Fundamentals of Islamic Finance and Banking

CHAPTER 12Global Standing of Islamic Finance and Banking

Learning outcomes

Upon completion of this chapter, you should be able to:

1. Understand the background of Islamic finance and banking in comparison with its conventional counterpart.
2. Discuss the growth of Islamic finance and banking globally, and specifically amongst the Muslim community in the Middle East, South and South-East Asia.
3. Explain the achievements, opportunities and challenges of the global Islamic finance and banking industry.
4. Discuss the social responsibilities of Islamic finance and the key issues moving forward.

BACKGROUND OF MODERN ISLAMIC FINANCE AND BANKING

The idea of interest-free financing has existed since the birth of Islam, but its reintroduction into the world of finance is only a few decades old. The concept of modern Islamic finance emerged in the mid-20th century with Asian and Arab Muslim-majority countries gaining independence from Western colonial powers, searching for their own identity and inspired by Islamic economics distinct from both the Western capitalist and Eastern socialist models. Islamic economics, as a term, was first coined by Abul Ala Al Mawdudi, who sought to develop Islamic social science (Kuran, 2004). Islamic finance and banking evolved from the concepts of Islamic economics, based on the profit and loss system (which is considered more equitable and stable) and with the joint efforts of Islamic Shariah scholars and practicing professionals in the finance and banking ...