Islamic Banking Part 1: Shar’iah Finance

Since this is the month of Ramadan in much of the Middle East & North Africa, or “pita-consuming”, region, PITAPOLICY will kick off Ramadan by looking at the topics of Islamic Banking and Diaspora communities in business. A finance degree online is a
viable option
for people who want to advance their finance skills.
Finance is something that affects all of us.

Islamic Banking will comprise of a three part series, followed by a call for papers on the applications of Zakat for various charities. (Zakat is the Islamic practice that requires Muslims to give 2.5 percent of their income and assets (gold and jewelry) back to society.) As such, Ramadan also witnesses a significant increase in Zakat activity due to spiritual, personal, societal, and institutional reasons. Islamic banking–or participatory institutions as described in Turkey—facilitates a number of Zakat friendly transactions and investment opportunities in the MENA region, Malaysia, Indonesia, Europe, and North America. (Please see July 6th posting for the discussion on Turkey’s economy regarding Islamic Banking and participatory institutions.)

On the topic of Islamic Banking, or Sha’riah, Finance, Raina Dong will provide an introductory walk through to explain Shariah Finance and its growing popularity in the question/answer format that follows. As always, PITAPOLICY welcomes statistical references, debate, and comments in a follow up piece for those who would like to add to the discussion. Send submissions to pitapolicy@gmail.com.

Q: What’s Sha’riah Finance?
– A system of finance that is bound by religious laws that prevent
the taking or paying out of interest payments
– The Sha’riah gives guidance as to what is, and what is not,
acceptable behaviour in all areas of a Muslim’s life (halal
(acceptable) vs. haram (forbidden)) – a belief system and notions of
equity, justice and fairness that underpins a way of life
– Islamic finance as practised today involves the application of the
Sha’riah to the financial activity of Muslims and non-Muslims in the
modern world

Q: Why is Shariah Finance becoming more Popular?
– Pressures on margins in traditional markets lead banks to
investigate new opportunities
– The Middle East is one region of the world that is showing growth
despite political insecurities and the recent economic crisis
– There is a large pool of liquid funds (high oil and gas prices)
looking for an investment home that accords with religious beliefs
– Middle Eastern investors are looking to re-direct funds from America
to the UK and Europe

Q: Why use Sha’riah Finance?
– Growing demand for finance in the many industrial sectors
– Islamic finance as a credible alternative source of funds
– Islamic finance needs tangible assets
– Islamic economic theory fully supports financing in many industrial sectors where they add value and benefit to society
– Economic growth throughout the Muslim world

Raina Dong worked as an Investment Associate at Capital Guidance in Washington, DC, where she worked with clients regarding Shariah Finance. Raina is now an MBA Candidate at The Wharton School of Business as well as a Robert Toigo Foundation MBA Fellow.

Leave a comment

Filed under Analysis, PIDE (Policy, International Development & Economics)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s