Islamic banking is banking activity that is consistent with the principles of sharia and its practical application through the development of Islamic Economics. As such, a more correct term for 'Islamic banking' is 'Sharia compliant finance'.
Sharia prohibits acceptance of specific interest or fees for loans of money (known as riba, or usury), whether the payment is fixed or floating. Investment in businesses that provide goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also haraam ("sinful and prohibited").
What the Vatican (Roman Catholic) said about Islamic Banking?
The Vatican has put forward the idea that "the principles of Islamic finance may represent a possible cure for ailing markets." The Catholic Church has always forbade usury, but in recent centuries has been forced to tolerate it due to non-Catholic capitalist dominance of the Western world.
Again, the Vatican newspaper Osservatore Romano in 2009 voiced its approval of Islamic finance that banks should look at the rules of Islamic finance to restore confidence amongst their clients at a time of global economic crisis.
20th Century Islamic Financial Model in the West?
In 1995, 144 Islamic financial institutions had been established worldwide, including 33 government-run banks, 40 private banks, and 71 investment companies.
In 2008 Islamic banking was growing at a rate of 10–15% per year and with signs of consistent future growth. Islamic banks have more than 300 institutions spread over 51 countries, including the United States through companies such as the Michigan-based University Bank, as well as an additional 250 mutual funds that comply with Islamic principles. It is estimated that over US$822 billion worldwide sharia-compliant assets are managed according to The Economist. This represents approximately 0.5% of total world estimated assets as of 2005.
According to CIMB Group Holdings, Islamic finance is the fastest-growing segment of the global financial system and sales of Islamic bonds may rise by 24 percent to $25 billion in 2010.
By 2009, there were over US$822 billion assets being managed in over 300 banks and 250 mutual funds around the world complying with Islamic principles.
According to Gatestone Institute in 2011, the European Union is emerging as a major center of Islamic finance, based on Islamic Shariah law. David Cameron, UK Prime Minister, addressing the World Islamic Economic Forum in London on October 29, 2013 said “ I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world."
In Nigeria, Jaiz Bank became the first license Islamic banking with operation in 2012 and headquarter in Abuja. Stanbic IBTC Bank has also opened a window of Shariah-complaint Islamic model banking.
In 2014, South African Finance Minister, Pravin Gordhan, announced the take-off of her first sukuk Islamic bond as it seeks to diversify its debt obligations. He said “Our first sukuk (Islamic) bond will be launched this year,” he told lawmakers while unveiling his annual budget.
Complying with Islamic Sharia law, in which interest is not charged, such a bond has been on the cards as South Africa tries to tap a broad range of lenders to limit risk. “Options for introducing a sukuk retail savings bond are also being explored,” he added.
Islam-friendly debt is a rapidly growing market, worth around $144 billion in 2012, according to the Global Islamic Finance Report.
Used from Malaysia through UK, USA and Canada to the Gulf, Gambia and now South Africa, it is seen as a safer, more stable option by some investors.
Lorenzo Totaro (2009-03-04). "Vatican Says Islamic Finance May Help Western Banks in Crisis". Bloomberg L.P. Retrieved 2009-04-13.
· "Sharia calling". The Economist. 2009-11-12.· Slater, Joanna (2007-01-10). "World's Assets Hit Record Value Of $140 Trillion". The Wall Street Journal.