial banks, investment banks, and investment funds that focus on providing Islamic goods. Islamic financial services used to be only part of a niche; however, now the Islamic financial services are becoming part of the mainstream markets. Currently, Islamic banking represents only 1 percent of global banking. But most expect the pace of growth to continue to increase in the next several years.

Nabeel Shoaib, global head of HSBC Amanah, the bank’s Islamic finance arm, believes that in eight to ten years the Islamic financial market could gain half the savings of the 1.6 billion Muslims worldwide. The Islamic financial market has grown not only from economic factors, but also political factors. The outcome of the September 11 attacks united the Islamic identity in the Muslim world. This unification prompted more to find ways of communicating religious conviction.

Can the Islamic financial market grow faster than it can handle? Would economic success continue if oil prices began to decrease?

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