Author : Aena Williams, The Madinah Institute for Leadership and Entrepreneurship (MILE) brings senior executives and high potential leaders from all over the world for executive education to discover new dimensions in Leadership Development,Good Governance, Telecom Training, Islamic Finance, HR Performance and various other Leadership and Management practices to help them grow in their business careers.
Islamic financing transaction system is what has been underway for the last 1500 years. But in the modern transaction system it took its shape only in 1960s and then its use kept on increasing with petrodollar boom of 1970s. One of the factors of increase of usage was the development of Islamic Development Bank in 1975, which was created to encourage acceptability of financial practices in accordance with the Islamic financial principles. We see that during that period many banks followed Islamic ideas of finance especially in the Middle East. Some banks adopted both Islamic and conventional methods of financing in order to catch share from both markets. That is why many internationally renowned large banks like HSBC, UBS and Citigroup have their Islamic banking arms in the Middle East and the West.
Examples: One of the notable examples of Islamic method of financing was funding of Dubai Ports World and takeover of P&O. Which was of USD 3.5bn, currently it is world largest Sukuk transaction in the world and world largest Islamic finance transaction till now. Emirates Airline is one of the most renowned air line and it regularly use Ijara method of financing to support its fleet expansion. Banks like HSBC and Lloyds TSB are one of the most well known banks which offer Islamic Finance products to its retail, commercial and financial clients.
IMF Report 2008 on Islamic Banking:In 2008 IMF published a paper in which it was anticipated that at the end of 2007 there were more than 300 Islamic financial institutions working in more than 75 different countries. It was also expressed that with the growth rate of 15% per year from last ten years it can be expected that this growth will keep on going or may be boosted in the years to come depending on the regulatory practices. It is seen that there are many reason for the growth of Islamic finance but the main reasons behind this growth is that Muslims all over the world showing their leaning to choose financial products which are according to the economic rules of Islam and these products were not available to them with conventional banking systems. Then there was increase in the wealth of Muslim countries in the Middle East mostly because of oil and they showed strong inclination towards Islamic finance. This inclination urged to establish Islamic banks and other monetary institutions but it made the western conventional banks to open windows of Islamic banking along with their conventional banking.
These Islamic financial products are considered competitive and ethically focused that is why they are getting more popular among the people and attracting more and more customers which includes both the Muslim and the non Muslims. Islam is also the world fastest growing religion and is second largest religion group in USA, UK and France which is also the reason behind the success of Islamic finance over there.
Future:
Future of Islamic finance seems to be very bright. Islamic finance has been proved a reality by the managers of Islamic finance. But there needs a constant effort to make people aware of the benefits of Islamic finance in terms not only of its ethical aspects but economically too. There is a long way to go.
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