The Viability of Islamic Banking

The Islamic banking industry is relatively young, dating back to a mere three decades ago. However, the market for Islamic financial services is now growing at 15 percent annually. In 2005, a financial conference in Singapore established the size of the global market at $200 to $ 300 billion. Islamic financial services include basic bank deposits to investment accounts, equity funds, bonds, and Islamic hedge funds. In 2003, the Islamic Bank of Britain opened in London to cater to the needs of the UK’s 1.8 million Muslims that reside there. In response to this need, Britain’s fifth-largest bank, Lloyds TSB, announced its plan to become the country’s first high street bank to introduce a personal bank account compatible with Shariah law. Furthermore, in September 2004, the state government of Saxony-Anhalt in Germany launched the first sub-sovereign bond in Europe consistent with Islamic principles in the form of a 100-million-euro ($133 million) bond called in Arabic (Ahsan, 2006). As of 2008, over 300 Islamic financial institutions were already in existence in 75 countries, along with 300 Shariah-compliant mutual funds, from just one Islamic bank based in Egypt in 1975. In 2000, capitalization of Islamic institutions and funds amounted to $140 billion. by this year, 2010, the figure is expected to hit $ 1 trillion. Moody’s Investor Service estimates this figure to reach $4 trillion five years after (Siddiqi, 2008). Increasingly, and especially since the start of the US subprime crisis, Islamic banking continues to draw the interest of institutions in the conventional banking arena. Spencer (2009) reports that Iranian newspaper Jaam-e-Jam carried the story of four American banks issuing formal requests to the Central Bank of Iran for them to be allowed to open branches in that country. Among them are Citibank and Goldman Sachs, and according to an unnamed official, they must assure the authorities that they could work according to Iran’s banking law to be allowed entry into Tehran and other cities. Some market observers dismiss the move by these firms as a matter of business, of going where the money goes and since Islamic banking is growing at a rate of 15% per annum, there is justification why American banks would seek entry into the banking system of a country that has openly named the U.S. as enemy. In the minds of several ideologues, Muslim banking is regarded as a tool for Islamic separatism, and just another covert way by which the Jihad could be foisted among the American public. This being said, a divide appears to be brewing even as Islamic banking seeks to gain a foothold into the non-Muslim world.