What is Islamic Finance?
Islamic finance is a financial system that operates according to Islamic law (which is called sharia) and is, therefore, sharia-compliant. Just like conventional financial systems, Islamic finance features banks, capital markets, fund managers, investment firms, and insurance companies. However, these entities are governed both by Islamic law and the finance industry rules and regulations that apply to their conventional counterparts. Therefore, islamic finance is to be assets based as oppose to the currency based whereby investment structured on exchange or ownership of assets, and money is simply mechanism for transaction process. It would based on two sources which are Al-Quran and As-Sunnah.
History of Islamic Finance
The modern Islamic Finance industry is young, its timeline begin only a few decades ago. However, islamic finance is involving rapidly and continues to expend to serve a growing population of muslims as well as conventional.
Here are the short history on the modern Islamic financial industry :
1. In 1963, the Mit Ghamr Savings Bank in Egypt was opened, becoming the first modern islamic bank record.
2. Also in 1963, the Pilgrims Saing Corporation of Malaysia began to incorporate basic islamic banking concepts.
3. In 1975, the Islamic Development Bank opened in Saudi Arabia and gave the islamic finance industry an international presence. It recruited member countries and offer them financial products to promote economic and comunity development.
4. In 1979, the first islamic insurance (takaful) company was established. All muslims at that time cannot purchase the conventional insurance products as it involed interest-based transactions,uncertainty, and gambling which are all prohibited by the Islamic Law.
5. In 1986, the Amana Income Fund, the world’s first islamic mutual fund was created in Indiana.
6. In 1990, the Accounting and Auditing Organization for Islamic Finance Institutions (AAOIFI) was created to establish industry accounting and auditing standards.
7. Also in 1990, the Islamic Bond Market emerged when first tradeable (Sukuk) were issues by Shell MDS in Malaysia.
8. In 1996, Citibank began to offer Islamic banking services when it established the Citi Islamic Investment Bank in Bahrain.
9. In 1999, the Dow Jones Islamic Market Index (DJIMI) was established, becoming the first successful benchmark for the performance of Islamic Investment Funds.
10. In 2002, the Malaysia-based Islamic Financial Services Board(IFSB) was established as an international standard setting body for Islamic financial institutions.
11. In 2004, the Islamic Bank of Britain became the first islamic commercial bank established outside the Muslim world.
In total, more than 500 Islamic financial institutions have been established worlwide since the 1970s, including about 300 Islamic banks. Several institutions are established to create and support a robust financial system i.e: International Islamic Financial...