thenational.ae - Internationally, Islamic banking is also gaining ground as a competitive alternative.
The Financial Times last month reported that Islamic banks were providing the best returns on cash deposited for two, three, four and five years, encouraging more UK customers to put money into Sharia-compliant accounts.
Since advertising profit rates of up to 4.8 per cent on comparison sites such as moneysupermarket.com, Bank of London and The Middle East (BLME) has seen a four-fold increase in customer deposits, most of which derived from non-Muslim investors, Nigel Denison, BLME's executive director, told the Financial Times.
But there is a catch.
BLME, one of the main providers of Islamic finance in the UK and arguably the largest Islamic bank in Europe, sets a £50,000 (Dh296,265) minimum deposit. (source)
But the majority of Islamic retail banking is not as high end and the real growth driver in the retail market is expected to come from countries such as Turkey, Syria and Egypt in the Middle East and Indonesia in Asia, where millions of Muslims are transitioning from a cash economy and looking for halal financial dealings.
Currently, there are more than 300 Islamic financial institutions in 51 countries around the world, including the UK, Singapore, the US, South Africa and Kenya, as well as the Middle East.
London, the Islamic banking hub of Europe, is already bigger than Pakistan's and is preparing to get even bigger as its Muslim population of about 2 million grows. It has six Sharia-compliant banks and 17 financial institutions.
In Germany, a 2010 survey showed 72 per cent of its 4 million-plus Muslim population was interested in Sharia-compliant products. France and Spain are also modifying laws to open the way for Islamic banks. In Australia, Crescent Wealth is planning to establish a range of Sharia-compliant equity and property funds and superannuation products.
Modern Islamic banking is based on five pillars: no interest; no uncertain speculation; no financing of companies involved with goods and services deemed haram; the sharing of profit and loss; and the understanding that all financial transactions must be backed by tangible assets.
The big difference between conventional and Islamic banks is that conventional banks pay a guaranteed interest rate on savings and fixed accounts, while Islamic banks pay the depositor a profit depending on the deposit amount.
But the biggest attraction the industry has to big business today is its liquidity. At a time when credit is hard to come by, Islamic finance is offering a new wealth stream.
"Islamic finance brings something ethical to the table. It brings more efficiency, but most importantly it brings liquidity," David McLean, from MEGA, an umbrella company representing some of the world's biggest Islamic finance conferences, said last month on the sidelines of the International Summit on Islamic Corporate Finance in Abu Dhabi.
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