بانک نهادی حقوقی است که عملیاتهای پولی، مالی و اعتباری را بر عهده دارد. بانکداری نیز عبارت است از ارائهٔ خدمات و عملیات بانکی مانند: امانت داری؛ نقل و انتقال پول، سرمایه و اوراق بهادار اشخاص حقیقی و حقوقی و بهکارگیری آن؛ وصول مطالبات اسنادی؛ صدور بروات و حوالههای تجاری؛ اعطاء و توزیع اعتبارات و وام به اشخاص حقیقی و حقوقی؛ تأمین اعتبار در جهت توسعهٔ بازرگانی، کشاورزی و صنعت؛ خرید و فروش فلزات قیمتی و ارز؛ انتشار اسکناس و اوراق بهادار و تنظیم حجم پولِ در گردش؛ و اجرای سیاست پولی و کنترل حجم اعتبارات.
حال اگر بخواهیم این خدمات و فعالیتها را طبق قوانین اسلام مدیریت و اجرا کنیم، «بانکداری اسلامی» پدید میآید. لفظی که مفهومی نسبی را بیان میکند: هرچه بانکداری به نظرات اسلام نزدیکتر باشد، بیشتر اسلامی است. پس اتصاف «بانکـ» به صفت «اسلامی»، بانکدار را ملزم میکند تا علاوه بر رعایت قوانین اسلامی در فعالیتها و خدمات مانند اجتناب از ربا یا توزیع اعتبارات و بهکارگیری سرمایه در موضوعات حرام مانند تولید و فروش هرگونه جنس حرام؛ در نهایت، هدف عالی اتمام مکارم اخلاق را نیز دنبال کند. همچنان که روحالله خمینی آوردهاست: «اسلام دینی است که با تنظیم فعالیتهای مادی راه را برای اعتلای معنوی انسان میگشاید.»
تاریخچهٔ بانکداری اسلامی[ویرایش]
در طول دوران طلایی اسلام، سرمایهداری و بازار آزاد به شکلی ابتدایی در دستگاه خلافت وجود داشت و در فاصلهٔ قرنهای ۸ ام تا ۱۲ ام، اقتصاد بازار و مکتب سوداگری توسعه یافت به گونهای که برخی به آن عنوان «سرمایه داری اسلامی» را نسبت میدهند. اقتصاد پولی آن دوران بر پایهٔ این بود که ارز دینار به صورت گستردهای در گردش باشد و به این ترتیب منطقههایی که درگذشته از نظر اقتصادی مستقل بودند را در این موضوع درگیر میکردند. تاریخیترین نوع بانک اسلامی، موسسات یا صندوقهای قرضالحسنه هستند که در قرآن از آن یاد شده.
بانکداری یا فعالیّت بانکی است که مطابق قوانین دین اسلام (فقه اسلام) است و کاربرد عملی آن در توسعهٔ اقتصاد اسلامی است. فقه اسلامی، اجازه نمیدهد که برای دریافت وام، بهرهای (به شرطی که از پیش تعیین شده باشد) پرداخت شود (در اصطلاح فقهی به آن ربا میگویند). همچنین از نظر دین اسلام، سرمایهگذاری در تجارتی که فراهمکنندهٔ سود یا خدمتی باشد ولی با قوانین اسلام ناسازگار باشد نیز ممنوع (حرام) است. بانک داری طبق قوانین اسلام میتواند حالات متفاوت داشته باشد. اهل تشیع و اهل تسنن میتوانند شرایط و قوانین کاملاً متفاوتی را برای بانکها وضع کنند. فتوای مراجع تقلید نقش بزرگی در سیستم بانک داری ایران بازی میکند. به عنوان مثال میتوان قوانین کارت اعتباری را یاد کرد که در برخی مجامع اسلامی ممنوع ولی تحت شرایطی در ایران مجاز است. امروزه میتوان گفت که با راه اندازی بورس اوراق بهادار در ایران و همکاری و مراودات بانکها با این سازمان، تفاوت خدماتی و عملیاتی بین بانکهای ایران و دیگر کشورهای جهان عمدتاً وجود ندارد، مگر خط قرمزهایی که در پایین آورده شده.
نظام بانکی بدون ربا[ویرایش]
بر این اساس که در فقه اسلامی دریافت پول اضافی از وامگیرنده ربا و حرام است، مجلس شورای اسلامی ایران در سال ۱۳۶۲ قانونی را با عنوان قانون عملیات بانکی بدون ربا تصویب کرد که از سال ۱۳۶۳ اجرایی شد. بر طبق این قانون در خصوص رفع حرمت ربای قرضی در سپردهگذاری و اخذ سود اینطور آورده شده که سپردهگذاری در بانک، تحت عقد قرض نباشد، بلکه تحت عقودی دیگر مانند وکالت باشد. به این صورت که سپرده گذار، پول خود را تحت عقد وکالت در اختیار بانک قرار میدهد و بانک نیز به عنوان وکیل پول را به چرخه اقتصاد وارد کرده و در اموری مانند مضاربه، اجاره به شرط تملیک، معاملات اقساطی، مزارعه، مساقات و … استفاده میکند و در نتیجه، از این تجارتها سودی حاصل میکند. در نهایت بانک به عنوان وکیل، حقالزحمه خود را از سود کسر کرده و مابقی را به مشتری تحویل میدهد.
پس در بانکهای اسلامی شخص سپردهگزار بانک را وکیل خود میداند تا سرمایهگذاری کند و سود معامله را به او بدهد؛ لذا سود علیالحساب را در موعد روزانه، ماهانه یا سالانه پرداخت میکند. اما سود قطعی را پس از گذشت مدت کامل معامله و محاسبات دقیق، پرداخت میکند؛ و بانک به عنوان عامل، حق عاملیت و وکالت برمیدارد.
اما در مورد اخذ وام و قرض از بانک و پرداخت سودِ مازاد بر اصل پول، در بانکداری بدون ربا، بانکها از عقود متفاوتی مانند جعاله، مضاربه و … استفاده کرده و شخص وامگیرنده را به مشارکت گرفته و پول را به مضاربه و … میدهند. در نتیجه، وامگیرنده مقداری از سود حاصل از مضاربه و … را اضافه بر اصل وام به بانک تحویل میدهد. ضمن این که این عقود تابع قوانین خاص همان عقود نیز میباشد.
در نوع دیگر اینطور آورده شده که بانک به جای تحویل پول به شخص وامگیرنده، جنس را میخرد و به شخص وامگیرنده بهطور نسیه میفروشد. در این صورت، در واقع بانک پولی را به شخص نداده که مازاد گرفته باشد، بلکه جنسی را به شخص فروخته است. همینطور انواع دیگری نیز در قانون بانکداری بدون ربا آمدهاست. پس در این موارد هم مانند سپردهها و وامهای قرض الحسنه، ربای حرامی وجود ندارد. البته حکم صحت در صورتی است که شرایط و قراردادهایی که تفصیل آن گذشت، به شکل واقعی بین دو طرف بانک و مشتری صورت پذیرد، نه صرفاً به شکل صوری و امضا در برگههایی که چندان اطلاعی از محتویات آن نیست.
بهطور کلی طبق این قانون، بانکهای جمهوری اسلامی اعطای تسهیلات بانکی از راه یازده عقد اسلامی مجاز انجام میشود. این عقود مجاز عبارتند از:
تورم، حلّال ربا[ویرایش]
عقیده دیگر، این با محوریت این نکته مهم است که «اسکناس به خاطر اسکناس بودن» ارزشی ندارد، بلکه قدرت خریدی که به دارندة آن میدهد، «ارزش» آن را تعیین میکند، از طرفی این «ارزش» با وجود تورم، کاهش مییابد. پس قرض دهنده به هنگام قرض دادن، اسکناس صد تومانی را قرض میدهد که نماینده و معرِّف قدرت خرید صد تومان است، و به هنگام بازپسگیری میبایست به همان میزان «ارزش» و «قدرت خرید» پس بگیرد؛ و در این حد، به هیچ وجه ربا نیست.
توضیح این عقیده در چند مقدمه بیان میشود:
اول: پول به معنی قدرت خرید است، و اسکناس به تنهایی تکه کاغذی بوده که ارزشی ندارد. بلکه نشانه و معرِّف توانایی دارنده اسکناس بر خرید است. در واقع ارزش یک اسکناس همان مقداری است که به دارنده آن توانایی خرید میدهد. یعنی تفاوت اسکناس صد تومانی و هزار تومانی به اندازه کاغذ آن نیست بلکه در اعطای قدرت خرید به دارنده است، که اسکناس هزارتومانی به دارندة آن، توانایی بیشتری میدهد تا اسکناس صد تومانی.
دوم: وجود تورّم به معنی کاهش قدرت خرید به میزان تورم است. یعنی اگر تورم در یک سال ۲۰٪ باشد، یعنی شخص برای خرید همان چیز در سال جدید، بایستی ۲۰٪ پول اضافه پرداخت کنند. پس قدرت خرید او نسبت به گذشته ۲۰٪ کمتر شدهاست.
در نتیجة دو مقدمه بالا و نسبت اسکناس و تورم این است که مثلاً اگر تورمی در بین نباشد، اسکناس صد تومانی توان خریدی به دارنده آن میدهد که در سال بعد هم همان قدرت خرید را دارد. اما اگر میزان تورم در سال ۲۰٪ باشد، قدرت خریدِ دارندة اسکناس صد تومانی، ۲۰٪ کمتر از گذشته شده، هرچند که همان اسکناس صدتومانی را دارد.
پس دارنده اسکناس صد تومانی توان خرید چیزی را دارد که با وجود تورم ۲۰٪ در سال بعد دیگر نمیتواند آن را بخرد و باید ۲۰٪ روی آن بگذارد و با صد و بیست تومان آن را خریداری کند. یعنی صد تومان در سال گذشته با صد و بیست تومان در امسال برابری میکند.
حال که نسبت اسکناس و تورم روشن شد، در بحث ربا و بانک باید گفت اگر شخص صد تومان به بانک قرض بدهد یعنی «قدرت خرید» خود را به میزان صد تومان به بانک قرض داده است، حال بعد از گذشت یک سال که ۲۰٪ تورم داشته، قرض خود را پس میگیرد. اگر همان صد تومان را پس بگیرد، یعنی «قدرت خریدی» کمتر از گذشته را پس گرفته و اگر صد و بیست تومان پس بگیرد، یعنی همان «قدرت خرید» سابق که قرض داده بود را پس گرفته، نه چیزی اضافه. هرچند بر مقدار اسکناس افزوده شده، اما بر ارزش آن که چیزی نیامده است.
با بررسی روایات در فقه شیعه علی بن جعفر از برادرش امام صادق علیه السلام روایت میکند: «وَ سَأَلْتُهُ عَنْ رَجُلٍ أَعْطَی رَجُلًا مِائَةَ دِرْهَمٍ- عَلَی أَنْ یُعْطِیَهُ خَمْسَةَ دَرَاهِمَ أَوْ أَقَلَّ أَوْ أَکْثَرَ- قَالَ هَذَا الرِّبَا الْمَحْضُ: از شخصی سؤال پرسیدم که صد درهم به دیگری داد بر این شرط که پنج درهم کمتر یا بیشتر به او بدهد، حضرت فرمودند این ربای محض است.»
با این توضیح که صد تومانی که شخص در بانک سپردهگذاری کرده و به بانک داده، مثلاً به میزان ده درهم ارزش داشتهاست، اما هنگام برداشت پول و پس گرفتن با تورم ۲۰٪، اگر همان صد تومان را پس بگیرد، در نسبت به درهم، این میشود که مثلاً هشت درهم پس گرفتهاست. پس همان ربای محض میشود؛ و میبایست صد و بیست تومان پس بگیرد تا به همان میزان ده درهم باشد.
پس اگر بپذیریم که اسکناس صرف کاغذ بوده و ارزشی ندارد، بلکه نماینده، معرِّف و کاشف از قدرت خریدی است که به صاحبِ آن میدهد، و این «قدرت خرید»، ارزش آن را تعیین میکند. از دیگر سو، «قدرت خرید» با وجود تورم، کاهش مییابد. پس اگر قرض دهنده اسکناس صد تومانی را قرض داده که کاشف از قدرت خرید صد تومان است، میبایست به هنگام بازپسگیری به همان میزان پس بگیرد؛ و در این حد، به هیچ وجه ربا نیست.
در نتیجه و در تطبیق صحبت باید گفت اگر به سپردهای به میزان تورم سود پرداخت شود، ربا نیست، چون در واقع سود نیست. همچنین اگر هنگام بازپسگیری وام، مبلغی اضافه از وام به میزان تورم دریافت شود، باز هم ربا نیست، چون بانک سودی دریافت نکرده، بلکه فقط به همان میزان که «ارزش» و «قدرت خرید» به وامگیرنده داده، به همان میزان پس گرفتهاست.
پس بنابراین کسانی که میگویند: «در واقع وامی قرضالحسنه نام میگیرد که تورم در آن رعایت شده باشد و به میزان تورم، اضافه پس گرفته شود.» اشخاصی سودجو و منحرف هستند. مثلاً فرض شود شخصی در پنجاه سال قبل، خانهاش را به دو هزار تومان فروخت و به دیگری قرض داد. شخص مقترض بعد از پنجاه سال تصمیم میگیرد قرض را ادا کند. آیا طبق حکم شرعیِ فقه شیعه، میبایست همان مبلغ دو هزار تومان را بدهد و بیش از آن ربای حرام است؟ حتی اگر بیش از پنجاه سال ادای قرض طول بکشد قرض گیرنده و قرض دهنده حق ندارند بیشتر از مبلغ قرض الحسنه مبادله نمایند.
همینطور در مثل قبوض برق و آب و … اگر دیرتر از مهلت مشخص شده پرداخت شود، و بگویند «مشمول افزایش قیمت بر اساس تورم خواهد بود.» این گفتار و عمل به آن حرام است.
دولت اسلامی به دنبال تحقق بانکداری بدون ربا، حق ندارد با محاسبه تورمِ روزانه، همه دریافتها و پرداختهای اشخاص را محاسبه و اینگونه عمل کند.
با گشایش حساب بانکی، بانک وجوه نقد را از مشتری دریافت کرده و «نگهداری» میکند. آیا بانک اجازه دارد که با سرمایه مشتریان کار کند و سرمایه را به گردش در بیاورد در کشور و بانکهای مختلف فرق میکند. در مواردی بسیار نادر بانک سرمایه را نگهداری میکند (حالت خزانه و بایگانی) و حتی اگر سرمایه در آتشسوزی از بین برود، بانک هیچ مسئولیتی در برابر مشتری ندارد؛ ولی در اکثر موارد، چون در ایران، بانک سرمایه دریافتی را ضمانت کرده و به جریان میاندازد و با آن به سایر مشتریان وام میپردازد. این نوع بانکها به مشتری (سرمایهگذار) ربح نه بلکه هدیه/جایزهای میپردازند که مقدار آن از دید رسمی نباید از پیش تعیین شود. در این رابطه نیز بانکها تحت شرایط ویژهای میتوانند مبلغ جایزه را به صورت درصدی قبلاً اعلام و حتی به نحوی ضمانت کنند.
کارت اعتباری تحت شرایط ویژهای در برخی کشورها از جمله ایران مجاز است.
آن حجم پول که در حساب مشتری موجود است و از آن با کمک کارت استفاده (برداشت) میشود، اشکال ندارد، ولی مبلغی که به حساب اعتبار و بدون داشتن وجه ملموس در حساب، به مشتری پرداخت میشود، اگر دارای شخصیت قرض باشد و بر آن سود تعلق گیرد، اصل قرض صحیح، ولی مقدار مازاد، ربح بوده و حرام است.
چک در بانکداری اسلامی مجاز است.
سفته در بانکداری اسلامی مجاز است.
خرید، فروش و دخالت و بهرهوری در رابطه با اوراق بها دار، چون سهام و اوراق قرضه در بانکداری اسلامی مجاز است.
طبق رأی وحدت رویه شماره ۸۵/۳۰/۲۰۵۱۸ شورای نگهبان معامله اوراق قرضه خلاف موازین شرعی اعلام شد
پیوند به بیرون[ویرایش]
اسلام پدیا، مقاله بانک
Islamic banking or Islamic finance (Arabic: مصرفية إسلامية) or sharia-compliant finance is banking or financing activity that complies with sharia (Islamic law) and its practical application through the development of Islamic economics. Some of the modes of Islamic banking/finance include Mudarabah (profit-sharing and loss-bearing), Wadiah (safekeeping), Musharaka (joint venture), Murabahah (cost-plus), and Ijara (leasing).
Sharia prohibits riba, or usury, defined as interest paid on all loans of money (although some Muslims dispute whether there is a consensus that interest is equivalent to riba). Investment in businesses that provide goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also haraam ("sinful and prohibited").
These prohibitions have been applied historically in varying degrees in Muslim countries/communities to prevent un-Islamic practices. In the late 20th century, as part of the revival of Islamic identity,[Note 1] a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community. Their number and size has grown, so that by 2009, there were over 300 banks and 250 mutual funds around the world complying with Islamic principles, and around $2 trillion was sharia-compliant by 2014. Sharia-compliant financial institutions represented approximately 1% of total world assets, concentrated in the Gulf Cooperation Council (GCC) countries, Iran, and Malaysia. Although Islamic banking still makes up only a fraction of the banking assets of Muslims, since its inception it has been growing faster than banking assets as a whole, and is projected to continue to do so.
The industry has been lauded for returning to the path of "divine guidance" in rejecting the "political and economic dominance" of the West, and noted as the "most visible mark" of Islamic revivalism, its most enthusiastic advocates promise "no inflation, no unemployment, no exploitation and no poverty" once it is fully implemented. However, it has also been criticized for failing to develop profit and loss sharing or more ethical modes of investment promised by early promoters, and instead selling banking products that "comply with the formal requirements of Islamic law", but use "ruses and subterfuges to conceal interest", and entail "higher costs, bigger risks" than conventional (ribawi) banks.
Usury in Islam
Although Islamic finance contains many prohibitions—such as on consumption of alcohol, gambling, uncertainty, etc. -- the belief that "all forms of interest are riba and hence prohibited" is the idea upon which it is based. The word "riba" literally means "excess or addition", and has been translated as "interest", "usury", "excess", "increase" or "addition".
According to Islamic economists Choudhury and Malik, the elimination of interest followed a "gradual process" in early Islam, "culminating" with a "fully fledged Islamic economic system" under Caliph Umar (634-644 CE).
Other sources (Encyclopedia of Islam and the Muslim World, Timur Kuran), do not agree, and state that the giving and taking of interest continued in Muslim society "at times through the use of legal ruses (ḥiyal), often more or less openly," including during the Ottoman Empire. (Still another source, (International Business Publications), states that during the "Islamic Golden Age" the "common view of riba among classical jurists" of Islamic law and economics was that it was unlawful to apply interest to gold and silver currencies, "but that it is not riba and is therefore acceptable to apply interest to fiat money -- currencies made up of other materials such as paper or base metals -- to an extent.")[Note 2]
In the late 19th century Islamic Modernists reacted to the rise of European power and influence and its colonization of Muslim countries by reconsidering the prohibition on interest and whether interest rates and insurance were not among the "preconditions for productive investment" in a functioning modern economy. Syed Ahmad Khan, argued for a differentiation between sinful riba "usury", which they saw as restricted to charges on lending for consumption, and legitimate non-riba "interest", for lending for commercial investment.
However, in the 20th century, Islamic revivalists/Islamists/activists worked to define all interest as riba, to enjoin Muslims to lend and borrow at "Islamic Banks" that avoided fixed rates. By the 21st century this Islamic Banking movement had created "institutions of interest-free financial enterprises across the world".Loans are permitted in Islam if the interest that is paid is linked to the profit or loss obtained by the investment. The concept of profit acts as a symbol in Islam as equal sharing of profits, losses, and risks.
The movement started with activists and scholars such as Anwar Qureshi,Naeem Siddiqui, Abul A'la Maududi, Muhammad Hamidullah, in the late 1940 and early 1950s. They believed commercial banks were a "necessary evil," and proposed a banking system based on the concept of Mudarabah, where shared profit on investment would replace interest. Further works specifically devoted to the subject of interest-free banking were authored by Muhammad Uzair (1955), Abdullah al-Araby (1967), Mohammad Najatuallah Siddiqui, al-Najjar (1971) and Muhammad Baqir al-Sadr.
The involvement of institutions, governments, and various conferences and studies on Islamic banking (Conference of the Finance Ministers of the Islamic Countries held in Karachi in 1970, the Egyptian study in 1972, The First International Conference on Islamic Economics in Mecca in 1976, and the International Economic Conference in London in 1977) were instrumental in applying the application of theory to practice for the first interest-free banks. At the First International Conference on Islamic Economics, "several hundred Muslim intellectuals, sharia scholars and economists unequivocally declared ... that all forms of interest" were riba.
By 2004, the strength of this belief (which is the basis of Islamic finance) was demonstrated in the world's second largest Muslim country—Pakistan—when a minority (non-Muslim) member of the Pakistani parliament[Note 3] questioned it, pointing out that a scholar from Al-Azhar University, (one of the oldest Islamic Universities in the world), had issued a decree that bank interest was not un-Islamic. His statement resulted in "pandemonium" in the parliament, a demand by members of leading Islamist political party[Note 4] to immediately respond to these allegedly derogatory remarks, followed by a walkout when they were denied it. When the upset members of parliament returned, their leader (Sahibzada Fazal Karim), stated that since the Pakistan Council of Islamic ideology had decreed that interest in all its forms was haram (forbidden) in an Islamic society, no member of parliament had the right to "negate this settled issue".
The council's decree notwithstanding, over the years a minority of Islamic scholars (Muhammad Abduh, Rashid Rida, Mahmud Shaltut, Syed Ahmad Khan, Fazl al-Rahman, Muhammad Sayyid Tantawy and Yusuf al-Qaradawi) have questioned whether riba includes all interest payments. Others (Muhammad Akran Khan) have questioned whether riba is a crime like murder and theft, forbidden by sharia (Islamic law) and subject to punishment by human beings, or simply a sin to be inveighed against, with the reprimand left to God, since "neither the Prophet nor the first four caliphs nor any subsequent Islamic government ever enacted any law against riba."
With an increase in the Muslim population in Europe and current lack of supply, opportunities will arise for the important role which Islamic finance plays in Europe’s economy. In particular, Luxembourg is emerging as a leader and hub for Islamic funds.
While revivalists like Mohammed Naveed insist Islamic Banking is "as old as the religion itself with its principles primarily derived from the Quran", secular historians and Islamic modernists see it as a modern phenomenon or "invented tradition".
According to Timur Kuran, by "the tenth century, Islamic law supported credit and investment instruments" that were "as advanced" as anything in the non-Islamic world, but prior to the 19th century there were no "durable" financial institutions "recognizable as banks" in the Muslim world. The first Muslim majority-owned banks did not emerge until the 1920s.
An early market economy and an early form of mercantilism, sometimes called Islamic capitalism, was developed between the eighth and twelfth centuries. The monetary economy of the period was based on the widely circulated currency the gold dinar, and it tied together regions that were previously economically independent.
A number of economic concepts and techniques were applied in early Islamic banking, including bills of exchange, partnership (mufawada, including limited partnerships, or mudaraba), and forms of capital (al-mal), capital accumulation (nama al-mal), cheques, promissory notes, trusts (see Waqf), transactional accounts, loaning, ledgers and assignments. Muslim traders are known to have used the cheque or ṣakk system since the time of Harun al-Rashid (9th century) of the Abbasid Caliphate. Organizational enterprises independent from the state also existed in the medieval Islamic world, while the agency institution was also introduced during that time. Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards.
In the middle of the 20th century some organizational entities were found to offer financial services complying with Islamic laws. The first, experimental, local Islamic bank was established in the late 1950s in a rural area of Pakistan which charged no interest on its lending.
In 1963, the first modern Islamic bank on record was established in rural Egypt by economist Ahmad Elnaggar to appeal to people who lacked confidence in state-run banks. The profit-sharing experiment, in the Nile Delta town of Mit Ghamr, did not specifically advertise its Islamic nature for fear of being seen as a manifestation of Islamic fundamentalism that was anathema to the Gamal Nasser regime. Also in that year the Pilgrims Saving Corporation was founded in Malaysia (although not a bank, it incorporated basic Islamic banking concepts).
The Mit Ghamr experiment was shut down by the Egyptian government in 1968. Nonetheless it was considered a success by many, as by that time there were nine similar banks in the country. In 1972, the Mit Ghamr Savings project became part of Nasr Social Bank, which as of 2016 was still in business in Egypt.
Source: Islamic Finance Project Databank
The influx of "petro-dollars" and a "general re-Islamisation" following the Yom Kippur War and 1973 oil crisis encouraged the development of the Islamic banking sector, and since 1975 it has spread globally.
In 1975, the Islamic Development Bank was set up with the mission to provide funding to projects in the member countries. The first modern commercial Islamic bank, Dubai Islamic Bank, was established in 1979. The first Islamic insurance (or takaful) company — the Islamic Insurance Company of Sudan — was established in 1979. The Amana Income Fund, the world's first Islamic mutual fund (which invests only in sharia-compliant equities), was created in 1986 in Indiana.
From 1980-1985, Islamic investments underwent a "spectacular expansion" throughout the Muslim world, attracting deposits with the promise of "great gains" and "religious guarantees" supplied by Islamic jurists who were "recruited to issue fatwas denouncing conventional banks and recommending their Islamic rivals." This growth was temporarily reversed in 1988 in the largest Arab Muslim country, Egypt, when the Egyptian state — worried that Islamist movements were building up a "war chest" and being given financial independence — reversed its tacit support for the industry, and launched a media campaign against Islamic banks. The ensuing financial panic led to the bankruptcy of some companies.
In 1990 an accounting organization for Islamic financial institutions (Accounting and Auditing Organization for Islamic Financial Institutions, AAOIFI), was established in Algiers by a group of Islamic financial institutions. Also in that year the Islamic bond market emerged when the first tradable sukuk — the Islamic alternative to conventional bonds — were issued by Shell MDS in Malaysia. In 2002, the Malaysia-based Islamic Financial Services Board (IFSB) was established as an international standard-setting body for Islamic financial institutions.
By 1995, 144 Islamic financial institutions had been established worldwide, including 33 government-run banks, 40 private banks, and 71 investment companies. The large US-based Citibank began to offer Islamic banking services in 1996 when it established the Citi Islamic Investment Bank in Bahrain. The first successful benchmark for the performance of Islamic investment funds was established in 1999, with the Dow Jones Islamic Market Index (DJIMI).
Also in the 1990s, a false start was made in Islamic banking in the UK, where bankers declared returns "interest" for tax purposes, while insisting to depositors they were actually "profit" and so not riba. Islamic scholars issued a fatwa stating they had "no objection to the use of the term `interest'" in loan contracts for purposes of tax avoidance provided the transaction did not actually involve riba, and the Islamic bankers used the term for fear that lack of tax deductions available for interest (but not profit) would put them at a competitive disadvantage to conventional banks. Muslim customers were not persuaded, and a "bad taste" was left "in the mouth" of the market for Islamic financial products. The Islamic Bank of Britain, the first Islamic commercial bank established outside the Muslim world, was not established until 2004.
By 2008 Islamic banking was growing at a rate of 10–15% per year and continued growth was forecast. There were over 300 Islamic financial institutions spread over 51 countries, as well as an additional 250 mutual funds complying with Islamic principles. Worldwide, approximately 0.5% of financial assets were estimated to be under sharia-compliant management according to The Economist magazine.
But as the industry grew it also drew criticism (from M.T. Usmani among others) for not progressing from "debt based contracts", such as murabaha, to the more "genuine" profit and loss sharing mode, but instead moving in the opposite direction, "competing to present themselves with all of the same characteristics of the conventional, interest-based marketplace".
During the global financial crisis of 2008, Islamic banks were not initially impacted by the ‘toxic assets’ built up on the balance sheets of US banks as these were not sharia compliant and not owned by Islamic banks. In 2009, the official newspaper of the Vatican ('L'Osservatore Romano) put forward the idea that "the ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service". (The Catholic Church forbids usury but began to relax its ban on all interest in the 16th century.) However the drop in valuation of real estate and private equity – two segments heavily invested by Islamic firms – following the collapse of Lehman Brothers Islamic did hurt Islamic financial institutions.
As of 2015, $2.004 trillion in assets were being managed in a sharia compliant manner according to the State of the Global Islamic Economy Report. Of these $342 billion were sukuk. The market for Islamic Sukuk bonds in that year was made up of 2,354 sukuk issues, and had become strong enough that several non-Muslim majority states — UK, Hong Kong, and Luxemburg — issued sukuk.
There are multiple Shari'ah compliant indexes, created by Shari'ah screening of companies. Such Indexes include DJIM, S&PSI, MSCI and country based indexes like KMI-Pakistan and SCM-Malaysia <https://iei.kau.edu.sa/Files/121/Files/153868_32-01-02-MohammadHanif.pdf>
To be consistent with the principles of Islamic law (Shariah) -- or at least an orthodox interpretation of the law—and guided by Islamic economics, the contemporary movement of Islamic banking and finance prohibits a variety of activities, some not illegal in secular states:
Money on the most common type of Islamic financing — debt-based contracts — "must be made from a tangible asset that one owns and thus has the right to sell — and in financial transactions it demands that risk be shared." Money cannot be made from money. Another statement of the Islamic banking theory of finance is: "Money has no intrinsic utility; it is only a medium of exchange." Other restrictions include
In general, Islamic banking and finance has been described as having the "same purpose" as conventional banking but operating in accordance with the rules of shariah law (Institute of Islamic Banking and Insurance), or having the same "basic objective" as other private entities, i.e. "maximization of shareholder wealth" (Mohamed Warsame). In a similar vein, Mahmoud El-Gamal states that Islamic finance "is not constructively built from classical jurisprudence". It follows conventional banking and deviates from it "only insofar as some conventional practices are deemed forbidden under Sharia."[Note 5]
A broader description of its principles is given by the Islamic Research and Training Institute of the Islamic Development bank,
Some proponents (Nizam Yaquby) believe Islamic banking has more far reaching purposes than conventional banking, and declare that the "guiding principles" for Islamic finance include: "fairness, justice, equality, transparency, and the pursuit of social harmony", although others describe these virtues as the natural benefits of following sharia. (Taqi Usmani describes the virtues as guiding principles in one section of his book on Islamic Banking, and benefits in another.)
Nizam Yaquby, for example declares that the "guiding principles" for Islamic finance include: "fairness, justice, equality, transparency, and the pursuit of social harmony". Some distinguish between sharia-compliant finance and a more holistic, pure and exacting sharia-based finance. "Ethical finance" has been called necessary, or at least desirable, for Islamic finance, as has a "gold-based currency". Taqi Usmani declares that Islamic banking would mean less lending because it paid no interest on loans. This should not be thought of as presenting a problem for borrowers finding funds, because — according to Usmani — it is in part to discourage excessive finance that Islam forbids interest. Zubair Hasan argues that the objectives of Islamic finance as envisaged by its pioneers were "promotion of growth with equity ... the alleviation of poverty ... [and] a long run vision to improve the condition of the Muslim communities across the world." Some (such as convert Umar Ibrahim Vadillo) believe the Islamic banking movement has so far failed to follow the principles of shariah law, or at least failed to follow them sufficiently strictly.[Note 7]
On the other hand, Usmani preached that an Islamic economy free of the "imbalances" in society — such as concentration of "wealth in the hands of the few", or monopolies which paralyze or hinder market forces — would follow from obeying "divine injunctions" by banning interest (along with other Islamic efforts). (Later in his book Introduction to Islamic Finance, he argues that Islamic principles should include "the fulfillment of the needs of the society" giving "preference to the products which may help the common people to raise their standard of living", but that few Islamic banks have followed this path.) Another source (Saleh Abdullah Kamel),[Note 8] described the changes anticipated for the Muslim community by following Islamic approach to economics, banking, finance, etc., as a "move towards economic development, creation of the value added factor, increased exports, less imports, job creation, rehabilitation of the incapacitated and training of capable elements".
Critic Feisal Khan argues that in many ways Islamic finance has not lived up to its defining characteristics. Risk-sharing is lacking because profit and loss sharing modes are so infrequently used. Underlying material transactions are also missing in such transactions as "tawarruq, commodity murabahas, Malaysian Islamic private debt securities, and Islamic short-sales". Exploitation is involved when high fees are charged for "doing nothing more substantial than mimicking conventional banking /finance products". Haram activities are not avoided when banks (following the customary practice) simply take the word of clients/financees/borrowers that they will not use funds for unislamic activities.
The sharia law that forms the basis of Islamic banking is itself based on the Quran (revealed to the Islamic prophet Muhammad) and ahadith (the body of reports of the teachings, deeds and sayings of the Islamic prophet Muhammad that often explain verses in the Quran). Prohibition of gharar is based on ahadith declaring as forbidden gharar the sale of things like "the birds in the sky or the fish in the water". [Note 9] Maisir is thought to be banned by verses 2:219, 5:90, and 91 in the Quran.
However, "the Islamic evaluation" of modern banking centers around the definition of interest on loans as riba. Twelve verses in the Qur'an deal with riba, the word appearing eight times in total, three times in verses 2:275, and once in 2:276, 2:278, 3:130, 4:161 and 30:39. Riba is mentioned numerous times in ahadith, including Muhammad's Farewell Sermon.
A number of orthodox scholars point to Quranic verses (2:275-2:280) as declaring riba "categorically prohibited" and "unjust" (zulm), and defining it to mean any payment "over and above the principal" of a loan. (Although at least one source states "it is commonly argued" that riba is "defined by hadith".)
Some unorthodox (such as Raqiub Zaman) have asked why — if "God Almighty used the terms `doubling` and `quadrupling` (the sum lent)" as riba in verse 3:130, and if "there was no further clarification of this verse in the Quran or by the Prophet" — the orthodox are so certain that riba is defined as any "addition over and above the principal sum that is lent."
Nonetheless this is a minority view, and (according to the orthodox) an "increase over the principal sum" in loans of cash are riba. An increase over the principal sum in financing a purchase of some product or commodity is another matter. These are not riba — according to the orthodox interpretation — at least in some circumstances. (These are sometimes known as "credit sales".) According to noted Islamic scholar Taqi Usmani, this is because in Quran aya 2:275 ("they say, 'Trafficking (trade) is like usury,' [but] God has permitted trafficking, and forbidden usury") "trafficking (trade)" refers to credit sales such as murabaha, the "forbidden usury" refers to charging extra for late payment (late fees), and the "they" refers to non-Muslims who did not understand why if the first was allowed both were not.[Note 10] For this reason (according to Usmani) it is not true that "whenever price is increased taking the time of payment into consideration, the transaction comes within the ambit of interest". Instead of "principal" and "interest rate", the credit taker is paying "cost" and "profit rate". (Another difference with conventional finance is that there is no penalty for late payment.)[Note 11]
Interest and credit sales
While Usmani and other Islamic Banking pioneers envisioned credit sales like murâbaḥah being a limited part of the Islamic Banking industry and subordinate to profit and loss sharing, it has become the "most common" mode of Islamic financing.
The distinction between credit sales and interest has also come under attack from critics such as Khalid Zaheer and Muhammad Akram Khan — criticizing it from opposite points of view. Zaheer considers profit from credit sales to be riba, the same as interest, and notes the lack of enthusiasm of orthodox scholars — such as the Council of Islamic Ideology — for credit sales-based Islamic Banking, which they (the council) call "no more than a second best solution from the viewpoint of an ideal Islamic system". Khan calls the distinction "frivolous and laboured", a way of charging interest using another name, necessary because businesses "cannot survive where cash and credit prices are equal". Others note that in terms of standard accounting practice and truth-in-lending regulations[Note 12] getting 90 days credit on a Rs10000 product and paying an extra Rs500, cost very nearly the same and is considered very nearly the same as paying in cash, using a three-month loan at 20% per annum.
Taqi Usmani, however, explains that this is a "misconception". Paying more for credit when buying a product ("an exchange of commodities for money") does not violate sharia law, but exchange of "one unit of money for another of the same denomination" ("an exchange of money for money") and charging for credit is a violation of sharia. The cash loan is different because "money has no intrinsic utility".
Other orthodox supporters (such as Kahf) have defended the sharia compliance of the practice saying that among other things, attaching commodities to money in finance prevents money from being used for speculative purposes. Critics report widespread abuses of "synthetic" murabaha, which are loans with interest in all but name.
Types of Islamic lending
One of the pioneers of Islamic banking, Mohammad Najatuallah Siddiqui, suggested a two-tier mudarabah model as the basis of a riba-free banking. The bank would act as the capital partner in mudarabah accounts with the depositor on one side and the entrepreneur on the other side. (Another pioneer Taqi Uthmani called mudarabah and another profit-sharing form of finance musharakah, the "real and ideal instruments of financing in Shari‘ah".) This model would be supplemented by a number of fixed-return models—mark-up (murabaha), leasing (ijara), cash advances for the purchase of agricultural produce (salam) and cash advances for the manufacture of assets (istisna`), etc. In practice, the fixed-return models, in particular murabaha model, became the industry staples, not supplements, as they bear results most similar to the interest-based finance models. Assets managed under these products far exceed those in "profit-loss-sharing modes" such as mudarabah and musharakah. 
Time value of money
The time value of money — the idea that there is greater benefit in receiving money now rather than later, so that savers/investors/lenders should be compensated for delayed gratification — has been called one of the "most significant" arguments in favor of charging interest on loans. As such, some Islamic finance supporters have opposed the concept, arguing that some consumption — such as eating — can only be done over time, and discounting for time encourages negative outcomes such as unsustainable production like desertification, since the desertification comes in the discounted future. However, since Islamic banking also calls for rewarding delayed gratification in the form of "return on investment" on both profit-sharing and credit sales, Islamic scholars and economists have tended to insist that time value of money is a valid concept "provided the rate of discount is the `rate of return` on capital rather than the rate of interest," a position critics find specious.
Early payment of debt
The opposite of credit sales (i.e. the opposite of charging more in exchange for giving the buyer time to pay) is reduced charges for early payment. This is considered haram by the four Sunni schools of jurisprudence (Hanafi, Maliki, Shafi'i, Hanbali), but not by all jurists according to Ridha Saadullah. He notes that such reductions have been permitted by some companions of the Prophet and some of their followers. This position has been advanced by Ibn Taymiyya and Ibn al-Qayyim, and it has, more recently, been adopted by the Islamic Fiqh Academy of the OIC. The Academy decided that `reduction of a deferred debt in order to accelerate its repayment, whether at the request of the debtor or the creditor is permissible under Shariah. It does not constitute forbidden riba if it is not agreed upon in advance and as long as the creditor-debtor relationship remains bilateral. ...
Islamic laws on trading
As noted above, the primary focus of Islamic banking is on financing without interest to avoid riba, while trade is not an issue (per the Quranic statement that "God has permitted trade and forbidden riba [usury]". However trade transactions that involve gambling (maisir), or excessive risk (bayu al-gharar) are not permitted. Among the financial instruments and activities common in conventional finance that are considered forbidden (or at least Islamically problematic) by many Islamic scholars and Muslims are:
On the other hand, at least one Islamic scholar (Mohammed Hashim Kamali) finds "nothing inherently objectionable" in selling and using options, which like other kinds of trade is mubah (permissible) in fiqh, and "simply an extension of the basic liberty that the Quran has granted". And both Islamic finance practitioners and critics find benefit in at least some uses of derivatives and short selling — managing risk in times of financial trouble, improving market efficiency and employee productivity.
At least some in the Islamic finance industry use derivatives and make short sales, and permissibility of this is a subject of "heated debate". Global standards for trading Islamic profit-rate and currency swap derivatives were set in 2010 with the "Hedging Master Agreement" (see below). A "shariah-certified" short-sale had been created by some Shariah-compliant hedge funds. However both have been criticized as unIslamic.
Islamic financial institutions take different forms. They may be
Size and locations
Source: World Islamic Banking Competitiveness Report 2016
Sharia-compliant banking grew at an annual rate of 17.6% between 2009 and 2013, faster than conventional banking, and is estimated to be $2 trillion in size, but at 1% of total world, still much smaller than the conventional sector.
As of 2010, Islamic financial institutions operate in 105 countries. Statistics differ on which country has the largest Islamic banking sector. According to the 2016 World Islamic Banking Competitiveness Report (see table), Saudi Arabia, Malaysia, United Arab Emirates, Kuwait, Qatar, and Turkey represented over 87% of the international Islamic banking assets. A 2006 report by ISI Analytics also lists Saudi Arabia at the top and Iran as insignificant. In Qatar, Islamic banking assets were valued at $97 billion at the end of 2017, accounting for nearly 81% of total Islamic finance assets, according to QFC Authority chief executive officer Yousuf Mohamed al-Jaida. The country also announced the launch of an energy-focused Islamic bank with $10 billion capital in 2019, which would make it the biggest Islamic lender for energy projects in the world.
However, according to Ibrahim Warde, Shia-majority Iran dominates Islamic banking with $345 billion in Islamic assets, Saudi Arabia with $258 billion, Malaysia $142 billion, Kuwait with $118 billion and UAE with $112 billion. Islmaic banks in UAE also provides Islamic investment programs which are Shariah compliant. And according to Reuters, Iranian banks accounted for "over a third" of the estimated worldwide total of Islamic banking assets, (although sanctions have hurt Iran's banking industry and "its Islamic financial system has evolved in ways that will complicate ties with foreign banks"). According to the latest central bank data, Iran's banking assets as of March 2014 totalled 17,344 trillion riyals or $523 billion at the free market exchange rate. According to The Banker, as of November 2015, three out of ten top Islamic banks in the world based on return on assets were Iranian.
Sharia advisory councils and consultants
Because compliance with shariah law is the raison d'être of Islamic finance, Islamic banks and banking institutions that offer Islamic banking products and services should establish a Shariah Supervisory Board (SSB) — to advise them on whether or not some proposed transactions or products follows the Sharia, and to ensure that the operations and activities of the banking institutions comply with Shariah principles.
According to various Islamic banking organizations some requirements for SSBs include:
Since the beginning of modern Islamic finance, the work of the Shariah boards has become more standardized. Among the organizations that have issued guidelines and standards for Shariah compliance are the AAOIFI, Fiqh Academy of the OIC, Islamic Financial Services Board (IFSB) (2009). The guidelines and standards are not regulations though, and each Islamic financial institution has its own SSB, which are not generally obliged to follow them.
However, their home country many have a regulatory organization that they are required to follow. As of 2013, regulators in Bahrain, Indonesia, Jordan, Kuwait, Lebanon, Malaysia and Pakistan have developed guidelines for SSBs in their respective jurisdictions. Some countries, like Indonesia, Kuwait, Malaysia, Pakistan, Sudan, and the UAE have centralized SSBs (In Malaysia that SSB is called the Shariah Advisory Council, and was set up at Bank Negara Malaysia (BNM).) A number of Shariah advisory firms have now emerged to offer Shariah advisory services to the institutions offering Islamic financial services.
Some Islamic Banking observers believe the industry suffers from handpicked, highly-paid Shariah experts who have been approving financial products using ḥiyal (legal stratagem) to follow sharia law, "shunning controversial issues", and/or "rubber stamping" bank management decisions after perfunctory reviews, and that the banking practices approved by this small number of Islamic jurists have moved closer and closer to the practices of conventional non-Islamic banking.
"Fatwa shopping", independence
Journalist John Foster quotes an "investment banker based in Dubai":
According to Foster, this practice of "shopping" for an Islamic scholar who will issue a fatwa testifying that a banking product obeys Shari'ah law has led to "top scholars" earning "six-figure sums" for each fatwa, and to Islamic financing mechanisms that appear to outsiders to be mortgages "dressed up in Arabic terminology"—such as Mudarabah, or Ijarah (lease agreements).
Mahmoud El-Gamal believes that from the 1970s to the 2000s there has been an evolution of the industry towards "progressively closer approximations" of the practices of conventional banking, approved by "progressively smaller" numbers of jurists (with only a small group for example approving "unsecured lending" to retail and corporate customers through the tawarruq mode in the early 2000s). The scarcity of qualified shariah supervisors — who need to be trained in both Islamic commercial law and contemporary financial practices — has been noted. One study found the 20 most popular shariah scholars holding 621 sharia board positions, — creating potential conflicts of interest.
This scarcity also increases fees. Two researchers noted the small group of Shariah experts "earn as much as US$88,5000 per year per bank" and can "charge up to US$500,000 for advice on large capital market transactions." Income far in excess of what has been customary for Islamic scholars — luxury air travel and five star hotel — as well as being eagerly asked for their legal opinion by wealthy, high status people, may lead to what one writer (Muhammad O. Farooq) calls a "certain changes in viewpoint" resulting in "over-stretching the rules of Shariah".
A study of the practice of boards of financial institutions setting the pay and employment of SSB members found this arrangement "compromise(s) the independence of the SSB". Another study found Islamic financial institutions do "not have practices which ensure transparency in the role and functions of the SSBs".
Financial accounting standards
The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), has been publishing standards and norms for Islamic financial institutions since 1993. By 2010, it had issued "25 accounting standards, seven auditing standards, six governance standards, 41 shari'ah standards and two codes of ethics." (By 2017 it had issued 94 standards in the "areas of Shari’ah, accounting, auditing, ethics and governance".) Although it is an independent body, its "pronouncements on the acceptability or otherwise of contractual structures in relation to Islamic financial instruments are to be viewed in the same vein as regulatory edicts." Its standards are mandatory for Islamic financial institutions in Bahrain, Sudan, Jordan and Saudi Arabia, and recommended for other Muslim countries and Islamic financial institutions according to Muhammad Akram Khan. [Note 13] Established in Algiers in 1990, its original name was Financial Accounting Organization for Islamic Banks and Financial Institutions. It later moved its headquarters to Bahrain.
The International Islamic Financial Market — a standardization body of the Islamic Financial Services Board for Islamic capital market products and operations — was founded in November 2001 through the cooperation of the governments and central banks of Brunei, Indonesia and Sudan. Its secretariat is located in Manama Bahrain. It is not a regulatory body and its recommendations are "not implemented by most Islamic banks". Faleel Jamaldeen differentiates its controlling body (Islamic Financial Services Board) from the other Islamic Financial standards organ, the AAOIFI, saying,
Individual countries also have accounting standards. The Institute of Chartered Accountants of Pakistan issues Islamic Financial Accounting Standards (IFAS).
The Islamic Interbank Money Market was established by Bank Negara Malaysia on 3 January 1994, and has developed instruments to manage the liquidity needs of the Islamic financial institutions -- "funding and adjusting portfolios over the short term".
The Islamic Financial Services Board was founded on 3 November 2002 at Kuala Lumpur by central banks of Bahrain, Iran, Kuwait, Malaysia, Pakistan, Saudi Arabia, Sudan along with the Islamic Development Bank, AAOIFI, and IMF. As of April 2015, the 188 members of the IFSB comprise 61 regulatory and supervisory authorities, eight international inter-governmental organisations, and 119 market players (financial institutions, professional firms and industry associations) operating in 45 jurisdictions. From 2002 to 2012 it issued 17 standards, guiding principles and notes. Its objective is to standardize and harmonize the operation and supervision of Islamic financial institutions, standards and capital adequacy, risk management and corporate governance in consultation with a wide array of stakeholders and after following a lengthy process. It complements the task of the Basel Committee on Banking Supervision. As of 2015 it had published 17 standards and six guidance notes.
The Dow Jones Islamic Market Index (DJIMI) was established in 1996. The Index has been approved by Fiqh Academy of the OIC. It uses three levels of screening—eliminating businesses involved in activities not allowed by Islamic law (alcohol, pork, gambling, prostitution, pornography, etc.); eliminating companies whose total debts divided by their 12-month average market capitalization are 33% or more of their total sources of funds; eliminating companies that have `impure income or expenditure` (including, of course, interest) of more than 5-10 per cent of their income or expenditure (eliminating businesses with any `impure income` being considered impractical).
In 2006, Citigroup launched the Dow Jones Citigroup Sukuk Index. The sukuk making up the Index must be at least $250 million in size, have a maturity of at least one year and a minimum rating of BBB-/Baaa3. In 1998, the FTSE Global Islamic Index was launched. It has 15 Islamic indices for various regions. In 2007, the MSCI Islamic Index series was launched, one of the "MSCI ‘Faith-Based’ Indexes". It is constructed from the conventional MSCI country indices and covers 69 developed, emerging and frontier markets, including regions such as the Gulf Cooperation Council and Arabian markets.
Although no Muslim country has yet banned interest on loans completely, suggestions have been made as to how to deal with monetary policy when central banks operate in an interest-free environment and there are no longer any interest rates to lower or raise. Economist Mohammad N. Siddiqi has proposed that central banks offer "refinance facilities" to expand or contract credit as needed to deal with inflation or deflation.
He also proposes that short term credit for the production sector of the economy, be estimated by the central banks and the provided by them by manipulating the "refinance ratio" and the "lending ratio".
According to economist and Islamic finance critic Feisal Khan, a "true" or strict Islamic banking and finance system of profit and loss sharing (the type supported by Taqi Usmani and the Shariah Appellate Bench of the Supreme Court of Pakistan) would severely cripple central banks' ability to fight a credit crunch or liquidity crisis that leads to a severe recession (such as happened in 2007-8). This is because if credit was provided by taking "a direct equity stake in every enterprise" (the PLS approach) it would contract in a credit crunch. But situations like this — when financiers are "less and less sure of the creditworthiness of their financial sector counterparties" and essentially stop lending to even the biggest and most stable borrowers or even other banks — is exactly the time when credit expansion and "flooding" the economy with liquidity is needed to prevent widespread business bankruptcy and unemployment.
Products, services and contracts
 Originally these modes were intended by Islamic banking advocates to be "interim" measures, or to be used for situations where participatory financing was not practical, but now account for the great bulk of investments in many Islamic banks. the third category consists of
Most Islamic finance is in banking, but non-banking finance such as sukuk, equity markets, investment funds, insurance (takaful), and microfinance, is also fast-growing, and as of 2013 represented about one-fifth of total assets in Islamic finance.
These products — and Islamic finance in general — are based on Islamic commercial contracts and contract law, with many products named after a particular contracts (e.g. mudaraba) although they are combinations of more than one contract.[Note 15]
Profit and loss sharing
While the original Islamic banking proponents hoped profit-loss sharing (PLS) would be the primary mode of finance replacing interest-based loans, long-term financing with profit-and-loss-sharing mechanisms is "far riskier and costlier" than the long term or medium-term lending of the conventional banks — according to critics such as economist Tarik M. Yousef — and has "declined to almost negligible proportions". Loans are permitted in Islam if the interest that is paid is linked to the profit or loss obtained by the investment. The concept of profit acts as a symbol in Islam as equal sharing of profits, losses, and risks. 
A mudarabah or mudharabah contract is a profit sharing partnership in a commercial enterprise. One partner, rabb-ul-mal, is a silent or sleeping partner who provides money. The other partner, mudarib, provides expertise and management. The arrangement is similar to venture capital in conventional finance, in which a venture capitalist finances an entrepreneur, who provides management and labor.
Profits are shared between the parties according to a pre-agreed ratio, usually either 50%–50%, or 60% for the mudarib and 40% for rabb-ul-mal. If there is a loss, the rabb-ul-mal loses the invested capital, and the mudarib loses the invested time and effort. The sharing of risk reflects the view of Islamic banking proponents that under Islam, the user of capital — labor and management — should not bear all the risk of failure. Sharing of risk, according to proponents, results in a balanced distribution of income, and prevents financiers from dominating the economy.
Musharakah (joint venture)
Like mudaraba, musharakah is also a profit and loss sharing partnership, but one where investment comes from all the partners, all partners are given the option of participating in the management of the business, and all partners share in losses according to the ratio (pro rata) of their investment.
Musharakah may be "permanent" or "diminishing". It is often used in investment projects, letters of credit, and the purchase or real estate or property. Use of musharaka is not great. In Malaysia, for example, [Note 16] the share of musharaka (or at least permanent musharaka) financing declined from 1.4 percent in 2000 to 0.2 per cent in 2006
Musharaka al-Mutanaqisa, (literally "diminishing partnership"), is a popular type of financing for major purchases such as housing. In it, the bank and purchaser (customer) have joint ownership of a purchased asset with the customer also leasing the asset. As the customer gradually paying off the cost the bank's equity share diminishes from all but the customer percentage of downpayment to nothing. If the customer defaults and the asset is sold, the bank and the customer split the proceeds according to each party's current equity.
It would assist at this point to highlight how Musharaka al-Mutanaqisa is different than conventional banking mortgages, so that the salient difference, both in terms of law and practice is understood. To assist in this understanding, let's first see how regular mortgages work in USA:
Once a buyer wishes to purchase a home, she approaches the lender and requests a loan. The lender in turn, if buyer qualifies, will lend money to buy the house, and the bank will usually set a fixed percentage of interest to be paid to the lender. Each payment to lender will then include a return of the portion of principal and the interest accrued on the remaining balance for that period. Over time, the entire principal is paid back to the lender, together with all the interest that is due. In terms of the ownership of the house, the buyer/borrower/debtor will have legal title to the house during the term of repayment and thereafter too. In the county title records office, the borrower will have a title deed showing the buyer as the title holder, and not the bank. Any diminishing value of the house is the risk of the borrower and not the bank. On the other hand, any appreciation is also of the borrower and the bank cannot ask for more principal due to the appreciation. Hence, the bank and the borrower know at the outset the exact obligations to each other. The bank, in an effort to secure its loan, will place a lien (a charge) on the property, so that if the borrower does not repay the loan, the bank gets the right to foreclose on the borrower's right to hold title and have the title be transferred to the bank (or the house be auctioned and the proceeds received by bank). In USA, most states have a judicial foreclosure process whre the bank asks the Court to sell the property to recover the balance of its loan and accrued interest, plus any other costs of the suit.
How is then Musharaka al-Mutanaqisa going to address the interest portion of the payment from borrower to the bank. The concept of title here then becomes critical, because the Islamic bank will still come up with the money to buy the house, but the bank will buy the house in partnership with the homeowner. Together the bank and the borrower will become "tenants in common" and the local recorder office will show both the bank and the buyer as joint owners. The percentage of ownership of the house at this point will be based on money ratio between bank and buyer. Let's assume buyer paid 10% and the bank paid 90% of the price. However, since the bank will not be living in the house, the buyer will agree to a rental payment for the use of the 90% of the portion of the property. In addition, buyer will also agree to buy a certain percent of the bank's portion on a monthly basis. Hence, buyer pays rent for usage, and also an amount to buy out the bank's portion. Since there is no interest being paid, this form of ownership (in partnership) is acceptable under shariah. At the end of the agreed rental term, the buyer will have bought out all of the 90% portion of the partnership, and buyer can then ask the bank to dissolve the partnership. The recorder's office will have a new title deed recorded, whereby the bank ceases to be a tenant-in-common with the buyer, and the buyer becomes the entire title holder (whether alone or with spouse, or any other entity as chosen by buyer).
The essence of both transactions is different, and that is based on the outset as to who exactly legally has title to the house at the outset. The other difference is that the monthly payments by buyer in Islamic banking are rent and partnership buyout payments, and not return of principal and interest as they are in conventional banking. Economically then, the Islamic bank also shares in the risk of house value dropping, where in the conventional banking model the bank has not taken any risk of depressed values. The opposite is true also, where both the Islamic bank and the buyer gain if house is sold for more than the book value of the partnership.In conventional banking, the bank does not benefit from rising prices.
Skeptics of the Islamic banking argue that the end result is the same: the buyer makes monthly payments to own the house, much like a conventional mortgage. But has the risk of home ownership not been shared in Islamic banking? If it has legally, then it is not the same as the conventional mortgage transaction.
Asset-backed or debt-type instruments (also called contracts of exchange) are sales contracts that allow for the transfer of one commodity for another commodity, the transfer of a commodity for money, or the transfer of money for money. They include Murabaha, Musawamah, Salam, Istisna’a, and Tawarruq.
Murabahah (or murabaha) is an Islamic contract for a sale where the buyer and seller agree on the markup (profit) or "cost-plus" price for the item(s) being sold. In Islamic banking it has become a term for both a marked-up price and deferred payment — a way of financing a good (home, car, business supplies, etc.) whereby the bank buys the good and resells it to the customer at higher price (informing the customer of the price increase), and offering to take payment in installments or in a lump sum.
Murabahah has also come to be "the most prevalent" or "default" type of Islamic finance. (One estimate is that 80% of Islamic lending is by Murabahah.) This is despite the fact that (according to Uthmani) Islamic finance Shari‘ah supervisory boards "are unanimous" in agreement that Murabahah loans "are not ideal modes of financing", and should be used only "when more preferable means of finance — "musharakah, mudarabah, salam or istisna‘ — are not workable for some reasons".
Murabahah differs from conventional finance (such as mortgages for homes or hire purchase/"installment plans" for furniture or appliances), in that the fixed return with which the bank is compensated is called "profit" and not interest, and that the financier may not keep for itself any penalties for late payment. [Note 17]
Economists have questioned whether Murabahah is "economically indistinguishable from traditional, debt- and interest-based finance." Since "there is principal and a payment plan, there is an implied interest rate", based on conventional banking interest rates such as LIBOR. Others complain that in practice most "murabaḥah" transactions do not involve actual buying or selling of goods or commodities, but are merely cash-flows between banks, brokers and borrowers. In contrast to LIBOR, Islamic banks lend money based off their own reference rate known as the Islamic Interbank Benchmark Rate which “uses expected profits from short-term money and a forecasted return on the assets of the bank receiving funds.”
In Islamic jurisprudence (fiqh), Bai-muajjal, also called bai'-bithaman ajil, or BBA, is a credit sale or deferred payment sale, i.e. the sale of goods on a deferred payment basis. In Islamic finance, the bai' muajjal product also involves the price markup of a murabahah contract, and a murabahah product involves a bai-muajjal deferred payment. Thus the terms and are often used interchangeably, (according to Hans Visser), or "in practice ... used together" (according to Faleel Jamaldeen).
However, according to another (Bangladeshi) source, Bai' muajjal differs from Murabahah in that the client, not the bank, is in possession of and bear the risk for the goods being purchased before completion of payment. And according to a Malaysian source, the main difference between BBA (short for bai'-bithaman ajil) and murabaha — at least as practiced in Malaysia — is that murabaha is used for medium and short term financing and BBA for longer term.
Bai' al 'inah (sale and buy-back agreement)
Bai' al inah (literally, "double sale" or "a loan in the form of a sale"), is a financing arrangement where the financier/bank buys some asset from the customer on spot basis, with the financier's payment constituting the "loan". The asset is then sold back to the customer who pays in installments over time, essentially "repaying the loan". Since loaning of cash for profit is forbidden in Islamic Finance, some scholars do not believe Bai' al 'inah is permissible in Islam. According to the Institute of Islamic Banking and Insurance, it "serves as a ruse for lending on interest", but Bai' al inah is practiced in Malaysia and similar jurisdictions.
A Musawamah (literally "bargaining") contract is used if the exact cost of the item(s) sold to the bank/financier either cannot be or is not ascertained. Musawamah differs from Murabahah in that the "seller is not under the obligation to reveal his cost or purchase price". Musawamah is the "most common" type of "trading negotiation" seen in Islamic commerce.
Istisna and Bai Salam
Istisna (also Bia Istisna or Bai' Al-Istisna) and Bia Salam (also Bai us salam or just salam) are "forward contracts" — customized contracts where immediate payment is made for goods in the future — goods not yet manufactured, built, or harvested. Istisna contracts (literally, a request to manufacture something) are limited by Islamic fiqh to use for manufacturing, processing, or construction, while salam "can be effected on anything" — except gold, silver, or currencies based on these metals. On the other hand, a salam contract cannot be cancelled unilaterally, the full price must be paid in advance, and the time of delivery must be specified — restrictions that do not apply to istisna.
In a istisna contract, the financer/bank can makes payments in stages, to finance raw materials (in the case of manufacturing), or construction materials (in the case of the construction project). When the product/structure is finished and sold, the bank can be repaid.
Bia salam and istisna contracts should be as detailed as possible to avoid uncertainty. Salam contracts predate istisna and were designed to fulfill the needs of small farmers and traders. Salam is a preferred financing structure and carries higher order of Shariah compliance than contracts such as Murahabah or Musawamah.
Examples of use of istisna in the Islamic finance world include use by the Kuwait Finance House and the Barzan gas project in Qatar. Examples of banks using Salam are ADCB Islamic Banking and Dubai Islamic Bank.
Ijarah, (literally "to give something on rent") is a leasing or renting contract. In traditional Islamic jurisprudence (fiqh), it means a contract for the hiring of persons, services, or the "usufruct" of a property, generally for a fixed period and price.
In Islamic finance, al Ijarah usually refers to a leasing contract that also includes a sales contract. Property such as plant, office automation, or motor vehicle, is leased to a client for stream of rental and purchase payments, so that the end of the leasing period coincides with completion of purchase payments and transfer of ownership to the lessee, and otherwise follows Islamic regulations. There are several types of ijarah in Islamic finance ("operating ijarah" or ijarah tashgheeliah, are leases without sales and finance):
Ijarah thumma al bai' and Ijarah wa-iqtina
Ijarah thumma al bai` (hire purchase) and Ijarah wa-iqtina ("lease and ownership") involve the leasing/renting/hiring of a good, paid in installments and ending with its purchase (or option to purchase) by/for the customer. Both involve two contracts — a lease and a transfer of ownership of the asset or the property — that should be recorded in separate documents.
The two modes differ in that in Ijarah wa-iqtina (or ijara muntahia bittamleek) sale/ownership transfer is "an option given to the lessee" and cannot be a precondition. In ijara thumma bay` sale is part of the contract.
ijara mawsoofa bi al dhimma
In a "forward ijarah" or ijara mawsoofa bi al dhimma Islamic contract, the service or benefit being leased is defined, rather than the particular unit providing that service/benefit. In contemporary Islamic finance, it is used to finance construction (of a home, office, factory, etc.) combined with a Istisna contract. The party begins leasing the asset after "taking delivery" of it.
Among the complaints made against ijara are that in practice some rules protecting the customer are overlooked, that its rules provide weaker legal standing and consumer protection and less flexibility than conventional mortgage loan or car finance, as well as higher costs.
A Tawarruq (literally "turns into silver", or "monetization") contract/product where the client/customer can raise cash to be repaid later by buying and selling some readily saleable asset. An example of this would be a customer wishing to borrow $1000 in cash having their bank buy $1,100 worth of a commodity such as iron from a supplier, buying the iron from the bank on credit with 12 months to pay the $1100 back, immediately selling the metal back to the bank for $1000 cash to be paid on the spot. The bank resells the iron to the supplier. (This would be the equivalent of borrowing $1000 for a year at an interest rate of 11 per cent.)
Like Bai' al inah mentioned above, the greater complexity of this transaction means more fees and higher costs than a conventional bank loan, but (in theory) compliance with shariah law because of the tangible assets that underlie the transactions . However, critics complain that "billions of dollars" of putative commodity-based tawarruq transactions have evaded the required commodity trades; and Islamic scholars both contemporary[Note 18] and classical have forbidden the practice. Nonetheless, as of 2012 Islamic banks using Tawarruq include the United Arab Bank, QNB Al Islamic, Standard Chartered of United Arab Emirates, and Bank Muamalat Malaysia.
Taqi Usmani insists that "role of loans" (as opposed to investment or finance) in a truly Islamic society is "very limited", and that Shariah law permits loans not as an ordinary occurrence, "but only in cases of dire need". A shariah-compliant loan is known as Qardh-ul Hasan, (also Qard Hasan, literally: "benevolent loan" or "beneficence loan"). It is often described as an interest-free loan extended to needy people. Such loans are often made by social service agencies, or by a firm as a benefit to its employees, rather than by Islamic banks. They are analogous to the microcredit of conventional finance, when it does not provide for an interest.
Quoting the Islamic prophet Muhammad, some sources insist that lenders may not gain "any advantage or benefits" from the loan, let alone interest. However, some Islamic banks offer products called qardh-ul hasan which charge lenders a management fee, and others have savings account products called qardh-ul hasan, (the "loan" being a deposit to a bank account) where the debtor (the bank) may pay an extra amount beyond the principal amount of the loan (known as a hibah, literally gift) if the extra is not an obligation of the account/loan agreement.
Contracts of safety, security, service
These contracts are intended to help individual and business customers keep their funds safe.
Hawala (also Hiwala, Hewala, or Hundi; literally "transfer" or "trust") is a widely used, informal "value transfer system" for transferring funds from one geographical area to another, based not on wire transfers but on a huge network of money brokers (known as "Hawaladars") throughout the Muslim world. Hawala was not started as an halal alternative to conventional banking transfers, since electronic wire transfers have not been found in violation of sharia,[Note 19] However, hawala has the advantage of being available in places wire transfer is not, and predates conventional banking remittance systems by many centuries.
In the first half of the 20th century it lost ground to instruments of the conventional banking system, but regained it starting in the late 20th century with the economic migration of Muslim workers to wealthier countries in the West and the Gulf and their need to send money home. Dubai has traditionally served as a hub.
Hawala is based on a short term, discountable, negotiable, promissory note (or bill of exchange) called "Hundi", transferred from one debtor to another. After the debt is transferred to the second debtor, the first debtor is free from his/her obligation. Recipient of the funds often identify themselves with passwords given to them by the sender. Hawaladars are often small traders who work at hawala as a sideline or moonlighting operation. Hawaladars networks are usually family or clan-based, and enforcement of the contracts is based on these networks rather than the power of the state.
Kafala (literally "guarantee), is called "surety" or "guaranty" in conventional finance. A third party accepts an existing obligation and becomes responsible for fulfilling someone's liability.
Rahn (collateral or pledge contract) is property pledged against an obligation. A rahn contract is made in order to secure a financial liability. According to Mecelle, rahn is "to make a property a security in respect of a right of claim, the payment in full of which from the property is permitted." Hadith tradition states that the Islamic prophet Muhammad purchased food grains on credit pledging his armor as rahn.
In a Wakalah contract, a person (the principal or muwakkel) appoints a representative (the agent or wakil) to undertake transactions on his/her behalf, that the principal does not have the time, knowledge or expertise to perform themselves — similar to a power of attorney agreement in conventional legal terms. Wakalah should be a non-binding contract for a fixed fee. The agent's services may include selling and buying, lending and borrowing, debt assignment, guarantee, gifting, litigation and making payments, and are involved in numerous Islamic products like Musharakah, Mudarabah, Murabaha, Salam and Ijarah.
An example of wakalah is found in a mudarabah profit and loss sharing contract (above) where the mudarib (the party that receives the capital and manages the enterprise) serves as a wakil for the rabb-ul-mal (the silent party that provides the capital) [Note 20]
Deposit side of Islamic banking
From the point of view of depositors, "Investment accounts" of Islamic banks — based on profit and loss sharing and asset-backed finance — play a similar role to the "time deposits" of conventional banks. (For example, one Islamic bank — Al Rayan Bank in the United Kingdom — talks about "Fixed Term" deposits or savings accounts). In both, the depositor agrees to hold the deposit at the bank for a fixed amount of time. In Islamic banking return is measured as "expected profit rate" rather than interest.
"Demand deposits" of Islamic financial institutions, which provide no return, are structured with qard al-hasana (also known as qard, see above in Charitable lending) contracts, or less commonly as wadiah or amanah contracts, according to Mohammad O. Farooq.
Restricted and unrestricted investment accounts
At least in one Muslim country with a strong Islamic banking sector (Malaysia), there are two main types of investment accounts offered by Islamic banks for those investing specifically in profit and loss sharing modes — restricted or unrestricted.
Some have complained that UIA accounts lack transparency, fail to follow Islamic banking standards, lack of customer representation on the board of governors, and have sometimes hidden poor performance from investors.
Islamic banks also offer "demand deposits", i.e. accounts which promise the convenience of returning funds to depositors on demand, but in return usually pay little if any return on investment and/or charge more fees.[Note 21]
Because demand deposits pay little if any return and Qard al-hasana (mentioned above) loans are forbidden to pay any "stipulated benefit", the Qard mode is a popular Islamic finance structure for demand deposits. In this design, customer deposits constitute "loans" and the Islamic bank a "borrower" who guarantees full return of the "lenders" deposits.
However, critics (M.O. Farooq, Mohammad Hashim Kamali) see conflicts between qard's roll in demand deposits and the dictates of traditional Islamic jurisprudence. Qard al-hasana loans are intended to be acts of charity to the needy who are allowed lenient repayment. Islamic banks, on the other hand, are multi-million or billion dollar profit-making institutions, and their depositor/lenders typically expect to be able to withdraw their deposits on demand rather than be asked to be lenient with the bank.
A further issue is that at least some conventional banks do pay a modest interest on their demand/savings deposits, and Islamic banks often feel a need to compete with them, finding an (at least putative) shariah compliant technique to do so. The means that has been used is Hibah (literally "gift"), in the form of prizes, exemptions, etc., which officially differ from the conventional banks' interest/riba in not being legally stipulated or time bound. Its use has nonetheless has been attacked by at least one scholar as "entry of riba through the back door".
Wadiah and Amanah
Two other contracts sometimes used by Islamic finance institutions for pay-back-on-demand accounts instead of qard al-hasanah,[Note 22] are Wadi'ah (literally "safekeeping") and Amanah (literally "trust"). Sources disagree over the definition of these two contracts. "Often the same words are used by different banks and have different meanings." Sometimes wadiah and amanah are used interchangeably.
Sources differ over whether Wadiah deposits are simply guaranteed by the bank or must be kept unused with 100% reserve, with another contract — called Wadia yadd ad daman — allowing "rights of disposal" to invest but guaranteeing "repayment of the whole or part" of "current account deposit". Sources also differ over whether banks can use Amanah accounts for its operations — if it "obtains" the "authority" of depositor — or not. Sources do agree that the trustee of amanah is not liable for "unforeseen mishap" (Abdullah and Chee), "resulting from circumstances beyond its control",(financialislam.com), or if there has not been a "breach of duty" (Reuters).
According to at least one report, in practice no examples of 100 per cent reserve banking are known to exist.
Other Sharia-compliant financial instruments
Sukuk (Islamic bonds)
Sukuk, (plural of صك Sakk) — often called "Islamic" or "sharia compliant" bonds — are financial certificates developed as an alternative to conventional bonds. Different types of sukuk are based on different structures of Islamic contracts mentioned above (murabaha, ijara, wakala, istisna, musharaka, istithmar, etc.), depending on the project the sukuk is financing.
Like a conventional bond, a sukuk has an expiration date. But instead of receiving interest payments on money lent as bonds do, a sukuk holder is given "(nominal) part-ownership of an asset" from which they receive income "either from profits generated by that asset or from rental payments made by the issuer". The part ownership element and (at least in theory) the lack of a guaranteed repayment of initial investment resembles equity instruments. However, in practice, most sukuk are "asset-based" rather than "asset-backed"—their assets are not truly owned by their Special Purpose Vehicle, and (like conventional bonds), their holders have recourse to the originator if there is a shortfall in payments.
The sukuk market began to take off around 2000 and as of 2013, sukuk represent 0.25 percent of global bond markets. The value of the total outstanding sukuk as of the end of 2014 was $294 billion, with $188 billion from Asia, and $95.5 billion from the countries of the Gulf Cooperation Council.[Note 23] Demand for sukuk should able to support further growth.
Takaful (Islamic insurance)
Takaful, sometimes called "Islamic insurance", differs from conventional insurance in that it is based on mutuality so that the risk is borne by all the insured rather than by the insurance company. Rather than paying premiums to a company, the insured contribute to a pooled fund overseen by a manager, and they receive any profits from the fund's investments. Any surplus in the common pool of accumulated premiums should be redistributed to the insured. (As with all Islamic finance, funds must not be invested in haram activities like interest-bearing instruments, enterprises involved in alcohol or pork.)
Like other Islamic finance operations, the takaful industry has been praised by some for providing "superior alternatives" to conventional equivalents; and criticized by others for not being significantly different from them in its use of the "law of large numbers" to spread risk, or its use of conventional corporate (not mutual) management practices.
The industry is projected to reach $25 billion in size by the end of 2017.
Islamic credit cards
While a number of scholars (Manzur Ahmad, Hossein Askari, Zamir Iqbal and Abbas Mirakhor) have cast doubt on the shariah compliance of any kind of credit card — or at least cards that "can offer the same service as the conventional credit card" — there are credit cards claiming to be shariah-compliant (particularly in Malaysia, where as of about 2012 they were offered by Bank Islam Malaysia Berhad, CIMB Islamic Bank Berhad, HSBC Amanah Malaysia Berhad, Maybank Islamic Berhad, RHB Islamic Bank Berhad, Standard Chartered Berhad, Am Islamic Bank Berhad.), These generally following one of a number of arrangements:
Islamic funds are professionally managed investment funds that pool money from many investors to purchase securities that have been screened for sharia compliance. They include mutual funds holding equity and/or sukuk securities, but also Islamic "alternative" funds deal in "anything from private equity and real estate to infrastructure and commodity asset classes." They began growing fairly rapidly in about 2004, and as of 2014 there were 943 Islamic mutual funds worldwide and as of May 2015, they held $53.2 billion of assets under management, with "latent demand" for considerable growth.
For equity mutual funds, companies whose shares are being considered for purchase must be screened
At least from 2000 to 2009, Islamic equity funds under-performed both Islamic and conventional equity benchmarks, particularly as the 2007–08 financial crisis set in (according to a study by Raphie Hayat and Roman Kraeuss).
As mentioned above (see Islamic laws on trading), "almost all conservative Sharia scholars" believe derivatives (i.e. securities whose price is dependent upon one or more underlying assets) are in violation of Islamic prohibitions on gharar. This, however, has not stopped the Islamic finance industry from using some of these instruments, and derivative permissibility in Islam is a subject of "heated debate".
As of 2013 the Islamic derivatives market was "in its infancy" and its size was not known. Contracts or combinations of contracts for derivatives include swaps and options:
Faleel Jamaldeen describes the Islamic swap market as being of two kinds of swaps:
Put and call options
The Islamic finance equivalent of a conventional call option[Note 24] is known as an urbun (lit. "down payment"), the equivalent of a put option is known as a "reverse urbun". In each the seller has the right but not the obligation to either buy (in the case of a call or urbun) or sell (in the case of a put or "reverse urbun") at a pre-determined price by some point in the future. These two Islamic options also have a different name for a "premium", (called a "down-payment") and for the "strike price" ("preset price"). The options' Islamic distinctiveness has been questioned by analysts, and its use has been criticized by conservative scholars.
Microfinance seeks to help the poor and spur economic development by providing small loans to entrepreneurs too small and poor to interest non-microfinance banks. Its strategy meshes with the "guiding principles" or objectives of Islamic finance, and with the needs of Muslim-majority countries where a large fraction of the world's poor live,[Note 25] many of them small entrepreneurs in need of capital, and most unwilling or unable to use formal financial services.
According to the Islamic Microfinance Network website (as of circa 2013), there are more than 300 Islamic microfinance institutions in 32 countries, The products used in Islamic microfinance may include some of those mentioned above — qard al hassan, musharaka, mudaraba, salam, and others.
Unfortunately, a number of studies have found "very few examples" of Microfinance institutions "operating in the field of Islamic finance" and few Islamic banks "involved in microfinance". One 2012 report found that Islamic microfinance made up less than 1 per cent of the global microfinance outreach, "despite the fact that almost half of the clients of microfinance live in Muslim countries and the demand for Islamic microfinance is very strong."
Assessments, controversies, challenges
Islamic banking and finance has been praised and criticized.
It has been praised — or at least described positively — for
Challenges, criticism — Industry view
On the other hand, the industry also has challenges —"key" among them, as of 2016 (according to the State of the Global Islamic Economy Report, 2015/16 and the IMF), include:
Another challenge in Islamic banking has been exploitation of poor gullible people in the name of religion. Recently in India, an Islamic banking scam to the tune of Rs 1500 crores ($ 21 million) was busted.
Challenges, criticism — scholars and critics
Critics have complained of Islamic banking and finance closely resembling the conventional sort but having "higher costs, bigger risks", — a situation that has not been remedied by "learning" over the decades. Other issues/complaints include a lack of policies to uplift small traders and the poor; the challenge of inflation, late payments, the lack of hedging of currencies and rates, or of sharia-compliant places to park short term funds for liquidity; the non-Muslim ownership of much of Islamic banking, and the concentration of what ownership is in Muslim hands.
Imitation of conventional finance
A number of scholarly supporters (such as Taqi Usmani, D.M. Qureshi, Saleh Abdullah Kamel, Harris Irfan) and skeptics of Islamic banking (Muhammad Akram Khan, Muhammad O. Farooq, Feisal Khan, Mahmoud El-Gama, Timur Kuran) have complained of its similarity to conventional banking.
Taqi Usmani argues that the industry has "totally" neglected the "basic philosophy", undermining its own raison d'être; so that non-Muslims and the Muslim "masses" have now gotten the impression that Islamic banking is "nothing but a matter of twisting documents ...."
This has happened first by the sidelining risk-sharing finance in favor of murabaha and other fixed-markup financing of purchases, and further by distorting the rules of that fixed-markup murabaha (see also Ignoring required commodities below) to effectively provide conventional cash interest loans with "profit rates" that follow conventional interest rates, the "net result" being "not materially different from interest based transactions". (Another violation is the use of ijarah (leasing) without the "lessor either assuming "the liability for his ownership" or offering "any usufruct to the lessee".)
In March 2009, Usmani, (as chairman of the board of scholars of the Accounting and Auditing Organization for Islamic Financial Institutions, or AAOIFI), declared that 85% of Sukuk, or Islamic bonds, were "un-Islamic". Others (Hassan Heikal) have also criticized the authenticity of sukuk.
Explanations for the similarity between Islamic and conventional banking include:
Social responsibility and emphasis
Following Islamic principles, "Islamic banks were supposed to adopt new financing policies and to explore new channels of investments" to encourage development and raise the standard of living of "small scale traders", but Taqi Usmani complains "very few Islamic banks and financial institutions have paid attention to this aspect". Islamic scholar Mohammad Hashim Kamali, laments the focus on short-term financing by Islamic banks. This financing being "largely concerned with the financing of goods already produced, and not with the creation or increase of production capital or with facilities like factories and plants, infrastructure etc." Islamic bonds, also known as sukuk, have emerged as a new financial instrument to fund ethical transactions such as the project for the Global Alliance for Vaccines and Immunisation. To support the growth is Islamic financing, governments must establish measures to create a level playing field with regards to liquid secondary markets and equal regulation and taxes that match conventional banking.
Profit and Loss Sharing and its problems
While profit-loss-sharing modes (or at least mudarabah), were originally envisioned as "the basis of a riba-free banking" — with fixed-return financial models only filling in as supplements — a number of studies, (of banks in Saudi Arabia and Egypt,[Note 31] Malaysia,[Note 32] and of large Islamic banks in general)[Note 33] have shown fixed-return products now far exceed profit-loss-sharing modes in assets under management.
Explanations (offered by two authors, Humayon A. Dar and J.R. Presley), for why PLS instruments — namely mudaraba and musharaka financing — have declined to almost negligible proportions include:
Aside from disadvantages to lenders, one critic of Islamic banking, Feisal Khan, argues that widespread use of PLS could have severe harm to economies by preventing central banks from expanding credit — buying bonds, commercial paper, etc. — to prevent liquidity crisises that arise from time to time in modern economies.
Murabaha and ignoring required commodities
In addition to ignoring profit and loss sharing in favor of murâbaḥah, the industry has been accused of not properly following shariah regulations of murabahah (mentioned above), by not buying and selling the commodities/inventory that are "a key condition" of shariah-compliance (done when the bank wants to borrow cash rather than to finance a purchase, and though they are an added cost and serve no other function). In 2008 Arabianbusiness.com complained that there are sometimes "no commodities at all, merely cash-flows between banks, brokers and borrowers". Often the commodity is completely irrelevant to the borrower's business and not even enough of the relevant commodities "in existence" in the world "to account for all the transactions taking place". Two other researchers report that for many years multibillion-dollar 'synthetic' murabaha transactions in London took place, where "many doubt the banks truly assume possession, even constructively, of inventory".
The original Islamic banking proponents called for "keeping distinct accounts for various types of deposits so that return can be assigned to each type". "In practice", according to critic Muhammad Akram Khan, "Islamic financial institutions pool all types of deposits".
Critics complain that the compliance with sharia regulations by banks often is nothing more than the taking of the word of the bank or borrower that they have followed compliance rules, with no effective auditing to see if this is true. One observer (L. Al Nasser) complains that "Shariah authorities demonstrate excessive confidence in their subjects when it comes to dealing with parities in the industry", and Shariah audits are needed "to bring about transparency and ensure" that the institutions "deliver what they have committed to their customers". Furthermore, when external Shariah audits are carried out, "many of these auditors frequently complain about the amount of violations that they witness and cannot discuss" because the records they have examined "have been tampered with".
Following conventional (haram) returns
Although Islamic banking forbids interest, its "profit rates" often are benchmarked to interest rates. Islamic banker Harris Irfan states "there is no question" that benchmarks such as LIBOR "continue to be a necessary metric" for Islamic banks, and that the "overwhelming majority of scholars have come to accept this, however imperfect a solution this may seem", but Muhammad Akram Khan writes that following the conventional banking benchmark LIBOR "defeats the very purpose for which the Islamic financial products were designed and offered" in the first place,
In addition skeptics have complained that the rates of return on accounts in Islamic banks are suspiciously close to those of conventional banks, when (in theory) their different mechanisms should lead to different numbers. A 2014 study in Turkey found the long-term relationship between term-deposit rates at three of four "participation banks" (i.e. Islamic Banks) "significantly cointegrated" with those of the conventional banks. According to skeptics this nearness suggests a manipulation of returns by Islamic banks, to reassure customers of their financial competitiveness and stability.
Islamic banking and finance has lacked a way to earn a return on funds "parked" for the short term, waiting to be invested, which puts those banks a disadvantage to conventional banks.
Banks/financial institutions must balance liquidity — the ability to convert assets into cash or a cash equivalent quickly in an emergency when their depositors need them without incurring large losses — with a competitive rate of return on funds. Conventional banks are able to borrow and lend by using the interbank lending market — borrowing to meet liquidity requirements and investing for any duration including very short periods, and thereby optimize their earnings. Calculating the return for any period of time is straightforward — multiplying the loans length by the interest rate.
While Muslim countries such as Bahrain, Iran, Malaysia and Sudan have started to develop an Islamic money market, and have been "issuing securitized papers on the basis of musharaka, mudaraba and ijara", at least as of 2013, the "lack of an appropriate and efficient secondary market" has meant the relative volume of these securities is "much smaller" than on the conventional capital market.
Regarding non-PLS, "debt-based contracts", one study found that "the business model of Islamic banking is changing over the time and moving in a direction where it is acquiring more liquidity risk."
To deal with the problem of earning no return on funds held for the sake of liquidity or because of a lack of investment opportunity, many Islamic financial institutions (such as Islamic Development Bank and the Faisal Islamic Bank of Egypt) have "been explicitly and openly earning interest on their excess funds, often invested in safer, debt-like or debt instruments overseas". Rather than forbidding this, "Shariah-experts have provided the necessary fatwa of Shari'ah-compliance based on the rules of necessities (darurah)".
though they require the interest be used for "religiously meritorious purposes".
Other challenges and issues
Most Islamic banks have their own Shariah boards ruling on their bank's policies.
Behavioural economists typically argue that stock prices can be substantially influenced by the mood of investors. For instance, researchers have found stocks prices to be positively af fected by positive events such as sunshine and upcoming holidays (Kim and Park, 1994). Ramadan is one of the five pillars of Islam, which is the religious practice of fasting from dawn to sunset during the ninth month of the Islamic calendar. Several studies, such as (Białkowski et al. (2012), Al-Hajieh et al. (2011) and Al-Khazali (2014), have found stocks in Muslim countries to yield higher returns during Ramadan compared to the rest of the year. Their results were explained by the fact that Ramadan encourages Muslims optimism which has a positive effect on stock price.
Lack of shariah uniformity
The four schools (Madhhab) of Sunni fiqh (Islamic jurisprudence) apply "Islamic teachings to business and finance in different ways", and have not come closer to agreement. Furthermore, shari'a boards sometimes change their minds, reversing earlier decisions."
Differences between boards as to what constitutes shariah compliance may raise "doubts in the minds of clients" over whether a given bank is truly shariah compliant, and should be given their business.
While in conventional finance late payments/delinquent loans are discouraged by interest continuing to accumulate, according to Ibrahim Warde,
A number of suggestions have been made to deal with the problem.[Note 34]
Inflation is also a problem for financing where Islamic banks have not imitated conventional baking and are truly lending without interest or any other charges. Whether and how to compensate lenders for the erosion of the value of the funds from inflation, has also been called a problem "vexing" Islamic scholars, since finance for businesses will not be forthcoming if a lender loses money by lending. Suggestions include indexing loans (opposed by many scholars as a type of riba and encouraging inflation), denominating loans "in terms of a commodity" such as gold, and further research to find an answer.
Islamic banking and finance customers, are almost all, if not entirely, Muslims. But the majority of financial institutions that offer Islamic banking services are Western financial institutions, not owned by Muslims. Supporters of Islamic banking have cited this interest of western banks in Islamic banking as evidence of the strong demand for Islamic banking and thus an "achievement of the movement".[Note 35]
However, critics complain these banks lack a deep faith-based commitment to Islamic banking which means
Sources differ over whether Islamic banking is more stable and less risky than conventional banking.
Proponents (such as Zeti Akhtar Aziz, the head of the central bank of Malaysia) have argued that Islamic financial institutions are more stable than conventional banks because they forbid speculation and the two main types (in theory) of Islamic banking accounts — "current account" and mudarabah accounts — carry less risk to the bank.
This of course means that while the bank may be more stable, the depositors/"partners" of Islamic profit and loss sharing accounts (Islamic banks often use the term "partner" instead of "customer" or "depositor") are exposed to risks they would not be subject to in conventional banks. Furthermore,
On the other hand, Habib Ahmed —writing in 2009 shortly after the financial crisis — argues that the practices of Islamic finance have gradually moved closer to conventional finance exposing them to the same dangers of instability.
In any event, a few Islamic banks have failed over the decades. In 1988 the Islamic investment house, Ar-Ryan collapsed causing thousands of small investors to lose their savings (they were later reimbursed for their losses by an anonymous Gulf state donor) and dealing a blow to Islamic finance at the time. In 1998 the management of Bank al Taqwa's failed. with its annual report reporting a "loss of over 23 per cent of principal to both mudaraba depositors and shareholders". (It was later revealed that management had violated banking rules "invested in one single project more than 60 per cent bank's assets.")
The Ihlas Finance House in Turkey closed in 2001 due to "liquidity problems and financial distress". Faisal Islamic Bank had difficulties and closed its operations in the UK for regulatory reasons.  According to the Economist magazine, "Dubai's debt crisis in 2009 showed that sukuk [Islamic bonds] can help to inflate debt to unsustainable levels."
During the global financial crisis Islamic banks "on average, showed stronger resilience" than conventional banks, but "faced larger losses" when the crisis hit "the real economy," according to a 2010 IMF survey.
At the beginning of the "Great Recession" of 2007-9, Islamic banks were "unscathed", leading to one Islamic banking supporter to write that the collapse of leading Wall Street institutions, particularly Lehman Brothers, "should encourage economists world-wide to focus on Islamic banking and finance as an alternative model." However gradually the effect of the financial downturn moved to the real sector, affecting Islamic banking. According to Ibrahim Warde, `this showed that Islamic finance was not all a panaceas, and that a faith-based system is not automatically immune to the vagaries of the Financial system.`
Concentration of ownership
Concentrated ownership is another danger to the stability of Islamic banking and finance. Munawar Iqbal and Philip Molyneux write that only
Harris Irafan warns that the "macroeconomic exposures" of Islamic banks constitute a "ticking time bomb" of a "billions of dollars" in "unhedged currencies and rates". The difficulty, complexity and expense of hedging these in the correct Islamic manner is such that as of 2015, the Islamic Development Bank "was hemorrhaging cash as if it were funding a war. It simply couldn't swap dollars for euros or vice versa on an ongoing basis without resorting to the conventional markets." Regional Islamic banks in the Middle East and Malaysia did not have "specialized personnel trained to understand and negotiate Sharia-compliant treasury swaps" and were not willing to hire the consultants who did.
Customers and the industry
The majority of Islamic banking clients are found in the Gulf states and in developed countries. Studies of Islamic banking customer in Malaysia and Pakistan found customer satisfaction was connected to service quality. A study of Islamic banking customers in Bangladesh found "most customers" between 25–35 years, "highly educated" and having a "durable relationship" with the bank, more knowledgeable about account than financing products.
In series of interviews conducted in 2008 and 2010 with Pakistani banking professionals (conventional and Islamic bankers, Shariah banking advisors, finance-using businessmen, and management consultants), economist Feisal Khan noted many Islamic bankers expressed "cynicism" over the difference or lack thereof between conventional and Islamic bank products, the lack of requirements for external Shariah-compliance audits of Islamic banks in Pakistan, shariah boards lack of awareness of their banks' failure to follow shariah compliant practices in or their power to stop these practices. However this did not deter patronage of the banks by the pious (one of whom explained that if his Islamic bank was not truly shariah compliant, 'The sin is on their head now, not on mine! What I could do, I've done.') 
The Bank of London and the Middle East (BLME) have majority non-Muslim customers that receive a fixed percentage of profits, rather than an interest rate. However, critics say that sharia deposits and products are too similar to interest-rate related products, in contrast to the share of profits earned. Other explanations for the rise of non-Muslim customers in Islamic banking have been pointed towards ethical reasons in negative screening of investments like tobacco, alcohol, and arms.
One estimate of customer preference (given by a Pakistani banker) in the Pakistani banking industry, was that about 10% of customers were "strictly conventional banking clients", 20% were strictly Shariah-compliant banking clients, and 70% would prefer Shariah-compliant banking but would use conventional banking if "there was a significant pricing difference". A survey of Islamic and conventional banking customers found (unsurprisingly) Islamic banking customers were more observant (having attended hajj, observing salat, growing a beard, etc.), but also had higher savings account balances than conventional bank customers, were older, better educated, had traveled more overseas, and tended to have a second account at a conventional bank.[Note 36] Another study, using "official data" reported to State Bank of Pakistan, found that for lenders who had taken out both Islamic (Murabaha) financing and conventional loans, the default rate was more than twice as high on the conventional loans. Borrowers were "less likely to default during Ramadan and in big cities if the share of votes to religious-political parties increases, suggesting that religion – either through individual piousness or network effects – may play a role in determining loan default." [Note 37]
Muhammad El-Gamal argues that because Islamic financial products imitate conventional financial products but operate in accordance with the rules of shariah, different products will require additional jurist and lawyer fees, "multiple sales, special-purpose vehicles, and documentations of title". In addition there will be costs associated with "the peculiar structure that Islamic banks use for late payment penalties". Consequently, their financing tends to cost more than, and/or accounts pay less return than conventional products.
El-Gama also argues that another source of inefficiency/greater expense in Islamic banking and a reason its replications of conventional finance are "always one step behind" new financial products in the conventional industry, is the industry's dependence on "classical "nominate contracts" (murabahah credit sales, ijara leases, etc.). These contracts follow classical texts and were created in a time when financial markets were very limited. They are not equipped to "disentangle various risks" that "modern" financial markets and institutions (such as "money markets, capital markets, options markets, etc.") are designed to. On the other hand, making their contracts/products more efficient, will alienate the pious customer base that wants contracts/products to follow classical forms.
Most studies have found Islamic banks less efficient on average, than conventional ones.
In one important part of the finance market — home buying — Islamic finance has not been able to compete with conventional finance in at least some countries (the UK as of 2002, and the US and Canada as of 2009). According to Humayon Dar, the monthly payments, for a shariah compliant "Lease Contract" used by Islamic Investment Banking Unit of Ahli United Bank Kuwait in Britain "are much higher" than equivalent conventional mortgages. In Canada the cost of Islamic home finance was 100 to 300 basis points higher than conventional home finance, and in the USA 40 to 100 basis points higher, according to Hans Visser. (Visser credits the higher cost of Islamic ijara financing to its higher risk weighting compared to conventional mortgages under Basel I and Basel II international standard of minimum capital requirements for banks.)
According to M.O.Farooq, "common explanations offered by" the Islamic finance movement for the Islamic banking industry shortcomings are that
While the veracity of the second explanation can not be verified before a complete Islamic society is established, Feisal Khan points in regard to the first defense that it has been over twenty years (1993) since one critic (Timur Kuran) first highlighted the industry problems (the basic similarity of Islamic banking in practice to the conventional, the marginalizing of the equity-based, risk-sharing modes and embrace of short-term products and debt-like instruments), and since a supporter (Ausaf Ahmad) defended the industry as early in its transition from conventional banking.
Seventeen years later, Ibrahim Warde, an Islamic finance proponent, lamented that "rather than disappearing, murabaha and comparable sale-based products grew significantly and today they constitute the bulk of the activity of most Islamic Banks..."
Most critics of the Islamic banking industry call for further orthodoxy and a redoubling of effort and stricter enforcement of sharia.[Note 38] Some (M.O.Farooq and M.A.Khan), have blamed the industry problems on its condemnation of any and all interest on loans as forbidden riba, and the impracticality of attempting to enforce this prohibition.
Books and journal articles