Islamic Finance: An Update

Islamic Finance is a faith-based financial system regulated by Islamic commercial laws. Interest (the foundation of modern conventional banking) is prohibited by Islamic law; hence, operations of Islamic banking are different from conventional banking, although both types of banking fulfil the similar needs of customers. In financing customers’ needs, Islamic banks use either trading or profit and loss sharing modes of financing. Islamic banking was started in the last quarter of the 20th century to cater the needs of Muslims around the world, although it is not limited to Muslims only. It has shown tremendous growth and expansion worldwide. The global volume of assets under the Islamic financial system has reached the figure of US$ 2.5 trillion by the end of 2018 (potential size is above US$ 9.0 trillion), depicting average yearly growth above 15% from 2010-18 [GIFR-2019]. The Arabian Gulf region is the centre of Islamic Finance with a significant share in global Islamic financial assets.

Learning objectives
After going through this chapter, the reader is expected to understand and interpret the following:
Why had Islamic finance?
How is it developed?
What is the present status of Islamic finance industry?
What have revealed injunctions about the ribā?
What are business models under Islamic financial system?
What are the salient features of Islamic Finance?
What are the differences in conventional and Islamic Finance?
What are the criticisms and challenges for Islamic banking?