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Islamic Finance: Progress and development


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Islamic finance, because of one of the Islamic doctrines. Compared with ordinary banks, Islamic does not accept or pay interest. Until today, there are many devout toasts who are more likely to keep their money at home. Islamic finance does not pursue the maximization of interests and will focus on social interests. In the banking industry, for example, Islamic banks can provide currency exchange, and trade finance can also use Islamic bonds. However, because the doctrine prohibits interest and gambling, Islamic banks rarely engage in derivative transactions, and any doctrine must be physical. If you invest with Islamic funds, you can’t invest in goods and related services that are contrary to Islamic teachings such as alcohol, pork, and tobacco.

The Islamic economic concept

The Islamic economic concept helps to stimulate the development of social economy, and its economic value orientation reflects social vitality. Islam advocates the two generations of Jiqing. While striving to pursue the happiness of the later generations, we must work harder, vigorously develop the economy, and achieve a great enrichment of material life, so as to achieve a happier life in this world.

Allah said in the Qur’an: “When the service is finished, you should be scattered in the place and seek the grace of God. You should remember God so much that you can succeed.” Islam advocates the harmonious unity of religious work and social work.

To regard the vigorous development of the economy as “seeking the grace of Allah”, then this social work will become a religious good deed. The orientation of the unity of religious work and social work has provided theoretical support for fully mobilizing Muslims to vigorously develop their economy and actively participate in various social construction undertakings.

Islam also emphasizes causality, so encourage charity in financial activities and focus on risk sharing. For example, banks and investors must share the risk of lending, and of course share benefits.

Pakistan is the second largest Muslim country and an important member of the Muslim world. It is also widely involved in the development of Islamic culture, politics, and economy in the world, and in turn, it is deeply influenced by them. Therefore, when studying the economic and financial development of Pakistan, a Muslim country, it is inevitable to link to Islamic finance.

Overview of the development of Islamic finance

Islamic finance is a Muslim country based on Islamic traditional economic thoughts, combined with the new situation of economic development in the 1970s, seeking new ways to gradually form a more systematic Islamic financial theory and practice. Islamic finance, or “Islamic financial system”, refers to a very unique financial form with a strong religious education background that is in line with the Islamic Quran and is compatible with modern financial theory. It has a fundamentally ideological foundation that different from traditional finance (also known as “secular finance”) and it is established in the context of Western economic culture. Therefore, Islamic finance must follow six basic principles:

  1. Prohibition of charging interest. This is the central creed of Islamic finance. The meaning of “interest” in Islam is “remaining amount”, and this “pre-determined” profit symbolizes the spirit of enterprising.
  2. Currency does not have time value and is a kind of “potential” capital.
  3. In economic activities, both parties should share the risks and share the benefits.
  4. Strictly fulfilling the full force of the contract and Yiwu is a sacred duty.
  5. Strictly prohibit speculation.
  6. All investment activities must also comply with the Qur’an and Hadith.
The development of Islamic finance

After the foundation of the Islamic Bank (a1-Bank al-Island), it gradually developed rapidly.


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1963 — The first Islamic bank was established in Egypt.

1975 — The Islamic Development Bank was established.

1983 — Iran established a complete Islamic banking system.

1984 — Sudan founded Islamic banks.

1985 — The Lawyers Committee of the Organization of the Islamic Conference stated that Takaful is entirely Islamic.

1989 — The Sudanese banking system was completely Islamized.

1991 — Islamic financial institution audit organization was established. 2002 — The Islamic Financial Services Commission was established in Malaysia.

2005 — IPSB proposes Basel standard for Islamic financial institutions. 2010 — The total amount of Islamic financial assets reached $1.2 trillion.

According to the British “Banker” magazine, Until 2008, there were about 614 Islamic financial institutions in the world, distributed in more than 50 countries and regions. Customers of Islamic financial institutions included not only Muslims but also many other clients from developing and developed countries. By the end of 2010, the assets of global Islamic finance has been about $1.2 trillion, accounting for about 0.5% of the world’s total financial assets; of which Islamic banks accounted for about 80% of the total Islamic financial assets. Although the relative size was still not too large, it was the fastest growing segment of the global financial market in recent years. Since 2000, the average annual growth rate has remained at around 10%-15%, and there was a momentum of accelerated development. The financial tsunami in 2008 was almost unscathed for Islamic finance, and it even grew strongly against the trend.

In addition to the booming of Islamic countries, Islamic finance has received increasing attention in global financial markets. In Asia, Singapore, Hong Kong, China Ningxia, Malaysia, and other countries and regions compete to develop their respective Islamic financial institutions. Many banks in countries such as the United States, the United Kingdom, and Germany, where Muslims are ethnic minorities, have also established special Islamic ‘windows’ or branches for their Middle East operations, all of which operate in accordance with Shariah-compliant principles.

There are five complete Islamic banks in London, and the first Islamic bank opened in June 2009. The experience of the Islamic banking industry in the UK is effective, and the Islamic Bank of the United Kingdom has been operating for four years as a small bank, attracting more than 40,000 users. And HSBC Islamic Bank Amana has been operating in London for ten years, with a focus on institutional and corporate finance. These Islamic finances not only provide local Muslims with financial services such as financing, but also help other institutions that need funds to enhance the status of Islamic finance and Muslims in the world economy and finance.


Overview of GCC Islamic Finance Development

According to S&P’s statistics, the current GCC Islamic Bank assets account for nearly a quarter of the total assets of the GCC, and remain basically strong, with average asset income remaining at around 1.5% and non-performing loan efficiency at around 3%.

According to data from Standard & Poor’s 2019 Global Islamic Financial Outlook report, the GCC Islamic Bank’s assets increased by nearly 7% in 2017, although it is lower than the historical double-digit growth rate, it is still higher than that of non-Islamic banks 4% growth rate.

The unique characteristics of Islamic finance

First, Islamic economy has a strong religious background. It is in compliance with Islamic doctrines, business activities strictly follow the prohibition of interest, speculation, investment in industries that are not allowed by Islamic doctrine (like gambling, tobacco, pork, pornography), and fulfill their contractual obligations and disclosure of information as a sacred duty.

Second, the Islamic business model. It is divided into two types: profit and loss sharing mode and non-profit and loss sharing mode. The profit and loss sharing model includes participation in the shareholding system and profit and loss sharing system, and the corresponding products include sharing agreements and equity participation. Take a two-tier profit-loss sharing model.

Third, the ability to require collateral is limited. In general, Islamic banks finance customers through a profit-and-loss sharing model and do not require encumbered assets to offset the credit risk. But there are exceptions. Banks occasionally ask for encumbered assets to reduce the moral hazard to prevent companies from taking too high a risk and defrauding loans. On the other hand, if Islamic banks finance customers through non-profit-and-loss sharing, they require asset guarantees.

Fourth, the deposit business is different from traditional banks. Unlike the traditional bank’s deposit-and-deposit-protected deposit business, Islamic Bank provides Nordic’s unprofitable savings deposits and investment deposits and specific investment deposits that are not guaranteed or insured.

On May 24 this year, the government will announce the fiscal revenue and expenditure from 2019 to 2020. The economist warned: “India may cause our economy to collapse, just as the United States, the United States, let the Soviet Union disintegrate. The alarm is ringing. We have no choice but to seek support. I am worried that this will bring the hunger, poverty, and unemployment.”


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The researchers pointed out that the government of Imran Khan had promised to create 10 million new jobs and build five million homes. However, current Pakistan is in a serious financial crisis, including a sharp decline in the domestic balance of payments deficit and foreign currency savings. The local government of Islamabad will work with the International Monetary Fund to develop a rescue plan to avoid a balance of payments crisis.

In the future, China and Saudi Arabia and other allies will provide up to 10 billion US dollars in loans. According to a report by the Khaleej Times on April 1, officials at the Dubai Islamic Economy Development Centre said that Dubai has successfully maintained its position as a global Islamic financial center thanks to its ability to withstand economic fluctuations. And it becomes an important Islamic financial investment destination.

Sultan bin Saeed Al Mansouri, UAE’s Minister of Economy and Chairman of the Dubai Islamic Economic Development Center, said at the first board meeting in 2019 that in January 2019, UAE Vice President and Prime Minister, Dubai Chief Sheikh Mohammed (Sheikh Mohammed) Bin Rashid Al Maktoum) announced the 50-year charter of the UAE, which promoted the development of Islamic finance in a sustainable direction.

According to the relevant plans of the Charter, the Islamic financial sector can open up new development paths and growth models. He further emphasized the ability of Islamic finance to keep pace with the times and integrate into the wave of technological development in the fourth industrial revolution. And said that Dubai will launch a new digital process to achieve a transition to a knowledge-based economy.

Mansuri also pointed out that Islamic finance has achieved rapid growth on a global scale, not only in Muslim countries but also mainly because of the growing demand for Islamic financial products in the international market.

Thoughts and Enlightenment from the Development of Islamic Finance

From the opposite side of the bank, the Islamic banks are in parallel. Internally, Muslim bankers and Islamic scholars are working together to improve the system and develop many new projects, from simple deposits to entrepreneurship, shopping, buying houses, reading, loans, insurance stocks, and bonds.

Externally, Islamic banks have demonstrated the principles of Islamic finance in practice. Based on the Qur’an, they manage the social economy and the people’s wealth, show new financial ideas to the public and Western big banks, and serve the society with sincerity.

The emergence of Islamic banks is a modern miracle that does not shift from human will. The Islamic Bank reflects the ambition of Islamic ‘fundamentalism’ thinking day and night; replacing the laws and rules of human beings with God’s own laws. This is the basic way to realize the integration of the “Khalifa” world in the Muslim world.

The Author is Ashley —  FTM Machinery manager  https://www.ftmsino.com/

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