Formerly concentrated in North Africa, the Middle East, and Southeast Asia, Islamic banking is now spreading rapidly around the world. Attracted by a huge growth potential, international banks like Citigroup, HSBC, and Deutsche Bank are creating their own Islamic wings. In addition to Islamic loans, there are Islamic bonds, Islamic credit cards, and even Islamic derivatives. Loans and bonds that conform to the Koran are already available in the United States. Britain, Japan and Thailand are contemplating issuing Islamic bonds of their own.
Today, over 300 Islamic financial institutions are successfully running their businesses from Dubai, New York, Hong Kong, London and other financial centres around the world, and together hold at least $500 billion in assets. This amount is expected to increase with more than 10 percent a year (source).
Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law (Sharia) principles and guided by Islamic economics. In particular, Islamic law prohibits usury, the collection and payment of interest, also commonly called riba in Islamic discourse. In addition, Islamic law prohibits investing in businesses that are considered unlawful, or haraam (such as businesses that sell alcohol or pork, or businesses that produce media such as gossip columns or pornography, which are contrary to Islamic values).
“This is an industry on its way from a niche industry to becoming a truly global industry,”. Khawaja Mohammad Salman Younis, the managing director for operations in Malaysia for Kuwait Finance House, the world’s second-largest Islamic bank, after Al-Rajhi Bank, told The International Herald Tribune. ” In the next three to five years you’ll see Islamic banks coming out in Australia, China, Japan and other parts of the world.”
All-in-all, before Islamic banking activities can really take off there need to be done an adjustment to the current regulatory environment. Research conducted by McKinsey emphasises on two areas of attention: general licensing policies and the role of governments in overseeing compliance with the Islamic code or Sharia. Notwithstanding, an influential propeller for the recent popularity of Islamic banking is the booming oil price (Source). As this is expected not to slow down in the forthcoming years it can only speed up the needed regulatory reforms and trigger further globalisation of Islamic banking.
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