Islamic Finance and the New Financial System: An Ethical Approach to Preventing Future Financial Crises

Chapter 8Islamic Financial Instruments as Alternatives

Over the past 40 years, Islamic banks and financial institutions have been racing to develop a full range of financial products and services to match the offerings of conventional banks. In some cases, Islamic banks have been able to beat conventional banks at their own game by launching more competitive products. The proof of this is in the degree to which Islamic banks have taken away market share and continue to take away market share from their conventional counterparts. If Islamic banks had been underperforming and offering subpar products, then their conventional competitors would not have needed to resort to launching competing Islamic financial products to stop the erosion of their market share. In some cases, conventional banks have thrown in the towel and either converted to Islamic banks or set up dedicated branches and subsidiaries in order to offer Islamic products and services.

In Malaysia, the most advanced Islamic financial market, nearly every bank, insurance company, mutual fund company, and financial institution offers a range of Islamic products and services. Though there are only a few pure Islamic banks in the country, every bank either has a dedicated subsidiary, which offers Islamic banking services, or offers both conventional and Islamic services in its branches. CIMB Bank is the largest bank in the country, having a dedicated Islamic banking subsidiary, CIMB Islamic. Maybank the largest bank overall, ...