Islamic Banking and Finance
Brief History
Islamic Banking system began to grow at the end of 1960s, when different countries started to put an idea of Islamic Banking into actual practice. Early models of Islamic Banking emerged in 1070s, and found difficulty in its implementation and its full compliance with Sharia principles. In a meeting of Islamic Organization Conference which was held in Suudia – city Jeddah in which it was desired to have a financial system to be based on Islamic principles. At that time Islamic accounting tool was also developed.
Development of Islamic Banking in Phased Manner:
From 1976 to 1980s Islamic banking spread from Gulf eastward to other countries like Malaysia and from westward to the UK. At thattime it was reported that more than 20 Islamic Banks were established. Islamic banking consultancy also broadened their operations.
The maturity of Islamic Banking was confronted by economic setbacks, including slowdowns in oil revenues, unstable and higher interest rates and outflows of capital. Arab banks opened their branches in countries like United States and Islamic Banking practices were implemented both in Pakistan and Iran.
The earliest theoretical model for Islamic banking was based on two-tier Mudaraba, with profit sharing replacing interest in banking sector. Islamic banking and Islamic finance received broad attention from various places. Universities started teaching Islamic Finance and research in the subject was promoted. Due to this research on Islamic system in banking sectors various scholars having PhD qualification came into practice in countries like America and other western countries.
Trend of seminars and conferences of Islamic banking and finance held in various cities across the globe including Islamabad, Kuala Lumpur, Bahrain, Dhaka, Jeddah, Cairo, Sokoto, Geneva, New York and London. Different research centers also established for Islamic system.
Models originally presented for Islamic Finance and Banking appeared to be further strengthened and refinement in the Islamic finance gradually emerged. Different special Frameworks were also developed in order to deal with products like Ijarah, Salam and Murabaha. At that time mutual funds which were based on Islamic system also developed.
Islamic Finance Industry Nowadays
There is a lot more maturity in Islamic Banking and Finance nowadays due to wide research and establishment of Islamic Banks across the world. Particularly in Middle East, Europe and Asian countries Islamic Finance has great importance and role in the economy. Asset backing is considered as one of the unique factor in Islamic Banking which makes this system less risky as compared to conventional modes of financing.
This system has become fully competitive in all areas of banking and it is being recognized as an alternative to traditional and conventional modes financing across the globe. The market share of Islamic Financing and Assets is at increasing trend.
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