Islamic banking (Arabic: مصرفية إسلامية) is banking or banking activity that is consistent
with the principles of sharia (Islamic law) 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").
Although these prohibitions have been applied historically in varying degrees
in Muslim countries/communities to prevent unIslamic practices, only in the
late 20th century were a number of Islamic banks formed to apply these
principles to private or semi-private commercial institutions within the Muslim
community.
As of
2014, sharia compliant financial institutions
represented approximately 1% of total world assets. By 2009, there were over 300 banks and 250 mutual funds around the world complying with
Islamic principles, and as of 2014 total assets of around $2
trillion were sharia-compliant. According
to Ernst &
Young, although Islamic Banking still makes up only a fraction of
the banking assets of Muslims, it
has been growing faster than banking assets as a whole, growing at an annual
rate of 17.6% between 2009 and 2013, and is projected to grow by an average of
19.7% a year to 2018
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