The rise of the Islamic finance industry

 In the present age Islamic Finance is a multinational and multi-disciplinary emerging industry, the size of Islamic finance market is estimated up to USD2 trillion and projected to grow to USD3 trillion by 2018. The Islamic finance assets represent 1% of the global financial market.  The Sukuk issuance is accelerating the Islamic Capital markets at the annual growth of 21 percent. 

Saudi Arabia’s IPO drive and platforms provided through Dubai Islamic Financial center and NASDAQ Dubai are significantly promoting the Islamic Capital Market towards USD 10 trillion target.  

“It is a fast growing industry that is presently having most of the identical products like conventional or western banking i.e. Islamic Private Equity Funds, Islamic leasing and ETFs, Islamic Fixed Income – Sukuks and Islamic derivatives or structured products. In addition to the insurance based Takaful products and services the Islamic Capital markets are also growing towards Islamic Forward Forex, options and profit rate SWAPs,” said C.A. Sahitya K. Chaturvedi, Head of Finance, Ajmal Perfumes.

Though the products are meeting the modern requirement of the industry yet the unique features of Islamic banking or Shari’ah compliance are still retained. The Interest (RIBA) is prohibited in all its forms, be it cash or kind. Gifts for prospective savings on Wadiah (safekeeping), Qard / Hassan (loan) are also deemed to be promising a form of interest in kind, are not permissible in Islamic Finance. A financial institution must have Shari’ah Board and Committee to be termed as Islamic Financial Institution. 

Furthermore, all banking business on sale or lease must have an underlying asset that is contrast to the conventional banking where the asset element is not necessary. All transactions made by Islamic Financial Institutions must be free from elements of uncertainty (Gharar) and gambling (Maisir).

“The concept of profit and loss sharing is peculiar to Islamic banking although, strictly speaking, Islamic banking is not an equity market, which is normally represented by the stock market. An Islamic bank is neither a lender nor a borrower, but can instead become a bona-fide trader licensed under banking law,” added Sahitya.

The history of Islamic commerce begins with the revelation of Qur’an and traditions of the Prophet Muhammad that contains legal principals and injections dealing with subjects such as ritual, marriage, divorce, succession, commercial transactions and penal laws.  

“In advocating the form of economic activities under Islam, trade is encouraged, usury is prohibited, and acquisition of wealth should be achieved through lawful means that promote mutual consent and Goodwill. It is termed as Shari’ah compliance, to ensure that the financial activities of the institution meet the requirements of Shari’ah principals and rules prescribed in the Qur’an and the traditions of the Prophet Muhammad. Presently there are prescribed forms of standards, guidelines, and best practices by governing bodies such as AAOIFI (Accounting and Auditing organization for Islamic Financial Institutions), IFSB (Islamic Financial Services Board and followed by Internal Shari’ah control systems (ISCS),” added Sahitya.

It is historically evident that Muslim civilization adopted a comprehensive accounting, reporting and auditing system since AD624 that applied a form of double-entry book keeping as globally accepted as on date. This in particular is evident from the documented works of two Muslim scholars, Al Khawarizmy and Al Mazendarany in AD976.