Modern Islamic banking

The first modern experiment with Islamic banking was undertaken in Egypt. In 1975, the Islamic Development Bank was set up with the mission to provide funding to projects in the member countries. The first modern commercial Islamic bank, Dubai Islamic Bank, opened its doors in 1975. In the early years, the products offered were basic and strongly founded on conventional banking products, but in the last few years the industry is starting to see strong development in new products and services.

Islamic Banking is growing at a rate of 10-15% per year and with signs of consistent future growth. Islamic banks have more than 300 institutions spread over 51 countries, including the United States through companies such as the Michigan-based University Bank, as well as an additional 250 mutual funds that comply with Islamic principles. It is estimated that over US$822 billion worldwide sharia-compliant assets are managed according to The Economist. According to CIMB Group Holdings, Islamic finance is the fastest-growing segment of the global financial system and sales of Islamic bonds may rise by 24 percent to $25 billion in 2010

Shariah-compliant assets reached about $400 billion throughout the world in 2009, according to Standard & Poor’s Ratings Services, and the potential market is $4 trillion. Iran, Saudi Arabia and Malaysia have the biggest sharia-compliant assets. In 2009 Iranian banks accounted for about 40 percent of total assets of the world's top 100 Islamic banks.. Six out of ten top Islamic banks in the world are Iranian.

In May 2012, Trend News Agency reported that the Chairman of the International Bank of Azerbaijan, Jahangir Hajiyev, announced that his bank would expand into Islamic banking services. The expansion will take place in countries around Azerbaijan, such as Russia and Kazakhstan. Dr. Hajiyev told Trend News Agency, "For the first time in Azerbaijan's history, we are planning to establish a new office in the field (Islamic banking), enabling the country to become a regional center for Islamic financing."

Principles. Islamic banking has the same purpose as conventional banking: to make money for the banking institute by lending out capital. But that is not the sole purpose either. Adherence to Islamic law and ensuring fair play is also at the core of Islamic banking. Because Islam forbids simply lending out money at interest, Islamic rules on transactions have been created to prevent this evil. The basic principle of Islamic banking is based on risk-sharing which is a component of trade rather than risk-transfer which we see in the conventional banking. Islamic banking introduces concepts such as profit sharing, safekeeping, joint venture, cost plus, and leasing.

In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments.

Ex. 1. Discuss the following questions.

What are the advantages and disadvantages for a private individual of borrowing money from the following?

a) a bank?

b) a friend or colleague?

c) a member of your family?

d) a loan shark?

e) a credit card company?

f) another sourse?

Ex. 2. Choose the correct word to complete each sentence.

1. I took out a … to extend the business.

a) credit b) debt c) loan

1. He offered his home as security or … when he borrowed from the bank.

a) collateral b) deposit c) warranty

3. The … rate on the loan was 15%.

a) charge b) feee c) interest

4. We have a(n) … of $1 million to finance out three-month advertising campaign.

a) budget b) costs c)expense

5. They have to pay the loan back over three years. The first … is due in August.

a) amount b) installment c) part

6. Our state-of-art machinery is our major ….

a) asset b) possession c) property

7. We want to find a partner who will take a … in our business.

a) risk b) share c) stake

8. Thanks to a government … the firm was able to move to a new location.

a) contribution b) subsidy c) support

9. Money owed by a company to its suppliers forms part of its ….

a) damages b) liabilities c) losses

10. When the bank grants a business an … facility, their current account can go inti the red.

a) overdraft b) overhead c) overpayment

Text 2. Translate into English