The Islamic finance industry, which refers to the banking activity conducted in accordance with the principles of Shariah (Islamic law), gained the limelight over the past two months during the global financial turmoil as one of the relatively safe havens for investments.
There are currently over 800 billion dollars' worth of deposits and investments lodged in Islamic banks, mutual funds and insurance schemes known as 'takaful,' more than five times the volume compared with 150 billion dollars in the mid-1990s.
Islamic financial institutions are reportedly expanding their balance sheets as demand continues to grow in Europe for financial products that avoid paying interest, in line with strict religious rules. These products instead pay profits from an underlying business or rent from a building used as collateral to raise money. The expansion of Islamic finances rests on a lack of exposure to toxic assets and derivatives, often related to mortgages that prompted the collapses in the United States and elsewhere in October 2008.
Besides its wide geographical scope, the expansion of the Islamic finance has been also taking place across the whole spectrum of financial activities, ranging from retail banking to insurance and capital market instruments.
The most striking phase could be the growth of Sukuk, the most popular form of securitized credit finance within Islamic finance. Sukuk commoditize capital gains from bilateral risk sharing between borrowers and lenders in shariah-oriented finance contracts into marketable securities without interest rate charges. The rise of the Sukuk market as an alternative investment activity, is attracting the attention of an increasing number of private sector and official circles across the globe including the British government which is reportedly mulling to become the first Western government to buy this kind of Islamic bond.
According to a new study by the International Financial Services London (IFSL), an independent organization representing Britain's financial services industry, Islamic finance will emerge largely 'unscathed' from the current world crisis. It attributed its findings mainly to the fact that Islamic financial institutions make little use of many of the complicated instruments blamed for the current problems in conventional banks such derivatives and short-selling.
There are currently over 800 billion dollars' worth of deposits and investments lodged in Islamic banks, mutual funds and insurance schemes known as 'takaful,' more than five times the volume compared with 150 billion dollars in the mid-1990s.
Islamic financial institutions are reportedly expanding their balance sheets as demand continues to grow in Europe for financial products that avoid paying interest, in line with strict religious rules. These products instead pay profits from an underlying business or rent from a building used as collateral to raise money. The expansion of Islamic finances rests on a lack of exposure to toxic assets and derivatives, often related to mortgages that prompted the collapses in the United States and elsewhere in October 2008.
Besides its wide geographical scope, the expansion of the Islamic finance has been also taking place across the whole spectrum of financial activities, ranging from retail banking to insurance and capital market instruments.
The most striking phase could be the growth of Sukuk, the most popular form of securitized credit finance within Islamic finance. Sukuk commoditize capital gains from bilateral risk sharing between borrowers and lenders in shariah-oriented finance contracts into marketable securities without interest rate charges. The rise of the Sukuk market as an alternative investment activity, is attracting the attention of an increasing number of private sector and official circles across the globe including the British government which is reportedly mulling to become the first Western government to buy this kind of Islamic bond.
According to a new study by the International Financial Services London (IFSL), an independent organization representing Britain's financial services industry, Islamic finance will emerge largely 'unscathed' from the current world crisis. It attributed its findings mainly to the fact that Islamic financial institutions make little use of many of the complicated instruments blamed for the current problems in conventional banks such derivatives and short-selling.
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