However, Islamic banks face constraints towards such actions because any borrowings they make have to be Shariah compliant. American banks give greater weightage to the credit ratings of their clients to assess the advancement of loans. Whereas, Islamic banks emphasize the project viability while deciding upon advancing loans. A typical American bank while financing projects mainly functions as a creditor to its clients (or debtors). On the other hand, Islamic banks become partners, investors, and sellers to their clients which depend upon the modes of finance taken up. Conventional American banks need to guarantee all the deposits they accept. However, Islamic banks only guarantee saving deposit accounts in their portfolio. Their clients have to share the losses as well depending upon the nature of the contract (Rahman).
Securitization is “the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security (i.e. bond issue, share certificate etc) (investopedia.com). Islamic banks have now ventured in securitization of Musharkah, Murabaha, Mudarabah and Ijarah. Many countries now have Mudarbahs listed at stock exchanges to be traded in. Islamic bankers are also bringing investment funds that are compliant with Shariah laws to the financial services market. Some of the funds established include equity fund, commodity fund, ijarah fund, murabaha fund, Bai-Al-Dain, and Mixed fund.
Therefore, it can be seen that Islamic banking sets its foundations in Islamic laws governing financial transparency. These are very different from conventional American banks in their economic concepts, financial products and services offered to clients. Furthermore, Islamic banking is relatively a new concept as compared to the conventional banking and economic concepts that have developed over ages. Islamic bankers and scholars are working upon deriving more products and services based upon Shariah to offer a greater range of financial products in the financial industry. It holds appeals in its concept of community care and client care. However, the complete implementation of this form of banking on a large scale seems a questionable and daunting task.
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