Modern Islamic Banking

Introduction

With an estimated size of around $1.5 trillion at the end of 2014, Islamic financial services still form a relatively small part of the overall financial industry. The balance sheets of large conventional banks such as HSBC and Citi, for example, easily exceed double that size. Regardless, the Islamic financial services industry has shown remarkable growth in recent decades, with reported growth rates of 15–20% per annum. This level of growth is expected to continue for the coming years and by far exceeds the anticipated rate of growth in conventional finance. The increase in wealth resulting from the rise in oil prices and the subsequent requirements for investments in oil-producing countries are a large contributor to the expansion of the Islamic finance industry. As a side effect of the current financial crisis, the ethical principles underpinning Islamic financial services have attracted more attention from both Muslims and non-Muslims.

Globally, we see a growth in both number and size of fully Sharia'a compliant financial institutions, as well as the offering of Sharia'a compliant financial products by conventional banks using different distribution channels. Although the term “conventional” is often associated with conservative and low-risk banking, in the context of this book the term “conventional” is used to identify the financial institutions that have long formed the majority of the financial infrastructure and are not specifically based on Islamic principles. ...