Islamic banking and finance
[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.
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.
His statement resulted in "pandemonium" in the parliament, a demand by members of leading Islamist political party[Note 4] to immediately respond to these allegedly derogatory remarks, followed by a walkout when they were denied it.
[65] Also in the 1990s, a false start was made in Islamic banking in the UK, where bankers declared returns "interest" for tax purposes, while insisting to depositors they were actually "profit" and so not riba.
Usmani among others) for not progressing from "debt-based contracts", such as murabaha, to the more "genuine" profit and loss sharing mode, but instead moving in the opposite direction, "competing to present themselves with all of the same characteristics of the conventional, interest-based marketplace".
In 2009, the official newspaper of the Vatican (L'Osservatore Romano) put forward the idea that "the ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service".
)[114] Nizam Yaquby, for example declares that the "guiding principles" for Islamic finance include: "fairness, justice, equality, transparency, and the pursuit of social harmony".
This should not be thought of as presenting a problem for borrowers finding funds, because – according to Usmani – it is in part to discourage excessive finance that Islam forbids interest.
[120] Zubair Hasan argues that the objectives of Islamic finance as envisaged by its pioneers were "promotion of growth with equity ... the alleviation of poverty ... [and] a long run vision to improve the condition of the Muslim communities across the world.
A number of orthodox scholars point to Quranic verses (2:275–2:280) as declaring riba "categorically prohibited" and "unjust" (zulm), and defining it to mean any payment "over and above the principal" of a loan.
[179] And both Islamic finance practitioners and critics find benefit in at least some uses of derivatives and short selling – managing risk in times of financial trouble,[180] improving market efficiency and employee productivity.
[228] As of April 2015, the 188 members of the IFSB comprise 61 regulatory and supervisory authorities, eight international inter-governmental organisations, and 119 market players (financial institutions, professional firms and industry associations) operating in 45 jurisdictions.
[239][240] According to economist and Islamic finance critic Feisal Khan, a "true" or strict Islamic banking and finance system of profit and loss sharing (the type supported by Taqi Usmani and the Shariah Appellate Bench of the Supreme Court of Pakistan) would severely cripple central banks' ability to fight a credit crunch or liquidity crisis that leads to a severe recession (such as happened in 2007–8).
[102] Murabahah differs from conventional finance (such as mortgages for homes or hire purchase for furniture or appliances), in that the fixed return with which the bank is compensated is called "profit" and not interest,[146] and that the financier may not keep for itself any penalties for late payment.
[256][286] However, according to another (Bangladeshi) source, Bai' muajjal differs from Murabahah in that the client, not the bank, is in possession of and bear the risk for the goods being purchased before completion of payment.
According to the Institute of Islamic Banking and Insurance, it "serves as a ruse for lending on interest",[293] but Bai' al inah is practiced in Malaysia and similar jurisdictions.
[322] In a "forward ijarah" or ijara mawsoofa bi al dhimma Islamic contract, the service or benefit being leased is defined, rather than the particular unit providing that service/benefit.
However, critics complain that "billions of dollars" of putative commodity-based tawarruq transactions have evaded the required commodity trades;[331] and Islamic scholars both contemporary[332][Note 21] and classical[334] have forbidden the practice.
The agent's services may include selling and buying, lending and borrowing, debt assignment, guarantee, gifting, litigation and making payments, and are involved in numerous Islamic products like Musharakah, Mudarabah, Murabaha, Salam and Ijarah.
[350] An example of wakalah is found in a mudarabah profit and loss sharing contract (above) where the mudarib (the party that receives the capital and manages the enterprise) serves as a wakil for the rabb-ul-mal (the silent party that provides the capital) [Note 22] From the point of view of depositors, "Investment accounts" of Islamic banks – based on profit and loss sharing and asset-backed finance – play a similar role to the "time deposits" of conventional banks.
"[399] They began growing fairly rapidly in about 2004,[400] and as of 2014 there were 943 Islamic mutual funds worldwide and as of May 2015, they held $53.2 billion of assets under management,[401] with "latent demand" for considerable growth.
Critics have complained of Islamic banking and finance closely resembling the conventional sort but having "higher costs, bigger risks",[22] – a situation that has not been remedied by "learning" over the decades.
"[438][439] Income far in excess of what has been customary for Islamic scholars – luxury air travel and five star hotel – as well as being eagerly asked for their legal opinion by wealthy, high status people,[440][441] may lead to what one writer (Muhammad O. Farooq) calls a "certain changes in viewpoint" resulting in "over-stretching the rules of Shariah".
To support the growth is Islamic financing, governments must establish measures to create a level playing field with regards to liquid secondary markets and equal regulation and taxes that match conventional banking.
[241] In addition to ignoring profit and loss sharing in favor of murâbaḥah, the industry has been accused of not properly following shariah regulations of murabahah (mentioned above), by not buying and selling the commodities/inventory that are "a key condition"[154] of shariah-compliance (done when the bank wants to borrow cash rather than to finance a purchase, and though they are an added cost and serve no other function).
[486] Regarding non-PLS, "debt-based contracts", one study found that "the business model of Islamic banking is changing over the time and moving in a direction where it is acquiring more liquidity risk.
This field conceptualizes Islamic banks as hybrid organizations that combine business and religious pursuits with distinct challenges for leadership to bring together diverse beliefs, values, and views.
"[432]Harris Irafan warns that the "macroeconomic exposures" of Islamic banks constitute a "ticking time bomb" of a "billions of dollars" in "unhedged currencies and rates".
Regional Islamic banks in the Middle East and Malaysia did not have "specialized personnel trained to understand and negotiate Sharia-compliant treasury swaps" and were not willing to hire the consultants who did.
"[537] According to Alex P. Schmid writing in 2004,[Note 40] a network of Islamic banks has "proved to be an ideal instrument for money manipulation" to channel funds to terrorist organizations.
