As the Gulf nations reap returns from oil prices, and economies in Asia continue to grow on the back of economic liberalisation, demand for Islamic banking is surging across the Muslim world and beyond.
Islamic banking may have its strongest roots in the Muslim countries of the Middle East, but the industry's innovation is focused on Pakistan, Bangladesh and South East Asia, where countries with both Muslim and non-Muslim populations present an interesting cross-over market.
In Malaysia, for example, non-Muslims are major users of Islamic finance products. Banks such as the Hong Leong Islamic Bank, and the Malaysian cooperative bank, Bank Rakyat, report a 70 per cent uptake of Islamic financial products by Chinese customers. So, why are non-Muslim customers attracted to Islamic banks?
Customers of any religion will be attracted by a financial return that competes favourably with the interest rate at another bank. Like any other financial institution, Islamic banks work to deliver the same marketing, customer service and, crucially, competitive products. Shari’ah prohibits usury and trade in forbidden goods such as alcohol and pork. In line with this, Islamic banks offer a fixed profit rate resulting from investment in Shari’ah compliant trading activities. Additionally, in Islamic mortgages, the bank can share some liability. This presents a more cost-effective and appealing product for some customers. Within the commercial sphere, Ijarah is a leasing concept that offers financing options for commercial assets at a fixed price for a fixed period. In addition, many Islamic business ventures use trade finance which can be arranged without interest. Islamic banking has no central detailed rule book for the modern application of Shari’ah . It comes down to a Shari’ah committee composed of Islamic scholars to determine acceptable banking practice at either bank or national level. Some theorists suggest that if a bank sells both Islamic and non-Islamic products and books both instrument types in the same legal entity, this creates an unacceptable mix of different profit streams. But other scholars maintain that as long as money is segregated internally, the products and the bank can still be Shari’ah compliant. ....
