Название: Introduction to Islamic Banking and Finance
Автор: M Kabir Hassan
Издательство: Ingram
Жанр: Банковское дело
isbn: 9789811222702
isbn:
1.1.5Economic value proposition of Islamic finance
Financial institutions provide facilitation in intertemporal exchange of funds between saving-surplus and saving-deficient units by providing delegated monitoring and investment management services efficiently.40 In the direct potential exchange between saving-surplus and saving-deficient units, there is a double coincidence problem in terms of (i) matching cash flow needs and availability and (ii) the preference for maturity in investment and financing. Unlike in spot exchange, information asymmetry between the counterparties in an intertemporal exchange of funds requires diligent monitoring and enforcement of contract terms. Financial institutions provide intermediation services to reduce these transaction costs for both counterparties.
Figure 1.1. Islamic finance architecture.
From the Islamic viewpoint, the critical element is that the intertemporal exchange of funds shall not include any increase over the principal amount of the loan. There are two alternatives to meet this restriction. One alternative is that if a money loan is provided, then no increase over the principal amount is charged. The second option is to provide financing for the acquisition of an asset by either selling it or providing it on lease. In both cases, the financial institution has to own, possess, and bear the risk of an asset in possession before selling it or providing it on lease. In such a way of financing, the Islamic financial institution can earn a profit on credit sale or rents on providing the usufruct of an asset in its ownership to the client.
To enable households and firms to meet various financial goals in conformity with Shari’ah principles, Islamic finance was theorized and then practically implemented as an alternative financial system in the twentieth century. The first modern Islamic commercial bank, Dubai Islamic Bank, was established in 1975. Since the year 1975, several Islamic financial institutions have been established in different financial sectors like banking, insurance, and asset management.
According to some scholars, there are some distinctive features inbuilt in Islamic banking which link it automatically with the real sectors of the economy. The necessary requirement of only providing funds for assets that are produced in the real sector of the economy links the financial payoffs with the real assets. Since the returns for the financial institution are linked with the performance of the asset, it ensures more prudence in monitoring and risk management by the financial institution and hence safeguards the investments of depositors.41 Furthermore, asset-backed financing ensures that the size of the financial sector does not exceed the real size of the economy by necessitating the provision of finance only for the genuine purchase of assets.42
1.1.6Islamic banking: Growth and profitability
At the global level, Islamic banking started as social finance in the middle of the twentieth century. In Egypt, Mit Ghamr Islamic Savings Bank was established in 1963 by El-Naggar. Almost at the same time, Tabung Haji or Pilgrims Fund Corporation started operations in 1963 in Malaysia to help Muslims save to meet expenses of the Hajj journey.43
Then, the Islamic Development Bank (IDB) was established in 1974 to provide financial support to member countries for economic and community development. After that, commercial banking started in 1970s with the establishment of the Dubai Islamic Bank. Ever since then, the Islamic financial institutions penetrated different parts of the world including the Middle East, East Asia, South Asia, Northern Africa, and Europe.
Thomson Reuters reports that there were as many as 1,389 Islamic financial institutions operating globally by the end of 2017 and at least 45 countries have regulations supporting Islamic finance operations.44
Table 1.1. Growth in Islamic banking and finance (2012–2017).
Source: Thomson Reuters Global Islamic Finance Report 2018.
According to the Global Islamic Finance Report 2019, global Islamic finance assets reached $2.6 trillion in 2018.45 Table 1.1 gives a snapshot of growth in Islamic banking and Islamic finance since 2012.
As much as 71% of the global Islamic financial assets are held by Islamic banking institutions including full-fledged Islamic banks and Islamic banking windows of conventional banks. The total number of Islamic banks and Islamic windows operating globally has reached 505 in 2017.
Among individual countries, the market share of Islamic banking in national banking in Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates, Malaysia, Pakistan, and Indonesia remains at 52%, 46%, 30%, 26%, 22%, 26%, 15%, and 6%, respectively. Table 1.2 gives the share of different countries in the global Islamic banking assets.
In more recent years, Islamic finance industry assets grew by a Compound Annual Growth Rate (CAGR) of 6% to $2.6 trillion in 2018 as compared to 2012. Quarterly panel data from 2013 to 2018Q1 in Table 1.3 reveal that profitability in Islamic banks has generally been impressive. Furthermore, in Brunei, Egypt, Kuwait, Malaysia, Sudan, and Turkey, the cost to income ratio is below 50%. Except in Bahrain, the gross non-performing finance ratio is lower than 10% in all countries. It shows high asset quality in Islamic banking with low infection ratios. Finally, the capital adequacy ratio on average is greater than 13% in all countries. This shows that Islamic banks are solvent and have the ability to withstand financial shocks.
Table 1.2. Share of countries in global Islamic banking assets.
Country | Share in Global Islamic Banking Assets (%) |
---|---|
Iran | 34.40 |
Saudi Arabia | 20.40 |
UAE | 9.30 |
Malaysia | 9.10 |
Qatar | 6.00 |
Kuwait | 6.00 |
Turkey | 2.60 |
Bangladesh | 1.90 |
Indonesia | 1.80 |
Bahrain | 1.70 |
Sudan | 1.60 |
Pakistan | 1.20 |
Egypt | 0.80 |
Jordan | 0.70 |
Oman | 0.60 |
Brunei | 0.50 |
Others | 1.40 |
Source: Islamic Financial Services Industry Stability Report 2018.
There is a significant potential for further growth in enabling financial inclusion in Muslim majority developing countries. A survey of 65,000 people from 64 countries highlights that Muslims are comparatively less likely than non-Muslims to have a formal account or save at a formal financial institution.46 In countries like Afghanistan, Morocco, Iraq, Niger, and Djibouti, the percentage of the adult population with no bank accounts for religious reasons stands at 33.6%, 26.8%, 25.6%, 23.6%, and 22.8%, respectively.47
Table 1.3. Islamic banking indicators globally.
Source: Authors’ calculations from IFSB Data.
Furthermore, СКАЧАТЬ