Islamic Banking Description - Assignment Example

Islamic Banking Table of Contents Introduction 3 Evaluation of the Development of Islamic Banking 3 Evaluation of the Success of Islamic banking in India and China 6 India 6 China 7 Conclusion 8 References 9 Bibliography 12 Introduction Islamic banking is viewed to be a rapidly mounting industry throughout the globe. Altogether, there are 270 Islamic banks operating all around the world with a market capitalization of more than 13 billion USD. It is estimated that the assets of these banks are approximately 265 billion USD and has an investment of roughly 400 billion USD (Rahman, 2007). The replica of Islamic banks is based upon an Islamic jurisprudence entitled “Mudarabah” that signifies a principal-agent agreement. The comprehensive intend of these banks is on the belief that the possession of the assets would remain with the principal and is managed by the agent or the banks. The practice of Islamic banking has been viewed to be 30years old and still needs to be get fully developed (Elgari, 2011). This paper intends to evaluate the advancement of Islamic banking in recent years and also to assess the success of the Islamic banks throughout the globe especially in the emerging countries like India and China. Various aspects such as the perception as well as the ethical background of Islamic banking will also be taken into concern in the paper. Evaluation of the Development of Islamic Banking The perception of Islamic banking is fundamentally based upon Islamic law i.e. Shariah. These banks generally follow the business transactions concerning Islamic banking as well as finance rules. These rules typically originated from different Islamic law sources that encompass the Quran, the Shariah scholars (ijma), personal reasoning (ijtihad), the Sunnah and analogy (qiyas) (Banking Info, 2009). It has been apparently observed that the functions of Islamic banking were initially commenced in the year 1962 especially in Malaysia. Gradually, the banks relating to Islamic banking were raised extensively and have been viewed to perform their different operational functions across the entire globe. With regard to the operational activities of Islamic banking, it has been viewed that the Islamic banks allocate a substantial portion of their funds to various business segments like trade, real states, industries and service sectors (Kahf & et.al, 1998). Currently, the different operational functions of Islamic banking remain much focus upon enhancing the financial position of the countries acting as development banks, performing activities according to the system of Western banks and offering products or services to conform the ethical values of Islam. The different functions that generally perform by the Islamic banks linked with Islamic banking encompass unit trust agreement, joint venture, safe keeping, cost plus, benevolent loan, gift, Islamic insurance and agency (Islam, n.d). The Islamic banks have been growing very fast and developing rapidly all over the world especially in Middle East and South Asia. The major reason for the development of Islamic banks is that these banks provide their respective services to the customers with interest-free charges. Moreover, the Islamic banks advanced and attained success due to the presence as well as the participation of Muslim customers throughout the globe in accessing different services of the banks (Bashir, 2009). Another reason of Islamic banking in attaining exceptional growth in current years relating to ethical framework that underpins its origins is prohibiting the sale as well as the purchase of various illegal good or services that include tobacco, pork and anything that is regarded to be quite unlawful in accordance with the Islamic standards of Shariah (Okikiola, 2011). With regard to evaluate the advancement of Islamic banking relating to ethical framework that underpins its origins, it has been viewed that although the Islamic banks have developed rapidly from the past forty years, but still there pertain certain misapprehension amid the people about the ethical perspectives and purposes of Islamic banking. However, numerous studies assured positive moves in describing the moral values of the Islamic banks. According to various studies, it has been observed that the objectives of the Islamic banks have been to follow and protect five basic goal i.e. religion (din), reason (aql), life (nafs), property (mal) and progeny (nasl) (Montgomery, 2010). The studies also revealed that the Islamic banks have been developed and passed through an exceptional growth in current years due to its focus upon the approach of fulfilling the desire of the Islamic communities by offering an ethical investment prospect that would eventually strengthen the moral and economic conditions of the Muslim people. The contemporary purpose of the Islamic banks is to acquire both common good and success in order to deliver significant benefits to every societal member of the Islamic community (Montgomery, 2010). Relating to the ethical framework that underpins the origins of Islamic banking, it has been viewed that the Islamic banks developed in recent years due to the exclusion of interest for the welfare of the society and Islamic individual. Other than this, the banks deal with various significant services like providing loans to the students and delivering effective suggestions to the individuals regarding indebtedness among others (Aldohni, 2012). Evaluation of the Success of Islamic banking in India and China India The growth of Islamic banks throughout the globe is unprecedented. Likewise, there has been a growing interest about the perception of Islamic banking in the emerging market of India especially in the financial sector. As the Islamic banks forbid the use of money in activities like gambling and wine among others, they would provide long-term loans to the individuals or people belonging to India for infrastructure development in different sectors (Gupta, 2009). In this similar context, the prime target of the Islamic banks in India would be the growth of the entire Indian population with concerning the fact that there are still 60% of the population who does not possess superior access to banking services (Raqeeb, 2012). Another important aspect for accomplishment of the Islamic banks in India would be the large Indian Muslim population that is considered to be one of their biggest strengths. In this regard, it has been viewed that the Indian Muslims do not deposit money in bank due to religious reasons. The emergence of Islamic banks would definitely target those populaces in order to attain success in future. It is worth mentioning that with the emergence of Islamic banks especially in India, the government can have a diplomatic benefit to deal with the Muslim conquered countries (Pawandeep, 2008). It is also to be stated that the introduction of Islamic banks in India would not only greatly help in improving the financial conditions of the Muslim communities but will also aid in their economic advancement. Most importantly, the interest-free banking concept of the Islamic banks would draw attention of not only the Muslim populaces but also the non-Muslims by a considerable level (Shamshad, 2012). China The Chinese economy is rapidly becoming one of the largest economies throughout the globe. The country has the largest population in the world with 1.5 percent of Muslim populaces. In this similar concern, it can be affirmed that the Islamic banks possess the opportunity to directly invest upon the infrastructures of the Chinese economy by a greater extent (Malik, 2010). As China is observed to experience high growth in different business segments amid the Asian countries, it can be stated that the idea of Islamic banking system would potentially be a major medium in China. Further, with the rising foreign reserves in China, Islamic investment would ultimately aid in enhancing the financial position of the country. Moreover the various challenges as well as the drawbacks of the international financial system would also help the Islamic banking to flourish in the Chinese economy at large (Roxanne, 2012). After acquiring a brief idea about the perception of Islamic banking, it can be stated that Islamic banks are much unique from other banks due to its broad consideration of various ethical elements. As an assorted country, China would be benefited from the introduction of a comprehensive Islamic banking system that would encourage the Islamic financial sector in the country by a significant level. In addition, it has been viewed that China is a country which possess oldest ancestry of Muslim people and a considerable portion of Muslims live there. There exist much broader scope for both the Muslim and non-Muslim populaces of the country to follow the ethical principles of Shariah. Finally, the introduction of the Islamic banking in China would help the country to enhance its trade with different countries of the world. It is firmly believed that China would play a lucrative part in major Arab projects once they commence Islamic banking in the country (Global Islamic Finance Magazine, 2007) Conclusion It can be concluded from the above discussion that the Islamic banking system is growing rapidly all over the world with some unique ethical elements that comprise the prohibition of lending money for conducting the activities like gambling and wine among others. They also follow the interest- free banking system that enables them to gather greater attentions of people throughout the globe and this would be a major reason for their success worldwide. It can be largely stated that the Islamic banking system would prove to be much beneficial for the emerging markets like China and India due to its different imperative features as well as principles. References Aldohni, A.K.K., 2012. The Legal and Regulatory Aspects of Islamic Banking. Routledge. Banking Info., 2009. Basic Concept and Principle of Islamic banking. Working Paper [Online] Available at: http://www.bankinginfo.com.my/_system/media/downloadables/islamic_banking.pdf Bashir, B.A., 2009. Successful Development of Islamic Banks. J. Res. Islamic Econ., Vol. 1, No. 2, pp. 59-66. Elgari, M.A., 2011. An Introduction to Islamic Banking. Working Paper. [Online] Available at: http://www.elgari.com/english/wpcontent/uploads/downloads/2011/08/AnIntroductionToIslamicBanking.pdf Gupta, A., 2009. A Talk about the Islamic Banking Movement in India. Prajana, Vol. 12, No. 1. Islam, M., No Date. Growth and Development of Islamic Banking. Working Paper. 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