Middle East

The financial industry in the Middle East has been traditionally influenced by religion. Today, Islamic banking appears as a growing and successful industry, not only in the Middle East but also in some western countries.

Islamic banking:

Islam prohibits all the activities that charge a payment of an interest rate or businesses that provide goods or services considered contrary to its principles.

So what does the financial system do in Islamic economies?

For solving this problem, something was created under the name of Islamic banking, it is nothing else than a system of banking that applies the Islamic rules. In the 20^th century a lot of Islamic banks were created for the economies of the Islamic countries.

History:

During the period between the 8^th and the 12^th century, there was a boom in the Islamic economies called the “Islamic golden age”, a stable economy was created with a single currency and the integration of trade areas that were separate. This is the beginning of the Islamic economy system.

According to Islamic rules, charging a fee as an interest is forbidden and is considered as a sin and for this reason they create a special interest-free banking system. There have been different theories about the creation of the modern Islamic banking system but it was in the 20^th century were they start crating this banks. The system consists in the share of profit or looses by the bank and the avoiding of usury call “riba”.

Key principles of Islamic banking:

· Riba (usury): is totally forbidden

· Sharia (Islamic law)

· Mudharabah (profit share)

· Wadiah (safekeeping)

· Musharakah (joint venture)

· Murabahah (Cost plus)

· Ijarah (leasing)

How do they make profits when lending money?

The base of the Islamic and the rest of the world banks is the same, except that Islamic banks can´t charge any kind of interest fee, instead they make profit being partners in the project they are financing, they have a mechanism in which the bank shares the profit or the looses with the debtor.

Ethical investments:

In the Islamic economy, an ethical investment is that that is made according to the Islamic principles of the sharia, all the investments may be done without violating this rules.

Who is to determine whether an activity is allowed or not?

There is an organism call the “shariah advisory council” that is in charge of making the control of the products and services that the Islamic banks offer. Each bank have to establish a “shariah supervisory broad” to ensure that the activities made by the bank are not violating the Islamic law.

Influence of the Islamic banking in the Middle East economy

The Middle East is ruled basically by the shairia, and everything may go in the same way of the law. The banking system is not separate of this. In this way the rules adopted by banks influence the economy of the region and make the things different of those in the rest of the world, the system makes that the bankers can´t earn money from the interest but from the profit making them take god options when making a loan.

What is the future of Islamic Banking in terms of global expansion and growth?

According to the development of the world, Islamic banking is converging to the western banking system but they will have to respect the Islamic law even if they look similar to western banks. Maybe in the future they will have to open the doors for international banks but they will have to adapt to their rules in order to get into the market. I thing that a close up is necessary between western banks and Islamic banks to learn and develop new ways of offering the banking system.

Bibliography:

http://en.wikipedia.org/wiki/Islamic_banking

taken from:http://www.youtube.com/watch?v=fDV6mSnw16o&feature=related