Will Islamic Finance be the Future of the world’s financial system? In the last 30 years, Islamic finance has seen a steady expansion. Year after year, the total Islamic finance assets as well as the sophistication of products have continued to rise, along with the number of nations, organizations, and institutions engaging in the market. According to Ernst & Young’s latest prediction, global Islamic finance assets would reach US$1.8 trillion in 2013, up significantly from US$1.3 trillion in 2011. Simultaneously, Islamic finance has demonstrated that it is more robust than traditional financing. So our question is “what should we expect on the future of Islamic finance? Before jumping right into the answer, let’s have a brief look into the history of Islamic Finance.
Growth of Islamic Banking System
Interest in the current financial system is growing. One of the milestones is that Egypt’s Mit Ghamr Savings project became the first well recognized financial organization. All depositors could get small loans for realistic productive reasons in a cooperative organization. In addition, this cooperative made profit-sharing investments in specific enterprises. The Nasser Social Bank incorporated this project in 1971.
Moreover, prestigious conferences such as the Finance Ministers of Islamic Countries and the First International Conference on Islamic Economies addressed the idea of Islamic finance. As a result, interest-free banking became from theory to practice and an intergovernmental bank was established in 1975. The first privately held interest-free bank, the Dubai Islamic Bank, launched the same year, with more following banks in countries including Sudan, Egypt and Kuwait.
Since 1975, most Muslim countries have established more than fifty interest-free banks. Islamic Banks did, however, open in Western Europe in the early 1980s. Furthermore, both the Pakistani and Iranian governments introduced an Islamic banking system in their financial system.
Brief History of Modern Islamic Finance
Since the late 1990s, Islamic financial institutions have been growing ten to fifteen per cent each year, as customers recognize the privileges and benefits they offer as a bank. In addition, the number of banks that provide Islamic financial services is increasing. several conventional banks now provide customers with Islamic financing choices. As a result, Islamic Banks are a viable alternative to the more established commercial banking system. Shariah structuring consulting companies have increased in popularity in the last decade, transforming into a well-developed source for Muslims seeking Islamic Finance solutions.
The Future of Islamic Finance
Muslim countries’ perspective of Islamic banking began with a simple concept: supplying Muslims with products that addressed their spiritual needs. However, not many Muslims believe in the importance of Islamic banking. They may be familiar with the fundamentals of Islam and regard Halal food as a dietary need. However, this does not necessarily apply to Islamic money. The most important and promising option for the industry is to educate Muslim consumers. Because the room for growth in Muslim countries is still the most important and promising alternative.
A political action is an alternative for spreading education. Muslim countries can choose to Islamize their banking sectors like Iran and Sudan did. If Muslim countries feel that Halal food is crucial and that all food imported must be Halal certified, the same may be said for Islamic banking. In several Muslim countries, Muslims are unable to purchase Haram things that are solely available to non-Muslims. The same might be said about Islamic financing, which could be made mandatory for Muslims, if not the entire country.
Finally, Islamic finance has the potential to expand into other areas, such as Waqf and Hajj savings. After all, the pilgrimage fund Tabung Haji was established in 1963, marking the beginning of Islamic finance in Malaysia. Because all Muslims are concerned about the Hajj, financial products related to Hajj savings may be more appealing to them than takaful or retail Islamic banking.
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