Islamic finance has continued to demonstrate its evolution and strong growth during the challenging international financial environment. Islamic finance has now become a new vehicle contributing to increasing the financial linkages not only within
· Overview of Recent Developments in Global Islamic Finance
Global Islamic finance has grown to a $1 trillion industry and represents 1% of global assets. (Oliver Wyman, an international management consulting firm, recent Report). Since 2000, the Islamic finance market has been growing at over 30% annually. The Shariah-law-compliant system of Islamic Finance is the national norm in
· Lessons from Global Islamic Finance
1- Mainstreaming of Islamic Finance: From a “ghetto” to a “niche” in global markets finance
Islamic banking and financial institutions made a slow start around 1970. For its first 30 years it remained an isolated and small activity. However trends have started to change from around the beginning of 21st century. The most notable trend is its mainstreaming alongside conventional global finance. Islamic finance has started its operations alongside conventional Muslim and non-Muslim banks. It is also in active negotiation with global leaders in the financial world. As a metaphor one might say that it has progressed from a “ghetto” in global finance to an acceptable “niche”.
2- A “survivor” in global financial crisis
The Islamic finance industry has felt the influence of the credit crunch and downturn in the global economy in 2008. Islamic banks, however, have been less affected than many conventional banks because they are not exposed to losses from investment in toxic assets nor have they been dependent on wholesale funds, as they are prohibited from these activities. The Islamic financial sector came out as a “survivor” in global financial crisis of 2008. Its distinctive rules, which prohibit “speculative practices” and excessive leveraging, were the source of its comparative advantage during the crisis. Since then there is growing respectability or at least a willingness to entertain a discussion on the merits of Islamic finance.
3- Competition for Islamic Funds and a Hub Role
The dramatic rise in oil prices in 2007-08 provided unprecedented funds to the Gulf oil economies which are also the hub of Islamic finance. This led to a scramble for Islamic or Shariah compliant funds.
4- Islamic Finance linked to mainstreaming of Muslims in
An interesting spill-over effect of greater acceptability of Islamic finance is its impact on the mainstreaming of Muslim migrant workers and their families residing in
5- Political Dimensions of Global Islamic Finance
The process of evolution and development of global Islamic finance can mainly be divided into four stages, i.e., formation, progress, hurdles and failures. Besides economic dimensions, this process involves various political dimensions as well. These political dimensions are integration, separation and uneasy coexistence. Like, Islamic capital channeled through Islamic Financial Institutions (IFIs) builds up strong business communities at the national and transnational level. These communities, with much to loose in the event of conflict, moderate oppositional activities of political Islamists while giving them the necessary support for autonomous political activity. So, integration takes place between different communities, thus giving rise to a culture of political pluralism. Similarly, Islamic finance has so far avoided any association with political Islam. In fact, this separation is in itself strength of the IFIs as it has provided to them relative operational autonomy as political regimes everywhere consider them as harmless. Another political dimension of the IFIs is that elements of states that favor structural adjustments naturally ally themselves with their counterparts in the IFIs, as Islamic finance, somehow, also stand for changes within the existing conventional system. Political motives, sometimes, also come in into this phenomenon, thus a relationship characterized by uneasy coexistence develops between the state and the Islamic business community.
You said Islamic financial institutes avoid affiliation with political Islam thatswhy are acceptable for political regimes world wide but when we use term Islamic Finance it means it has some affiliation with islamic political system as well and comprises of some unique characteristics definitly somehow contradictory to prevailing economic system so how can such economic institutes make their survival possible in a secular state?? i want to mention an example of india where Islamic banking system was challenged in supreme court on the basis that in secular state its not aplicable.
ReplyDeleteIts very intresting to know that Islamic financial institution were less affected than other conventional banks during global financial crisis, it means Muslim states have an alternative to capitalism and communism economic system and if they implement and enhance it than could provide another option to the rest of the world.
The idea seems very appealing as a Muslim that Islamic financial system is providing an alternative economic system to Muslim states but the reality of matter is very complex. No state can live in isolation today. Islamic financial system will provide an alternative when it is also practiced atleast in a reasonable number of state with which Muslim state can have economic relations. Only by having it at home does not provide an alternative, one has to trade with others. This is the real challenge for studies focused on Islamic finance. Muslim states might eventually be attracted towards Islamic state but unless u bring several other states & economic bodies into this system, it can not flourish.
ReplyDeleteYour study itself is a good step towards this direction and you highlihgted the birth of a trend in favor of Islamic finance. Now in coming years your optimism will be put to test in actual markets and only then one will be in a position to say which economic system is getting/maintaining popularity and trust of businesses, states and individual.
As the world had witnessed the economic fragility of Conventional banking in the times of recession, but the Islamic finance or the Islamic banking patterns were not much effected from that crisis in 2008. And due to this reason, Islamic financial institutions and system is Becoming a Niche and are getting extension in the various parts of the world even outside the Muslim states, but would it be possible for dominant banking patterns and institutions to be surrogated by a very younger system, more or less, and would the banking giants will allow an entirely different approach which can eliminate their hegemony and hold of global assets in terms of cash.
ReplyDeleteYou’ve have shared an interesting information. well Global Finance is a financial system that is related with financial institutions and supervisors that act on the worldwide level by bring into being the offered finance for their general public and document at very low requirements of rules and regulations. Global Finance provides benefits for the inhabitants with the establishment of multitude loans in the company of different people from diverse sections.
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