Islamic banking and Finance
| Author: | Mgr. Farkhod Kholbutayev |
|---|---|
| Year: | 2009 - summer |
| Leaders: | Ibrahim Awad |
| Consultants: | |
| Work type: | Masters MEF |
| Language: | English |
| Pages: | 78 |
| Awards and prizes: | |
| Link: | |
| Abstract: | Most of researchers say that Islamic banking system have emerged recently, but this system started to develop few decades ago. During this time period we have seem rapid change and improvement in Islamic banking system. If we compare with conventional banking system Islamic banking has advantages in the way of dealing with businesses transaction but there is still institutional and technological lack which should be offset by the specialists. However recently we can observe the standardization of Islamic products and the way it is implemented within the economy. This consensus helps Muslim population to meet their needs simultaneously living according to their religious beliefs. Muslims live according to the rules of Qur'an. Shariah law is derived from Qur'an. It covers practices and duties of worship, manners and morals, marriage and commercial transactions. It may seem that prohibitions in Islam restricts one's freedom but Muslims believe that the freedom is to do right things based on Qur'an. Muslims must not cross the limits set by Allah including commercial prohibitions. The most major of these prohibition include Riba which is interest based transactions, as well as investment into speculative and uncertain projects, and investing into prohibited industries like pork, alcohol, wine production and etc. Islamic banking system developed significantly especially in the phase of last financial crisis. Its working principles are believed to be more stable and fair, for these exact reasons many conventional banks are turning up part their assets into shariah complaint assets, either by setting up Islamic windows or establishing subsidiaries. The basic working principles of Islamic contracts is profit and loss sharing nature, which proves to have advantage and less exposed to risks. There are enough empirical evidence proving it. Moreover recent studies show that Islamic banks are more sustainable to market volatility. Due to ethical prohibitions like interests, Islamic banks deal in different way in conducting their monetary policy. As part of development western world has already integrated Islamic products. To be more specific, US, UK, Canada, Western Europe, but CEE countries are still a little behind of the new banking sector. So far CEE countries have not integrated Islamic products into banking sector. By introducing new sector CEE banks can meet the needs of its Muslim population as well as using Islamic products which will enable those banks to be less exposed to market risks. The very essence of conventional banks which is based on interest regarded as opportunity cost is believed to be major reason of financial crisis, increasing its severity because of technological improvements. Even a slight change interest rate causes the alteration of financial resources. Excessive leverage, investment into speculative projects, interest rate differentials resulted in crisis occurred in the last few decades. Thus Islamic banking tries to prove on theoretical and empirical basis that its way of dealing is better and do not cause such severe consequences. |
