| Islam and the West | |
| 07 Oct 2009, NewAgeIslam.Com | |
| Egypt, UK - Islamic Banking Development & opportunities | |
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The global market for Islamic financial services is estimated to have reached $729bn at the end of 2007, a 37% increase year-on-year. Most of the assets belong to Islamic commercial banks. Investment banks and (SukuK) issues, the issue of Islamic notes, make up for most of the remainder. Sukuk can best be described as offering an alternative to conventional bonds; they are based on profit sharing rather than interest payment. This element of the Islamic financial system was hit in 2008, similarly like other conventional financial systems, by the global crisis with the decline in asset valuation, a lack of liquidity and lack of market confidence.... Governments and regulators in a variety of countries have already recognized the importance of Islamic banking as a feasible alternative to conventional banking and the role Sukuk can play in capital markets. Whereas the UK is more advanced in its development of this industry, Egypt has shown a considerable interest in building up strong Islamic financial institutions to boost its investment climate.-- Global Arab Network Report URL of this page: http://newageislam.net/NewAgeIslamArticleDetail.aspx?ArticleID=1861 -----
Egypt, UK - Islamic Banking Development & opportunities 01 October 2009
Islamic Banking is founded on the (Sharia Law), as prescribed in the Koran this law provides the framework within which Muslims should conduct their lives. The overarching principle of this law when applied to the banking sector is that any form of interest (Riba) derived from investments is forbidden (This is still a controversial issue). Islamic finance works from the premise that both the individual customer and bank should be at equal risk upon investment; any possible profits or losses should subsequently be divided equally between them. Conventional financial services, as well as finance for activities related to alcohol, gambling and tobacco are incompatible with the principles set out in the Sharia Law and therefore prohibited in the Islamic banking system. Moreover, all financial products should be certified as Sharia compliant by an expert in Islamic law. While the main principles of Islamic Finance date back 1400 years, development of Modern Islamic Finance emerged in the 1970s when the first Islamic banks were founded. Since the mid 1990s there has been increasing awareness of the benefits of Islamic financial products, and government support both in Egypt and The UK has stimulated its growth. During 2008, the global economic downturn has emphasized the viability of Islamic Banking as a potential alternative to conventional banking. The global market for Islamic financial services is estimated to have reached $729bn at the end of 2007, a 37% increase year-on-year. Most of the assets belong to Islamic commercial banks. Investment banks and (SukuK) issues, the issue of Islamic notes, make up for most of the remainder. Sukuk can best be described as offering an alternative to conventional bonds; they are based on profit sharing rather than interest payment. This element of the Islamic financial system was hit in 2008, similarly like other conventional financial systems, by the global crisis with the decline in asset valuation, a lack of liquidity and lack of market confidence. The developing funds and (Takaful) sectors also contribute to the total assets of the Islamic financial services. Takaful is also referred to as Islamic insurance; however it is based on the concept of separation between the funds and operations of shareholders. Ownership of the fund and its operations is thus passed to the policyholder. In other words, Takaful allows for a transparent sharing of risk by pooling individual contributions for the benefit of all subscribers. Islamic Banking Development in the UK The UK is currently the leading Western country for Islamic financial services with reported assets worth $18bn at the end of 2007. Over the past 30 years London has been providing Islamic banking services but only recently has it gained more recognition. This can mainly be attributed to an increased support for this form of banking by the UK government. In 2003 a fiscal and regulatory framework for Islamic finance was established. From this, further initiatives to improve and enhance the role of Islamic banking have been implemented such as the removal of double tax on Islamic mortgages and the extension of tax relief on Islamic mortgages to companies and individuals. The Financial Services Authority (FSA) has come up with initiatives that ensure equal footing between conventional and Islamic providers. The FSA supports Islamic banking and states that it brings needed diversity and strength to the UK's financial environment. Currently five fully Sharia compliant Islamic banks have been established in the UK. In 2004 the Islamic Bank of Britain, the first fully Sharia compliant Islamic bank was authorized by the FSA. Other Islamic banks based in the UK that are fully Sharia compliant are the Bank of London and Middle East, European Finance House, Gatehouse Bank and the European Islamic Investment Bank. There are also an estimated 17 conventional banks in the UK that have created so-called 'windows' through which to provide Islamic financial services such as Barclays, HSBC, Lloyd's and UBS. Islamic Banking Development in Egypt In Egypt government support for Islamic banking is increasing according to the Ministry of Investment. Egypt has a long tradition in providing Islamic banking products and showed an early interest in Modern Islamic Finance, already in 1963 Ahmad El Najjar established the Mit Ghamr Savings Bank largely in line with the principles of Sharia compliant investment. However, presently it lags behind other countries in the Gulf and South-East Asia. The current government is exploring opportunities offered by the market in Sukuk and Islamic banking in the region, such as the Dubai Islamic Bank is looking to expand into Egypt. As the Ministry indicates, Islamic finance is to develop within the banking structures currently in place, a prerequisite is that the Islamic financial institutions respect the rules of disclosure, monitoring and prudent regulation. The funds that would pour into Egypt upon further development of this industry by the Egyptian government would undoubtedly contribute to the country's financial position. Most notably, it would stimulate the job market and generate more capital for investment. The Effects of the Global Recession on Islamic Banking While the Islamic finance industry has been hit by the economic downturn with a drop in Sukuk issuance and a decrease in the value of equity funds, Islamic banks have been considerably less affected than most conventional banks. This is mainly because unlike conventional banks, the Islamic banks have not been exposed to losses from investment in toxic assets nor have they been dependent on wholesale funds since these practices are not in accordance with the principles set out in the Sharia Law. Because the issuance of Sukuk relies heavily on the activity on capital markets, this has been the key area of Islamic finance to be affected by the crisis, the total value stood at $42bn in 2007 compared to an estimated $20bn in 2008. However, the long term prospects for Sukuk are positive once the markets recover. There is a continued commitment to infrastructure investment in the Gulf Cooperation Council (GCC), some of this will be financed through Sukuk. Moreover, recent years have already indicated that there is an interest in Islamic banking and Sukuk beyond Islamic investors. The UK is one of the leading centres for Islamic banking in the world, yet only 5% of its population is Muslim. And lastly, governments and regulators in a variety of countries have already recognized the importance of Islamic banking as a feasible alternative to conventional banking and the role Sukuk can play in capital markets. Whereas the UK is more advanced in its development of this industry, Egypt has shown a considerable interest in building up strong Islamic financial institutions to boost its investment climate. URL of this page: http://newageislam.net/NewAgeIslamArticleDetail.aspx?ArticleID=1861
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Friday, October 9, 2009
Egypt, UK - Islamic Banking Development & opportunities
The UK is one of the leading centres for Islamic banking in the world, though only 5% of its population is Muslim
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