Islamic Banking in the Ascendancy19 August 2013 by ITS Global Financial Solutions
In the last five years, the Western world has become more aware of the different approach to banking in Islamic culture, where the fundamental concepts of Shariaa law define the structure of financial products and services.
In many ways, these concepts are fundamentally different to the tenets of traditional Western banking, but as banks in Europe and the US have invested in Islamic banking services, they have discovered that the two systems are by no means incompatible.
Interest in Islamic financial services among Western banks, including HSBC and Lloyds Banking Group, which are among many that have set up Islamic banking operations, has accelerated since the global financial crisis began in 2008, because Islamic banks have generally weathered the storm better than their Western counterparts.
Driven by strong demand among individuals and corporates, the total value of Islamic assets is estimated at around $500bn, and Islamic banking is the fastest-growing sector in the financial services market.
"There are many key differences between the Islamic core systems and the conventional core systems. One of these differences is the profit calculation and distribution, which is a critical requirement for the Islamic banks. Having a fixed and known interest rate is not allowed in Islamic banks and customer profit depends on the bank's investment and performance. This requires a specific engine to calculate the profit and to distribute it," says Haitham Abdou, group director for marketing at International Turnkey Systems (ITS).
"One other key difference is the need for an Islamic instrument engine that allows banks to create and generate new Islamic products that match their Shariaa board requirements, which can be different from bank to bank due to the lack of global standards in the Islamic banking industry," he adds.
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Islamic Banking in the Ascendancy