Rise of Islamic finance


According to the holy book of Koran, Muslims are supposed to eschew interest: the Islamic Financial industry based on that premise is booming. Islamic finance refers to the means by which corporations in the Muslim world, including banks and other lending institutions, raise capital in accordance with Sharia, or Islamic law.

Islamic finance constitutes sharia-compliant products that usually take the form of sukuk, Islam’s answer to bonds or Islamic investment funds or takaful, the Islamic version of insurance. Islamic finance has grown into a global industry, with total assets of around US$2 trillion in 2013 and estimated to reach US$4.2 trillion by 2018.

Even non-Muslim countries are promoting it in the hope of luring cash-rich Islamic funds. In June, Britain became the first non-Muslim country to issue sovereign sukuk bonds; its £200m sale attracted orders of £2.3 billion. Hong Kong also issued debut sovereign Islamic bonds in 2014. Luxembourg, South Africa, Philippines have also embraced sukuk financing.

The world’s Muslim population is expected to rise from 1.7 billion in 2014 to 2.2 billion by 2030, according to the Pew Research Centre. Islam is the second largest religion in the UK,Muslims constitute 4.4% of the total population. UK has by far the largest number of banks for Muslims – selling investment products that prohibit interest payments and complying to Sharia laws – of any western country.

This move into sukuk finance by corporations and countries with populations that are not predominately Muslim marks a shift in the long-held perception that Islamic finance is the domain of Muslim countries.The Islamic principles of integrity, transparency, fairness and good corporate governance, also help curtail excessive risk taking.This makes Islamic financing an attractive avenue of growth for global banks and a safe investment vehicle for risk-averse investors. If you want to know more on this topic, talk to Dino Zavagno at Gladstone Morgan.

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