Sustainability of Islamic Finance in the West Finance Essay

With a rapidly altering world economic system, the long-established virtues and stringent laws of Shariah based Islamic Finance have recently adopted a promising reputation. Despite global attention on Middle East unrest and public divides in opinions related to Islamic practice, a growing trend towards favoring the adoption of IF policies. Since its formal establishment in 1963 in Egypt, through rapid expansion in the UAE in 1975 and Kuwait in 1977, the region sparked global interest as Islamic nations have consistently shown growth. The United States of America, despite its political infractions with Islamic counties due to an upsurge in perceived terrorist threats, currently houses 19 providers of Islamic banking products, and continues to offer these services to its large and growing Muslim population; a trend that is echoed in neighboring Europe and African nations. A significant number of economic academics and Islamic scholars alike are showing support towards the western inclination toward Shariah based banking schemes, despite terrorist attacks on the west including the events of September 11, 2001. 'Goverment policy has been increasingly supportive of the development of Islamic financial services in recent years because it has been seen to contribute to broader government objectives such as combating social exclusion and promoting London and wider UK as global financial centre''A  Baroness Nicholson of Winterbourne, explained in her testament to the benefits of IF. The publications from the most recent Islamic Finance Summit, are enumerated and provide compelling academic support for the implementation of IF practices to further develop and sustain the turbulent economies incurred by European and North American nations.

Islamic Finance: A comparative study of its application in the West

The application and growth of Islamic Finance in Europe

UK

"UK is the eighth-largest global center for Islamic finance, behind countries such as Saudi Arabia and the majority of the Gulf Cooperation Council (GCC) countries, but surprisingly ahead of Pakistan and Egypt.1" (Schoon, 2009). It is the most advanced in Islamic finance developments among the Western Europe countries. "The UK's enviable eighth position in the global ranking is for a large part due to the size of HSBC Amanah's Islamic finance offering, but is also attributable to the fact that the UK, as an international financial center, had in the early stages recognized the importance of Islamic finance as part of the overall financial industry. It thus took positive steps to allow the authorization of banks and to ensure that Islamic financial instruments can be offered in the UK in a similar fashion as conventional structures, hence creating a level playing field. There are five fully Shariah compliant banks as well as one insurance company and one investment manager have been authorized by the Financial Services Authority (FSA). In addition, there are 17 conventional institutions offering Islamic financial services in the UK such as HSBC Amanah, Lloyds Banking Group and Deutsche Bank.1" (Schoon, 2009) The foundations for the future development of Islamic finance in the UK have been firmly laid. Although the likely growth cannot be predicted accurately, there is scope for expansion, as set out below.

Retail markets

"To date the industry has largely concentrated on providing mortgage and savings products for retail consumers, and growth has been modest. The tax and regulatory developments already outlined could benefit the market and there are signs of firms expanding their product ranges through providing new saving and investment products. Interest-free student overdrafts have recently emerged and there seems to be demand for new products targeted at the personal finance and the small and medium size enterprise (SME) markets. Elsewhere in the retail market, some regional stockbrokers are providing services to consumers at all levels of the wealth spectrum and some financial advisers are offering tailored advice to the Muslim community. 2" (Ainley, Mashayekhi, Hicks, Rahman, Ravalia, 2007)

Wholesale markets

"The Sukuk market in London is now well established. The volume of Sukuk trading is still small but this could change if the government goes ahead with a sovereign issue. There are also indications that a few inter-dealer brokers in London may be trying to develop closer links with Islamic firms in the Gulf, possibly by establishing regional offices there. 2" (Ainley, Mashayekhi, Hicks, Rahman, Ravalia, 2007)

Takaful

"Takaful markets in other countries are considerably more mature than in the UK. These include the Gulf States and particularly Malaysia, which has been active in this area for several decades. The prospects for growth in the UK are unclear; but it is possible that as products are rolled out in these more established markets, there may be some transfer of activity to the UK. The growth of Takaful products in the UK could help to develop the Islamic mortgage market. As with conventional firms, Islamic finance firms would then be able to offer a combined package to prospective home buyers. 2" (Ainley, Mashayekhi, Hicks, Rahman, Ravalia, 2007) "One of the biggest obstacles for Takaful providers is the limited amount of Sharia compliant reinsurance capacity. Precise data is unavailable but, based on anecdotal evidence; Islamic reinsurance is able to provide only a fraction of the cover needed by the Takaful industry. As a result, Takaful providers sometimes have to obtain dispensation from their SSBs to take cover with conventional reinsurers. As already mentioned, the FSA is willing to consider further applications from firms in this sector on the same basis as conventional firms. 2" (Ainley, Mashayekhi, Hicks, Rahman, Ravalia, 2007)

Complex products

"Although derivative products are well established tools for managing risks in conventional financial markets, there has been considerable difficulty developing Sharia compliant products which mirror these instruments. These products are controversial and have not been readily accepted by scholars because of their speculative nature. A small number of products have been developed by various banks, for example, Citi have products for managing currency and interest rate risk and other firms such as Deutsche Bank have developed a technique for Islamic derivative products. Indicative of the widening interest in this area, the International Swap and Derivatives Association (ISDA) and the International Islamic Finance Market (IIFM) have signed a Memorandum of Understanding (MoU) to develop a master agreement for Sharia compliant derivative products. It is difficult to assess exactly what type of instruments may result but the FSA is following this closely. 2" (Ainley, Mashayekhi, Hicks, Rahman, Ravalia, 2007)

Hedge funds

"Several hedge fund managers have Sharia-compliant funds within their portfolios. In January 2007, Amiri Capital was authorized as a standalone Islamic hedge fund manager and more applications may be in prospect. The growth will to a great extent depend on whether the investors approve the methods proposed by fund managers. As with the UK managers of conventional hedge funds, managers of Islamic funds would also be regulated by the FSA. As now, the main regulatory focus would be on systems and controls, valuations, disclosure and conflicts of interest. So far as we know, there are currently no major regulatory issues with regard to Islamic hedge fund managers.2" (Ainley, Mashayekhi, Hicks, Rahman, Ravalia, 2007)

EU passporting

"Under the relevant European Union directives, one avenue for financial institutions in the UK, including Islamic ones, to expand is to 'passport' their business activities into any one of the European Union member states (and vice versa). Concerted efforts have been made within the European Union to form a single market for financial services; and UK-authorized institutions may offer products throughout the European Union without the need to have separate authorization in each member country. This means that Islamic institutions that 'passport' would have access to an estimated 15 million potential customers. The Bank of London and the Middle East is the first Islamic bank to have taken advantage of a cross-border services passport, which enables it to offer its products and services across all EU member states, without a physical presence in the host country. 2" (Ainley, Mashayekhi, Hicks, Rahman, Ravalia, 2007)

Government initiatives

"The government has recently taken important steps to promote the industry. In April 2007, the Treasury established an 'Islamic Finance Expert Group' representing a broad cross-section of opinion from the industry, the City, Muslim organizations and other bodies, including the FSA. The general objective is to advise the government on opportunities to help Islamic finance in the UK. 2" (Ainley, Mashayekhi, Hicks, Rahman, Ravalia, 2007) "More specifically, as confirmed in the Chancellor's pre-Budget Report in October 2007, the group is overseeing an official study by the Treasury and the UK Debt Management Office on the possibility of the UK government issuing a sovereign Sukuk in the wholesale market. As to be expected, the study is examining the practical, legal and tax implications of doing so as well as structural issues such as the need for primary legislation. It has already generated a good deal of interest among market participants and the government will publish a consultative document later in 2007. 2" (Ainley, Mashayekhi, Hicks, Rahman, Ravalia, 2007) "At the same time, the government has asked National Savings and Investments (NS&I) to begin a detailed study on the feasibility of offering Islamic retail products. This study will cover similar ground to the one on Sukuk, namely looking at the costs and benefits, the range and structure of products that might be offered, and the likely demand. NS&I will publish their report by Autumn 2008. 2" (Ainley, Mashayekhi, Hicks, Rahman, Ravalia, 2007)

The longer term

"Looking further ahead, there is scope to expand the market for Islamic products and services to non-Muslims as well as Muslims. The market is not confined to a particular group of consumers and Islamic finance providers can position their products to appeal more to the much larger non-Muslim population. Their success in doing so will in part depend on the ability to demonstrate how the products are underpinned by generally accepted ethical principles. If Sharia-compliant products are no longer seen as 'exotic' or niche products, the industry could benefit from economies of scale which would help to sustain it over the longer-term. 2" (Ainley, Mashayekhi, Hicks, Rahman, Ravalia, 2007)

France

"During the third quarter of 2008, French finance minister Christine Lagarde announced plans for the country to become a large Islamic finance player in Europe. During the first quarter of this year, initial law changes have been passed and France is ready to take Islamic finance a step further. Due to historic ties with northwest Africa and the size of the Muslim population in France, it can tap the French speaking market. Most of the major French banks such as Soci©t© G©n©rale and BNP Paribas are already offering Islamic financial services, although this is primarily undertaken from their branches in the Middle East.1" (Schoon, 2009)

The Netherlands

"During the second half of 2007, finance minister Wouter Bos announced that the country would review its role in the Islamic finance industry. Since then, De Nederlandsche Bank (DNB, the central bank) has published a study on the potential regulatory issues that would have to be addressed when introducing Islamic finance in the Netherlands. More recently, a working group was established within Holland Financial Centre, a government initiative, to further promotes the opportunities the Netherlands can offer Islamic finance. To date, a limited number of Islamic finance transactions have been undertaken in the Netherlands. In addition to a limited number of retail asset management products, the majority of transactions are associated with real estate and private equity investments.1" (Schoon, 2009)

Germany

"In 2004, the state of Saxony-Anhalt became the first western European government to issue Sukuk. Although there does not appear to be any interest from German politicians, many German banks such as Deutsche Bank, Dresdner and WestLB offer Islamic financial services as part of their product offering. Islamic financial services from German banks are typically offered from their branches in London or the Middle East. At an estimated five million, Germany's Muslim population is more than double that of the UK.1" (Schoon, 2009)

Other European Countries

"Luxembourg, in their capacity of a centre for fund management, already manages in excess of 30 Sharia'a complaint funds (according to the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg financial supervisory authority, as of September 2008, 31 Sharia'a compliant investment funds are held in 17 Luxembourg domiciled investment vehicles). Throughout Europe large internationally operating banks generally offer Islamic financial services, although no other governments have so far announced any plans to review and where required amend their regulatory, legal or tax framework.1" (Schoon, 2009)

The development of various Islamic institutions in the US and Canada

Canada

Islamic Finance in Canada

"Toronto is ideally placed to become an Islamic financial hub. The roots of Islamic finance in North America also trace back to Toronto, where in 1979, the Islamic Co-operative Housing Corporation Ltd. was registered. My uncle, Naseem Buttar, was one of the founding members of this community initiative, which was the only available solution for financing hundreds of homes for over 25 years relying on limited community investment funds. These funds were reinvested into structure a home financing partnership based on a rent-to-own model. Over the years, a few more co-operatives have come to the market. UM Financial was incorporated in 2004 and to date has partnered with five Canadian financial institutions in structuring and distributing pioneering Islamic retail financial products such as bank accounts, term deposits, investments, credit cards and mortgages to Canada's 1 million-strong Muslim community. Recently, UM presented Central 1 Credit Union a milestone award for its close to $100 million funding to UM, which has yielded a $10 million profit for Central 1 over the last four years. 3" (Kalair, 2009) "Islamic financial products are similar to halal food products, kosher food products or organic products in that all have a certification board and higher costs due to the absence of economies of scale. The goal of the Canadian Islamic financial industry is to bring products at par in pricing to the retail market, as is being done in the US and the UK. 3" (Kalair, 2009)

Islamic Finance and Social Justice

"Before the advent of Islam, traders could be taken as slaves if they defaulted on interest loans. To protect individuals, Islamic contracts were adopted to include provisions which eliminated such practices. These were introduced under the following structures: musharaka (partnership),A mudaraba (capital/labour joint venture), ijara (leasing), murabaha (disclosed cost plus sale), sukuk (specified securitized assets, services, and usufructs), takaful (co-operative insurance), etc. Today in Canada, it is a criminal act to charge more than 60% interest; in Islam 1,400 years ago, a transaction with any interest at all was forbidden. 3" (Kalair, 2009)

Evolution of the Industry

"As other Western countries with Muslim minority populations have allowed dedicated Islamic banks, the same will happen in Canada in due course. Most Western countries, including the UK, saw Islamic banks established after a decade of Islamic products had appeared in the marketplace. At present in Canada, there are few products besides the UM Financial product line. We foresee more Islamic opportunities opening in the next few years, which would then create a tangible market for a dedicated Islamic bank.3" (Kalair, 2009) "In our estimation, more than $10 million of seed investment has been spent on Islamic bank applications and shell companies trying to enter the Islamic finance market. These applications have helped to educate federal and provincial regulators and law firms and consulting firms that were involved and have created awareness of the international growth in the industry.3" (Kalair, 2009) "Unfortunately, some regulators and investors who invested in some of these shell companies have a very negative image of the industry due to some companies soliciting investors and clients without the proper approvals or investors not being able to receive information on their investments. Within the community, initiatives that are purely profit-driven have failed such as the RBC linked Islamic investment notes and Dynamic Mutual Fund Islamic mutual fund. Community based institutional initiatives, such as co-ops and UM Financial (which has close to 10 years ofA direct community activism) have had a more successful history.3" (Kalair, 2009) "As the industry develops, so does the need for standardization, which the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is working on providing. AAOIFI recently launched a "Product Certification Program" for its membership. UM is the only Canadian member of AAOIFI and has offered its Product Certification program toA Canadian institutions.3" (Kalair, 2009) "In Toronto, the First Fiqh (jurisprudence) Conference of North America was held in May, where a resolution was passed that states, "The participant panel of scholars agreed that interest based loans and all forms of insurance are prohibited in Islam. In some isolated cases, insurance and interest based loans may be permissible in a situation of dire need or necessity and or a life and death situation. For the clarification of whether one's situation meets dire necessity, one is to seek clarification from reliable qualified Muslim scholars of Shari'ah (Islamic jurisprudence). The panel also encourages Muslims to establish and utilize alternative Islamic models of finance and takaful (Islamic insurance)."3" (Kalair, 2009) "In June, to further educate the Toronto community in this fast-growing discipline, the Islamic Foundation of Toronto hosted a youth conference at Toronto's largest mosque that featured a three-day retreat on Islamic finance.3" (Kalair, 2009)

Sovereign Sukuk from Toronto

"With Canada being a destination of investment from many countries, there have been governmental discussions to look at the feasibility of offering a sovereign sukuk in the near future. Having a sovereign sukuk in Canada would open the doors for many more structured sukuk, such as corporate sukuk, which could further enhance Toronto's role as a hub for Islamic finance in North America. Toronto is well-placed to duplicate London in becoming a hub for Islamic finance in North America. With the recent launch of the S&P TSX 60 Shariah Index and discussions at many government levels, we see the market maturing rapidly. At this stage, the private sector, which is represented by the TFSA, is in the best position to lead this direction and introduce the benefits of Islamic finance.3" (Kalair, 2009)

USA

"Today, the United States is home to at least nineteen providers of Islamic banking products and services, including retail banks, investment banks, mortgage companies, investment advisors and community-based finance providers. With the estimated number of Muslims living in the country ranging from three to eight million (based on various private surveys) it now appears that real market demand and viability for offering Islamic banking products and services in the US either exists or is being developed and penetrated by these early-to-market providers.4" (Shayesteh, 2009)

Challenges in the Adoption of Islamic Finance in the West

Many countries in the West are optimistic in the establishment of Islamic Banking and Financial institutions in their country. The laws, although a contributing obstacle, can be overcome through further product development of shari'a compliant product. Germany, U.S. and France are cases depicting the challenges that will be met with the establishment of Islamic Banking. The German Case: According to Engels, there is a significant population of Muslims in Germany and a substantial amount of investment interactions with the Muslim world. With that in mind, Germany may be interested in establishing Islamic Banks within the country. The BaFin [1] have had talks over the last 15 years with Islamic banking representatives from the Muslim community in Germany as well as from foreign Islamic banks looking to establish in the country. However, there has been no real action in its development and establishment. This could be attributed to the following reasons. First, the BaFin is skeptical of the Islamic banking models "commercial viability" as it will be catering to 2 million Muslims (p.179). Second, Islamic banking methods conflict with German Banking Act. Third, in accordance with German Banking Act, the principal of an investment must be insured. As, the basis of Islamic banks is profit and loss sharing as per the pre-determined ratio in structures such as murabaha, this may cause some form of conflict with the banking laws of the nation. Finally, Islamic banks differ in the method of reporting and monitoring of its operations from the European standard. The risk and financial standing must be identified clearly in its reports to be clearly evaluated. Despite these concerns, there areas in which Islamic financial services can flourish (Engels, 2010). According to the German banking law, in accordance with the German Banking Act KWG, there are nine types of services in which a business can entitle itself a credit institution [2] . The following are the nine banking activities: Deposit business Credit business Securities business Safe-custody business Investment fund business Revolving credit business Guarantee business Giro business (Engels,2010, p.181) According to Engel, Islamic financial institutions, taking into account the restrictions placed on it by the German Banking Laws, could participate in the offering of at least 5 out of the nine the services stated above that will term it as a credit institution. Five of which are, deposits, credit, securities, safe-custody and "Giro business" (Engels, 2010 ,p.181)

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Deposit business: In Islamic financial services, there are multiple forms of deposits as listed below: Current Deposits - Wadiah and Qard Savings Deposits-Wadiah and Mudaraba Investment Deposits-Mudaraba According to the KWG 1, "a deposit business means the receipt of monies from others as deposits irrespective of the payment of interest." In addition, it has viewed these deposits made to the bank as a "loan" in which the full amount must be paid back to the lender, in this case the customer of the bank (Engels, 2010). Based on these restrictions, Islamic financial institutions can provide current deposit services and savings deposit services in the form of wadiah , qard hassan and mudaraba deposits. As the principle amount is guaranteed whenever the customer wishes to withdraw the principle. However, Shari'a compliant investment deposits will not be acceptable under the German law as there is in no guarantee on the return on the full principle. The losses incurred are shared by the bank and the customer at a predetermined ratio. Credit Business: According to the German Banking Law "defines the credit business as the granting of money loans and acceptance of credits." [3] Under these guidelines, Islamic banking institutions can provide loans as the law does not specify the mandatory inclusion of interest rate. In accordance with the BaFin, an exchange of a cheque for cash is considered a "credit business. This service is provided by the bank at a set administrative fee. Islamic institution could provide this as a part of their services. Furthermore, Islamic institutions can participate in the provision of promissory notes as they can also charge a fixed administrative fee in return for the service. The challenge lies in the ability to provide this service as the liquidity of Islamic banks are limited. In addition, if we look at it from a broader view point, the EC Directive has included the following services under the same definition "mortgage loans, factoring with or without recourse and trade financing," of which , are not permissible. However, murabaha and musharaka structures may be taken into consideration to categorize it under the EC Directive's definition of "lending" (Engels, 2010, pp.183-184). Other Acceptable activities: Islamic banking and financing institutions can participate in the sale and purchase of securities for their clients as long as it is riba free. They can also participate in the managing of securities for their clients. Finally, they can participate in "Giro business," the administration of deposit funds for customers , with the provision of services such as , transferring amounts and the provision of clearances for a set administrative fee((Engels,2010,p.181). Overall, the restrictions stated by the German Banking Act are not obstacles that cannot be overcome. However, the issue arises when wanting to adapt Islamic banking in the EU. It may be compliant in Germany however; in order to be compliant in Germany it must also be compliant in the EU. The move towards uniformity may act as an additional obstacle in the face of establishment. The US constitution and Islamic banking and finance controversy: The basis of the Western banking model's foundation lies in practices that defy the Muslims' basis of acceptable financial banking activities. Gimigliano argues, the First Amendment of the US constitution [4] may partake in the assimilation of the Islamic banking and finance model into the US economy as an official domestic bank. There has been a move towards the establishment of Islamic domestic banks in the US. According to Thomas Baxter, General Council and Executive Vice President of the Federal Reserve Bank of New York, for the following reasons: " (a) the growing Muslim population on US Territory, able to influence the West in market economies;(b) an increasing awareness of socially responsible finance, after the Enron scandal;(c) the free exercise of religion clause law makers will need to ascertain whether some practices can be changed to accommodate Muslims who try to practice their religion freely." (Gimigliano, p.149, 2010) Based on the above, The First Amendment is divided into two parts, "the free exercise and the establishment clause" (p.149). The first clause protects the individual freedom to practice their religion of choice, which enforces the need in the establishment of Muslim friendly banking institutions. However, the second clause, "deals with the government's actions, and its incorporation," with this respect makes it "controversial", together with this point in the constitution, "separation of church and state,"and the neutrality theory may act as a legal and ideological obstacle in the face of its integration and acceptance(Gimigliano, p.159, 2010). According the Gimigilano, the strict separation of government and religion restricts any form of government participation even if it is in the "form of assistance, including the fire, police and public health services."It would be in violation of the separation clause. In this affect, may prevent the safeguard of freedom of practice (Gimigliano, p.150, 2010). In addition, based on the clause of neutrality, government cannot be involved in the monitoring of the activities because it will tie government with an institution tied to religious foundations. In this case, brings up the question who is the "reasonable observer?" It has been suggested that an educated individual can be appointed as an observer of Islamic banking activities. However, he only "reasonable observer" that can regulate the activities of an Islamic bank is Shari'a scholars (Gimigliano, p.151, 2010).

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The US constitution is the driving force towards the accommodation of faith. However, it is the preference of the US law to maintain secularism in the country's economic activities. In the face of authorization and the limits of US jurisdiction, the establishment of an Islamic bank still has many obstacles before it can attain authorization (Gimigliano, 2010). The French and the provision of Islamic banking: Similarly, according to Arnaud, the French too are encouraging the opening of Islamic Banking in France as it will cater to the Muslim population, as well as, to the well off GCC nationals seeking ethically responsible banking institutions. At this point, acceptance has been very flexible. To gain authorization and licensing to operate in France it must comply with the basic standard that is applied to all banking institutions by the CECEI [5] . In fact, it has been quite accepting of foreign banking institutions opening in France. Banks originating from Muslin countries have been present in France for over three decades. For example, six Lebanese banks, four Iranian banks, two Pakistani, two Qatari banks, an Egyptian bank, a bank originating from Abu Dhabi, a Kuwaiti bank and a Jordanian bank have established themselves in France. However, despite France's openness towards the establishment of an Islamic Bank in France, there has been no approach by the already present Middle Eastern banks to provide Shari'a compliant services, nor has the CECEI been approached to formally "authorize" the establishment of an Islamic Bank. This brings up another underlying concern. As there has been no outspoken demand for an Islamic bank, CECEI are unsure of the actual demand for an Islamic bank. Notably, if an Islamic Bank establishes itself in France, it must prove itself a viable banking and financing institution. First, as per the CECEI rules, it must have qualified bank mangers running the operations. As it would be a new concept in France, the ability to find experienced figures locally will be difficult. It would have to bring expertise from abroad. In addition, these individuals too will have to be knowledgeable in French law to insure the Bank's activities are compliant to the local law let alone the shari'a law (Arnaud, 2010). In terms of product development, it must comply with France's customer security close without inhibiting the ease in the operation of the bank. Its main concern is money laundering and terrorism. The Islamic banking institutions must have systems in place, approved by the CECEI, which will inhibit fraud and the misuse of funds. As the banking systems in France are based on the Western conventional model, mechanisms for the regulation of funds may need to be developed to suite the models of shari'a compliant banks (Arnaud, 2010). In addition, there must be internal systems to monitor the day to day operations of the bank. The products provided to the customers must be compliant with French law. As this product requires special oversight by shari'a scholars, to insure they are compliant with the Islamic guidelines, it is noteworthy to mention that the "shari'ah committee must be limited to that of vetting and certifying products and should not extend beyond this to interfere with the bank's governance and internal operating modes."This could be related to the similarity between the US and French constitution. France, like the US is secular in nature. The accommodation of an institution that's foundations are based on Islamic principles is contrary to its constitutional foundations. Religious representation of a faith may be frowned upon by strict secularists (Arnaud, 2010, p.170). Moreover,the Islamic banks must be able to convert Islamic financial products into a mode understandable in the conventional accounting system. This is to insure that the risk factor and the required liquidity of the bank to sustain these products is clearly apparent by overseers (Arnaud, 2010). Furthermore, the Shari'a scholars must play the role of auditors in the day to day running of the institutions. The challenge arises with regards to the capacity and knowledge of these scholars to effectively insure the quality of the service provided (Arnaud, 2010). In regards to issues related to retail Islamic products, there are a few issues that arise due to the French law's lacking in areas that relate to qard, mudaraba and ijara. First, the French law does not have an accounting infrastructure to support loans given as advances to the bank from a customer. In this case, the customer's rights are not fully protected by law. Therefore, the French law must be updated to insure that the customer is insured a "deposit guarantee fund" for deposits in the form of wadiah , qard hasan and mudraba in savings deposits. Second, in relation to the first point, deposits for the purpose of investment, mudarba, can no longer be defined as deposit funds as they cannot fall under the qualified to be labeled under the "deposit guarantee fund."Finally, the ijara contracts for home financing must be compliant with the French consumer protection codes (Arnaud, 2010, p.172). Islamic banking institution will not receive any exceptions ender the French law in keeping with its non-discriminatory clause. The products must be sustainable and adequately structured to the specification of the law. Furthermore, these guidelines is not a hindrance to its development but, an insurance to future customers that their rights are fully protected. In that regard, Shari'a compliant banking institutions have a chance to grow in France as the foundations of its operations are based on ethical practices that insure the equity and controlled risk. The intricately weaved infrastructure of Islamic Finance (IF) has shown a definitive growth in recent years and, IF has been highlighted in global trade as a means of integrating Western and Eastern banking practices for a more optimal trade regimen. Namely, laws in Western regions including Europe and North America have shown an ability to accommodate IF guidelines, despite a perceived public ethos of resistance to Islamic ideals.

What should be done by scholars or practitioners to help promote Islamic Finance in the West

New Products and Structures Strong research and input from the scholars will give base to the upcoming trend towards Islamic Finance. According to an article by Lawrene White, Euromoney Feb 2009, 'Outstanding contribution to Islamic Finance: Zeti Akhtar Aziz' who is the governor at Bank Negara Malaysia and one of the most prominent advocates. She has help built a portfolio of more than 40 products under the umbrella of Islamic Finance, which include takaful, sukuk bonds which are the key stones in promoting Islamic finance. Sukuk bonds have had a strong response by the consumers, however the market is flooded with mostly short term Sukuk, a strong focus on long term twenty and thirty year sukuk will be an important milestone in upgrading the sukuk market and compete with the Treasury Notes and bills in the west. In order to create mainstream products and inject them into the market, with strong focus and inflow of financial capital from the European market we can see how the need for Islamic Financial instruments will lead to creation of different investment vehicles to meet the requirement. As some of the products do have the shariah compliance issue, which non-conforming products like derivatives, forwards, and other similar vehicles have no room in the Islamic context, synthetically created solutions could solve the issue. However, as the products get more complex by synthetic creation it would deter the interest of investors and the outlook might not be as expected. The Global Financial Crisis and the Market Forces In another article according to Aubrey Joachim, 'Beyond Conventional Finance', the lifestyle in the west of spending more than their earning has not only contributed to the growth but also their failure during the subprime crisis. Since under shariah interest is forbidden and profit is only acceptable under strict guidelines, the financial statements would need adjustments to report under the shariah compliant form. All transactions structure under Islamic finance needs to be approved by the scholar and receive a fatwa to be qualified. The CIMA is the first professional Chartered Accountancy body to offer a global qualification in Islamic Finance. A trend towards acceptance of Islamic finance can be seen in the future however proper marketing and alternative products to support the needs of conventional banking clients must fuel it. In an article by Rory J Clark, 'Islamic banking: An asset of promise?' Islamic banking is showing promise to the current economic climate as it draws attention from all over the world and the lessons are clearly to be learnt. It is not just a safe refuge from the global financial crisis, but it also seen as broadly equitable and fair compared with the hitherto rather cutthroat western model. Islamic finance is also one of the most importance source of liquidity for cash trapped governments and companies in the west. Almost non-existent 30 years ago, it has now become a trillion dollar industry, and has help up well in the crisis. The failure of financial markets in OECD should look at other models like Islamic Finance. The strong demand by non Muslim Islamic finance customers which in some cases constitute around half of the customers had made governments like the UK to implement regulatory standards for the Islamic financial products overlooked by Financial Services Authority. According to Dominic ONeil, Euromeoney, a recent heading in the Washington Post caught attention of the readers 'Steady in shaky times", the Islamic finance sector was gaining confidence however three months fast forward Islamic finance faces the crunch test. The sukuk issuance had fallen dramatically; this was mainly caused by opposing arguments amongst with what are Shariah compliant sukuks. Promoting Islamic finance also requires some form of agreement amongst scholars and disagreement creates a sense of instability in an industry, which is still in the growth phase. The Islamic Finance system focuses on asset-based structure and one can only promise what he owns and declares interest (riba) as forbidden in any possible sense, contradicting the structure and attitude towards money in the west. The transactions and deals tied up to actual economic activity and service. As mentioned in the same article by Dominic Oniel 'Steady in Shaky times', Islamic Banks have grown 15% since their modern inception in the 1970's fueled by the oil boom in the decade, but continues to grown due to its recent advancement in financial instruments, sound principals and methodology to make every transaction sharia compliant. In the United States, Islamic finance sparked interest when the Dow Jones Islamic Index was introduced in 1999 which constituted sharia compliant companies, however the momentum slowed down during the Sep 11, 2001 attacks. After a few years the market picked again and in 2004 Germany bought a 100 Million Euro Sovereign Islamic bond sukuk, the market had grown to a 90 Billion sukuk since 2004 doubling every year. However, in 2008 the market fell 50% when the Bahrain based group of scholars stated that most bonds weren't sharia compliant. The market forces have come into play a lot of times, due to the hard facts or fatwas, what really is sharia compliant and what is not. The Regulatory Framework The two major authorities forming the basis for the regulatory framework is the IFSB (Islamic Financial Service Board) and IIFM (International Islamic Financial Market). IFSB currently has 150 members as of January 2008 including 37 Regulatory bodies like IMF, World Bank, Islamic Development bank and other key players in the market. IFSB issue guiding principles and supervises the review process creating transparency and market disciple. IIFM, which is based in Saudi Arabia, was formed with a collaboration of different countries, which include Bahrain, Malaysia, Brunei, Indonesia, Sudan and the Islamic Development Bank. The main purpose of this organization is to develop, establish, self-regulation, and promotion of Islamic finance and money markets. These organizations will set the pace towards acceptance of Islamic finance in the global market, but Islamic finance should be promoted through its sounds principals and not tagged with 'Islamic' as the key focus to promote Islamic Finance. Islamic finance should be promoted as an equal alternative to conventional finance in the future. Scholars and practitioners will play a key role in developing alternatives and sound solutions to match and compete with conventional banking. Their role in these international institutions and regulatory bodies will fuel the success of Islamic principals and finance in the west.

Conclusion

In 2009, after the onset of a global crash in economic management, the world of IF reached a landmark in success. By year-end of 2009, the steadily growing sector saw a cumulative total sukuk issuance reaching $100 billion. In 2009, assets of the top 500 Islamic banks grew by 28.6 per cent to $822bn, up from $639bn in 2008. "Many Islamic financial institutions appear to have been insulated from the global financial crisis, largely due to the Islamic finance principles that prohibit interest. Consequently, Islamic finance institutions refrained from investing in structured products that played a significant role in the downfall of major global financial institutions," described Zawya, Middle east. The lowest relative yields on Islamic bonds in more than two years may encourage issuers to tap the marketA after a 15 percent drop in new sales in 2010, helping revive interest among investors. Market players worldwide are showing a rise in interest in the long term sustainability of IF, as described by the latest publication of Global Islamic Finance Journal: 'Albaraka Banking plans to sell as much as $500 million of sukuk after delaying in 2010, Adnan Ahmed Yousif, the chief executive officer, said in a telephone interview on Jan. 5 from Manama. Albaraka Turk Katilim Bankasi may offer at least $100 million of notes, Chief Executive Officer Fahrettin Yahsi said.' French companies, the central bank of the Palestinian territories and Thailand have also announced plansA  to borrow through Islamic debt this year. Global sales of Islamic bonds, which pay returns based on asset flows, fell to $17.1 billion in 2010, from $20.2 billion a year earlier, according to data compiled by Bloomberg. Issuance reached a record $31 billion in 2007. Dubai World, one of Dubai's three main state-owned holding companies, received approval from its creditors in October to change terms on $24.9 billion of loans. Nakheel PJSC, a property unit of Dubai World, is seeking to delay payments on at least $10 billion of loans and bills. The company is looking to gain clearance from creditors holding 95 percent of the debt by the end of March, according to an statement on Jan. 2. In summation, the prospects for considering IF systems are being enhanced in Islamic regions and expanding in the western world, supported by scholars and financial leaders globally. The issue of comparative sustainability is showing favor towards IF and it is possible that the foundations and principles of IF, will be received with praise by those who previously dismissed this as a religious practice rather than a system of merit.

Methodology

Research strategy: A broad-spectrum research was conducted on the topic of Islamic Finance. It was deemed necessary that we establish a foundation of understanding prior to pursuing the topic of interest, Outlook of Islamic Banking in the West. A full research was conducted on the library databases, including Proquest, Lexis nexis and Jstor. In order to ensure that relevant references were not missed, the search terms used were general in nature such as , "Islamic finance", " Islamic finance in the West," "Islamic finance in Europe," "Islamic finance in North America", "Promoting Islamic Finance", and "Scholars Islamic Finance." In addition, a comprehensive search was made on the books available at the university library, scholarly articles from the World Wide Web, videos and articles from newspapers and magazines. Selection Criteria: The references were selected based on its relevance and date of publication. We attempted to limit our references to articles post 2000. Description study: The bulk of the paper consists of a comparative study of different institutions in the West. It encompasses the means in which Islamic banking was established, developed and the challenges faced. In addition, we took into consideration the ideological obstacles that are being faced with the popularization of Islamic finance. We also sought to investigate how Islamic finance has been promoted as of late by reviewing the work of the scholars around the globe.

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