Islamic financial markets: performance and prospects

Abstract

Although, Islamic finance as in the modern context was started 40 years ago however Islamic finance teaching and practice was started 14 centuries long before. With the advent of Islam in the 6th century, Islamic finance began. Until early 11th century Islamic finance principle and practice spread over the Islamic civilization. During that time Muslim traders dominated the world trading and would engage in financial transaction on the basis of Shariah law. Therefore the financial system without interest which worked on a profit and loss sharing basis was prevalent and used even by their European counterparts. Since 11th century Islamic Empire started to decline, the superiorities of economics and politics were gradually transferred from the hands of Muslims to the western. From the mid-nineteenth century, nearly every Muslim country, stayed under influence of Western powers. Under western occupation, the centuries-old modes of Islamic finance were replaced by western financial modes which were based on interest payment philosophy. Started form the mid-twentieth century, when Islamic states gradually started to win independence, Muslims tried to restore Islamic financial system. The Islamic financial system that Muslims try to restore is the system that based on the prohibition of interest (Riba), excessive uncertainty (Gharar) and gambling (Maysir or Qimar). Since first Islamic banking institution appeared 40 years ago, Islamic finance has experienced high growth rate as 15-20 per cent annually. Now Islamic finance spread across the world and it is not confining itself in only banking business but in all sector of financial industry including financial market as well. GCC is considered as the heart of Islamic financial world as the region contains a number of Muslim wealthy countries which generate strong demand as well as create standard framework for global Islamic finance. Roughly, GCC possesses over 262.6 billion US dollars or 41 per cent of total world Shariah- compliant assets in 2007.