Prior to the current global financial crisis, Islamic banking and finance (in the eyes of many) was marginalized and not given much attention by many international and conventional financial institutions. While many “experts”, “scholars” and leaders in the field of Islamic banking have asserted that many institutions practicing Shariah principles have been left unscathed during the financial crisis, this is not a surprise to many, including those who patronize Islamic banks. All Islamic products are under the law of the Holy Koran and Shari’a (Al-Hamzani). And, relying on any unethical or manipulative business practices is prohibited. For example, investing in or deriving money from businesses such as tobacco, alcohol, and gambling are practically non-existent in Islamic finance. The sheer nature and principles of Islamic banking has not only saved it from the global meltdown, but has placed it in a new, bright spotlight amongst anxious consumers and financial professionals alike. According to many based in the Middle East and Gulf region, a good number of Islamic banks have managed and survived the global financial crisis quite well. Simply put: the strict principles and collective thinking behind Islamic banking has proven to be an honest, solid and profitable way of business. No gambling and speculation within the markets are allowed, therefore sparing these institutions from the collapse of financial systems around the world, most notably in America and continental Europe. According to one CEO based in the Gulf state of Bahrain, Adnan Ahmed Yousif, who runs the Al-Baraka Banking Group, “Islamic banks do not rely on bonds or stocks, and are not involved in the buying and selling of debt unlike most conventional European and US banks.” Yousif added: “Islamic banking is distinguished by the fact that it is prohibited from buying debts under Islamic Sharia law, therefore Islamic banks are safe from the effects of the global financial crisis. ” One noticeable impact as a result of the financial crisis is popularity. The term “Islamic Finance” stirs more conversation today than it did or would have even five years ago. Financial industry professionals, legal and regulatory and market participants are now more aware of what Islamic finance is, and many are seeking to join what is proving to be somewhat of a lucrative business. The Islamic banking system (not too long ago) was looked upon as something that hindered the growth and development of the financial markets. Today, these theories have been proven wrong, more so as global financial giants that once dominated the markets are either non-existent or have collapsed and been taken over. Islamic banks around the world have stayed strong, and gained popularity. To date, not one Islamic bank following Shariah principles has requested a government bailout or has failed. While banking activity across the globe started to slow and in some cases, stop all together, practioners of Islamic finance found themselves busier. Suddenly, meetings, conferences and events began to take place, all surrounding Islamic finance. Simply put, Islamic finance was turning a profit, while the world’s most prestigious and well-known firms were not. Products of Islamic finance–sukuk (bonds) for example, have gained greater interest. Suddenly, Islamic finance networking events and meetings are fashionable. Finance and banking professionals are networking and showing increased interest in a system that is based on sharing, honesty and most importantly, has survived the worst global economic downtown since the Great Depression, while also continuing to serve its customers. A very positive impact indeed, as new interest and business prospects await those who can accept and adhere to Shariah law.
A Further Impact The financial crisis has shown how effective Islamic banking and finance is and its potential to become a leader in global finance. It allows financial companies to reach out to the less privileged, share wealth (as well as debt) and abide by Islamic rules. Such methods are now attracting even non-religious customers. Its practices are all-inclusive; one does not have to be a practicing Muslim to participate. It raises trust among its consumers and promotes Islamic values and beliefs. The global financial crisis has brought Islamic banking into the realm of setting good examples of financial practices. Mainly for its non-risk taking rules, its sold foundations and stability. From Indonesia to Malaysia to the Arab states, Islamic banking is growing and becoming more diverse as its appeal to customers has risen. The lack of risk taking that led to the collapse of world markets is proving attractive. This is one solid factor that led Islamic banking to remain steady and profitable during the downturn. The impact has been a positive one, with Islamic institutions remaining in place and developing new lines of businesses.
The new main drivers of growth of Islamic finance now driving the surge of Islamic finance and banking are market regulation as well as rising favorable demographics, growing affluence among it clients (investors), growth among organized savings and Islamic finance, greater availability of takaful, and Islamic finance products and changing consumer habits. Throughout the Gulf, for example, there has been a construction and real estate boom. CLOSE [X] Heavy dependence on property investment(s) as well as private equity and deal making, for the most part, have kept Islamic banking away from the financial fallout across the worlds markets. Experts, however, have warned that Islamic banks are not totally immune to the financial crisis, as real estate assets can quickly lose value and private equity funds can dry up, according to a report by Kuwait Finance House. But Islamic finance has also spared a lot, and to its credit has kept many banking systems alive, according to the report. It states: “In the current financial turmoil, it is interesting to note that Islamic financing may have prevented a majority of the mess created by the conventional banking and financial institutions.”
As the world’s financial markets continue to work through the crisis, Islamic Finance and banking offers hope and a renewed interest to those seeking safer alternatives in the market. Most authors agree that with continued growth, rising interest in various Islamic products and continued steady returns, Islamic finance is poised to become a significant and unavoidable factor in global finance.
Studydriver writers will make clear, mistake-free work for you!Get help with your assigment
Please check your inbox