Internationalization of Islamic Finance

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  • Topic: Islamic banking, Bank, Finance
  • Pages : 5 (1720 words )
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  • Published : December 11, 2012
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How Islamic finance does stands within the International Finance market? 1. Background or History of Islamic Finance
Islamic Finance or Islamic Banking is being practiced ever since in Prophet’s time. Prophet has been dealing with transaction using Shariah compliant contract. He used Murabahah and Salam before in the selling and buying transaction. In a modern banking environment, Islamic Banking started in 1960, following the end of WWII and Independence of Islamic nations. 1960 – The first Islamic Bank started in Egypt. The purpose of this bank is to provide alternative banking solution for Muslims to place their deposits. The bank is not even used the word Islamic at that time because of the political depression of Islamic movement. At the same year, Tabung Haji has started its operation in Malaysia and it has collected money from potential customers and uses the money in Shariah compliant trading. 1970 – Islamic Bank started to take off. At the same year, OIC was setup in Islamabad. After that, the development bank has been set up in 1974 and it is called Islamic Development Bank (IDB). IDB help in setting up the Islamic bank throughout the world in the Muslims countries and they are continuously doing it until today. IDB have invested in Bank Muamalat in Indonesia, Islamic Bank in Maldives, as well as Islamic Bank in Bosnia. They are not just help to start up the Islamic bank but also for social well being of Muslims in those countries of OIC members. 1975 – The first commercial bank was set up in Dubai which is called Dubai Islamic bank1970’s was a period of growth expansion of Islamic bank in Middle East region - Kuwait Finance House (1977), Bahrain Islamic bank (1979), etc. 1980 – Islamic finance fever is quite high in Southeast Asia especially in Malaysia. The first Islamic bank in Malaysia was setup in 1983. In 1993, the government opened up the Islamic window to give an opportunity to the conventional banks to involve in the Islamic business. In 1998, the second Islamic bank was setup and it is called Bank Muamalat. In other countries also such Indonesia and Brunei, Bank Muamalat has been established in 199 and 1993 respectively. In 1990s, Islamic banking has become more popular and has shown an expansion growth in Southeast Asian region. In 2000, Islamic banking was started to be embraced quite openly by the multinational bank, such as City bank, which has been started in the 1980. In addition, HSBC bank was started in the late 90s, following with the Standard Charted and BNP Paribas. Today, in the second decade of the year 2000, Islamic banking has expanding in terms of geographical expansion, product as well as its market development. 2. Three Criteria for any system or product to be international

3.1 Acceptance
In order to Islamic Finance to be an international product of solution globally, it needs to be widely accepted by the customer as well as the public. Here, are the symptoms of the internationalization of the Islamic banking system: a) Islamic banking industry is effective in more than 675 financial institutions and there are more than 65 country globally offering Shariah compliant products. b) Islamic banking industry had growth at the rate of 18.8% over the past in 2007 in average. c) The size of Islamic banking industry is about USD1.5 trillion globally. d) The range of product that are offered by Islamic banks is widely range of product, such as deposit, financing, structured debt, structured financing, structured investment, sukuk, derivative product, etc. However, despites of the above symptom, do we recognized Islamic banking is now widely accepted? The answer is still NO. The reason is that, according to the statistic, there is only 1.5% of Islamic banking ratio within the global banking system. Thus, this is not global acceptance. It means that global banking system is much larger compared to the Islamic finance proportion. Thus, what need to do to in order to...
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