U.S. sub-prime mortgage crisis, the clouds dispersed, the global financial market volatility in Europe and the United States and emerging market stocks have plummeted At this moment, Islamic finance, a people unfamiliar area, due to low correlation with global markets, is gradually becoming a body the new darling of investors.
The early 20th century, with the colonization of the Western world, commercial banks to manipulate the financial activities of the Islamic world, free of interest charge, which with the “Koran” anathema to the teachings. Although some Muslim merchants were forced to participate in interest trading, but still had the moral sense of guilt. To overcome this predicament of conscience, special set up to follow the principles of Islamic finance, Islamic banks to compete with traditional commercial banks.
Islamic financial activities began in the 20th century, 50 years of Pakistan, and then quickly spread to the Arab world. However, the rapid expansion of Islamic banks is the oil-exporting countries benefited from the large current account surplus. The Islamic banking industry has also been encouraged by the government. 70 years, there has been a famous Dubai Islamic Bank, Saudi Arabia’s Islamic Development Bank, Kuwait’s financial community has significant funding and a number of Islamic banks. Now, almost all Islamic countries have established some form of Islamic banking. In addition, in some European countries there have been some Islamic financial institutions or offices. Islamic finance is not limited to Islamic countries, but are located in each of a large Muslim community. Today, Islamic banks have been more than 300 in over 70 countries, the banks had total assets of more than 5000 billion U.S. dollars, sales increased from 2003 to eight billion U.S. dollars has rapidly risen to 700 billion U.S. dollars in 2010 is expected to reach 140 billion U.S. dollars. Although the international market share of Islamic finance is still relatively small, but the annual growth rate is as high as 15%.
What are the Uniqueness of Islamic Finance
The Islamic financial system is simply described as “passive” and does not reflect the true face of the system. There is no doubt that the core of the Islamic financial system is to prohibit the collection and payment of interest, but it was the teachings of Islam advocated by other principles which are mutually reinforcing, such as risk-sharing, individual rights and responsibilities, property rights and the sanctity of contracts and so on, stressed that the capital must be involved in the actual economic production activities, emphasizing equitable distribution of wealth, and investment companies have to comply with the principles of social ethics.
With an emphasis on cost and profit compared to the Western financial system, Islamic financial system, undoubtedly added more colors of the social welfare. Islamic finance is only engaged in business activities in line with Islamic teachings, to engage in, such as alcoholism, speculation, weapons, tobacco, pork, gambling, involving humans, animals, genetic engineering, biotechnology companies and other activities to avoid any connection to any investment.
Islamic finance speculative activities prohibited on the high-risk investments have certain limitations. The Islamic financial system is not limited to banking, but also covers capital formation, capital markets, as well as all types of financial intermediation.
All the Islamic financial products are not of interest – whether the charging of interest or the interest payments. Investment is as a lease arrangement, or will invest the money to a third party trustee, which he and the Islamic depositors revenue-sharing.
The Islamic financial system has mainly taken the following forms:
Profit and loss sharing system (Mudalaba system) to promote such a system between banks and customers (depositors), in partnership, both sides share the profit and loss operation. Customers in the bank, they amount of money and deposits in accordance with its terms of profit and loss sharing agreement reached with the bank, that is, the profits of banks from two to share, operating losses that occur are also shared by two. At the same time, bank loans, also introduced from outside profit and loss sharing the proceeds of bank loans is also directly with the borrower to use the funds associated with operating conditions.
Murabaha system in which banks in financing trade, to obtain income from the mark-up rate. For example: customer needs bank financing to buy for him what he needs, after which time a one-time customer or by the bank to repay debt, or installment payments to the bank, or some sort of agreement reached by both sides. In either case, after a period of time, the customer paid the money the bank higher than the original item price, the difference of which is the bank’s earnings.
Fee system, many Islamic banks in the prohibition of interest at the same time, allowing loans charge a fee. Fee is the bank staff in handling loan business in the remuneration of labor costs. Fee is fixed.
In short, sources of funds, banks offer Islamic deposits (security of this type and investment-type) as the Islam of the investment pipeline. Use of funds, the provision of cost plus profit sale, lease contracts, equity participation, profit-sharing and other financial instruments in order to provide consumers to buy houses, cars and business revolving loans.In addition to banks, there are a number of Islamic investment companies to provide Shariah-compliant investment and growth funds. At present, the world’s more common Islamic financial instruments and the Islamic Foundation of Islamic bonds, the former Soviet Union (Sukuk) dominated; while the latter’s investment is required in accordance with Islamic investment principles, investment in approved by the teachings of Islamic investment products . The Islamic investors to look at investment projects in the past, when the first consider the teachings of Islam, if not inconsistent with the teachings of investment; now when you look at the return on their investment, if the return on high, they are changing the investment products to conform to doctrine after the investment. The current investment required is relatively flexible and flexible. For example, Islam forbids drinking alcohol, but they can invest in the hotel, if the hotel have a bar, that bar investment and income must be and hotel separately.
The transfer of investment from west to east
The Islamic investors to put money into the past, to Europe and the United States, with the depreciation of U.S. dollar, they put the money into the Middle East and Asia. However, they invest in financial products generally are more real estate. They are investing in Asia, there are several different modes: one is the private equity fund, private equity funds and they are directly owns the land; There is also a model of the Islamic-style loans. For example I want to buy a car, the price 200,000. Bank to buy the car, and then in the form of a lease car so that I use, lease period of five years, the rental fee is 400,000. 5-year period, car ownership to be me, more out of 200,000 is actually interest, but is different. Another real estate fund. Islamic fund to invest in a place that the risk is relatively high, should be to invest in different areas in order to share the risk. The Islamic funds are now invested in different real estate.
Islamic finance is becoming a new platform for financial markets. Many countries promote their rich Islamic financial products, and strive to Islamic financial center. Malaysia itself as the financial holy Muslim. Almost every Gulf countries, especially Saudi Arabia and the UAE are all striving to become the Middle East financial center. As a veteran international financial center, the United Kingdom, trying to become a global Islamic financial center. Japanese financial institutions also make significant inroads into Islamic finance, Japan joined the Islamic Financial Services Board (IFSB), preparation for the issuance of Islamic bonds, and the establishment of Islamic insurance. Japan’s move a clear objective, directed at the Islamic country’s oil wealth.