The Affect of Islamic Banking on International Lending

Affect of Islamic Banking

Affect of Islamic BankingWithout education on cultural gaps and indeed the gaps between the Western and islamic banking structures for all consulting firms, a constructive dialogue can not start. Without education (on both sides), Huntington’s Clash of Civilizations theory is all but inevitable.

Because of such legal exposure they face, this is certainly alluring to financial institutions of all kinds. Britain has been at the forefront of ‘narrowing of the gap’ which would make it easier for financial institutions outside the Muslim world to easily fund loans to such groups.

Others, such as France, have to take a real hard look at their own set of values and see if Islamic banking products and ‘accommodating of laws’ is reconcilable with that. Middle Eastern governments may now feel more empowered that they can rely on their own capabilities rather than borrowing Western banking systems.

And yet, as the Muslim world asserts itself economically and that the capitalist West sees the benefit of this new exotic form of banking, a hybrid international economic banking model, juxtaposing the two, may yet dawn. Overall my advice would be to not become “stuck” in old ways of doing business and allow yourself to better understand how mutually beneficial relationships can come to fruition from our Islamic neighbors.

In mid-November of 2009, The Economist wrote an article dealing with France’s sudden interest in Islamic banking. Islamic banking is almost the term du jour for financiers and banks alike these days, especially since Islamic banks hold billions of dollars in liquid assets -and all the while the world’s banks are suffering from an acutely arduous financial crisis.

There are two big arguments against Islamic banking: first, that it is interest-based in the end, or well-hidden; and secondly, that it has acted for decades as a front for funding terrorist organizations. Interest payments are how lending institutions make their money and not being able to collect interest due to religious beliefs or questioning the end use of that interest is an extra concern for investors to account for in the risk of the investment.

Based on the size of that sector many international funding and/or investing firms have made it a policy to not become involved in such investments. The question is: Why?

Moin Siddiqi estimated in the “The Islamic Dimension” that the Islamic Banking sector has expanded at a brisk pace of between 15% and 22% annually in the past decade. There are currently (as of 2006) 250 Islamic mutual funds with $300bm worth of assts under management and 300IFIs holding over $250bn deposits. $200bn in assets are managed by dedicated Muslim ‘windows’ or subsidiaries of conventional banks.

In mid-November of 2009, The Economist wrote an article dealing with France’s sudden interest in Islamic banking. The irony however of such an article is that France has been very intolerant of Muslim dress in public places in recent years as the country holds dearly to its secularist identity. Islamic banking is almost the term du jour for financiers and banks alike these days, especially since Islamic banks hold billions of dollars in liquid assets -and all the while the world’s banks are suffering from an acutely arduous financial crisis.

Moin Siddiqi estimated in the “The Islamic Dimension” that the Islamic Banking sector has expanded at a brisk pace of between 15% and 22% annually in the past decade. Others, such as France, have to take a real hard look at their own set of values and see if Islamic banking products and ‘accommodating of laws’ is reconcilable with that. Islamic banking has been making inroads into Western markets.

It has been written that “the money considered as interest in a typical bank transaction is instead designed into the contract agreement in another way. Some Muslims consider Islamic banks to be engaging in legal trickery to hide the fact that they pay and charge interest.

Islamic banking has been making inroads into Western markets. By that same token, there has even been non-Muslim demand for Islamic financing products as it allows a greater range of investment products, especially for portfolio management groups.

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