Critically analysing the impact of Islamic Banking on Global Market: Retrospect and Prospect

Economic Analysis of Law, Finance

Islamic banking is superintended by the Sharia Islamic law that was devised 1,400 years ago. It aims to provide banking services while staying within the Sharia boundaries and the law has been specifically formulated to eliminate malpractice and exploitation while encouraging healthy trade and commerce. While Sharia is a complete set of laws that are to be followed by every Muslim, only a restricted portion pertaining to banking transactions applies to Islamic finance. The Islamic financial system is a subtle mix of economy, ethics and Islamic law (Sharia) resulting in financial transactions based on fairness, profit, loss sharing and real transactions. The behavioural finance anatomy of Islamic economic system provides the value system moulded by ethical virtues though which it governs the economic interaction in the system. The Islamic order, in other words, through its ethical economy provides “the economic system with its basis and objectives on one hand, and with its axioms and principles on the other” (Kahf, 1989: 43). Islamic finance is one of financial services fastest developing sectors, growing at 10-12% annually in many Muslim countries. Islamic finance seeks to distinguish itself from conventional, interest-based finance by promoting ethical and socially-responsible investments and raising, using and lending capital in accordance with Sharia, or Islamic law.

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