Key Facts about Islamic Finance

There’s no denying that the Islamic finance has grown significantly as more of the world’s 1.2 billion Muslims seek investments in compliance with their religious beliefs. For those who might not know, Islamic banking complies with Sharia or Islamic law.

Under this law, a ban on charging interest and investing in prohibited businesses, such as trading in alcohol, pork, arms, pornography or gambling, are among features that distinguish it from the conventional banking system. Having said that, below are key facts about Islamic finance.

Islamic Banking Hubs

Malaysia, and the states making up the Gulf Cooperation Council- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates- are the world’s two Islamic banking hubs. However, Islamic banks are still opening in other parts of the world. The European Islamic Investment Bank is Britain’s first sharia-compliant lender. It is also important to note that Islamic bonds, or sukuk, are typically backed by physical assets that pay a dividend or rent to bondholders rather than interest.

Industry Size

There are more than 300 Islamic banks and investment firms globally, as per the Bahrain-based General Council for Islamic Banks and Financial Institutions. Of course, this number doesn’t include conventional banks with Islami operations.

Islamic financial institutions, including non-banking operations such as insurance firms, manage more than $800 billion, according to data cited by the Islamic Development Bank in its 2005-2006 annual report.

Obstacles to Islamic Finance

There are some obstacles to Islamic finance definitely worth your attention. Actually, differing interpretations of Islamic law tend to hinder the growth of the Islamic banking industry by making it difficult to standardize products across markets. Some scholars take the opposite view, fearing too much standardization will hinder innovation.

Moreover, some Gulf investors believe the Malaysian interpretation of Islamic law is too flexible, stifling between the two regions. They Malaysian policy of allowing debt to be traded is some Islamic transactions is a key bone of contention.

In this regard, you should take it upon yourself to research more about Islamic finance to get a better understanding of what it entails.