Regardless of their stance on the current practice of Islamic finance, both Islamic jurists and economists agree that part of the field’s calling should be the establishment of a more just economic order – one that both provides greater security to individuals and also allows more productive use of society’s capital.
The existence of a global Islamic finance industry, as well as its investors and consumers, indicate many Muslims believe that an alternative form of financing from conventional banking is preferable – and, in the perception of many, required – under Islamic law. There is a body of theoretical literature, spanning from the 1970s to today, arguing for the necessity of Islamic finance and how it can be structured so as to provide Muslims viable alternatives to conventional, interest-based finance. Conversely there exist criticisms of Islamic finance from scholars who question both its religious justification, in its currently practiced form, and its economic viability. These critics are often idealists who consider an “Islamic economy” one that should be based on maximizing economic productivity to the benefit of society, and consider Islamic finance as it is practiced to fall far short of this calling.
The growth of Islamic banking is phenomenal. Since the institution of the first full fledge Islamic bank in the UAE more than three decades ago, Islamic banking has been witnessing tremendous growth. According to most estimates, Islamic banking growth rate surpassed an average 15 percent in the last decade and assets under management of Islamic financial institutions are worth close to a trillion dollars. The number of operating Islamic financial institutions is well above 300 in more than 75 countries (El Qorchi, 2005). This growth was fueled among other reasons by the closer partnerships these institutions have with their clients.
Islamic banking is built on the premise that banks should not be lending money but should instead be sharing risks with their clients. As opposed to a less risky attitude of a lender, Islamic financial institutions approach their Banking activities from a partner perspective. Whether equity or debt based, Islamic Banking involves higher risks for the financier.
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