Interest in Islamic finance (IF) began in the 1970s, mainly due to the accumulated petro-dollars in Arab countries. In a rather pragmatic approach, it was thought in the West that respecting Islamic principles regarding finance would attract wealthy Arab investors.
The second major turning point in IF took place after the Sept. 11 attack on the US. It was declared at that time that Muslims were guilty unless they proved themselves innocent, and as a reaction to this uncertainty and discrimination, IF escaped from the West. The amount of capital which fled the West was over $200 billion. Moreover, as the epicenter of global economic growth shifted to Asia, IF concentrated its focus on these emerging and dynamic markets.
The last, but most critical, stage has already started due to the collapse of the conventional finance system based on interest. Regardless of the religious values associated with IF, some people sought IF as merely a more efficient, equitable and even sustainable form of finance.
Because interest-based transactions are prohibited, Islam encourages business and trade activities that generate fair and legitimate profit. In IF, there is therefore always a close link between financial flow and productivity. This intrinsic property of IF contributes towards insulating it from the potential risks resulting from excess leverage and speculative financial activities.
Another fundamental principle of IF is the risk and profit-sharing feature of IF transactions (such as Mudarabah or Musyarakah contracts). It is this profit and risk-sharing feature of IF transactions that requires a high level of disclosure and transparency in the IF system. These disclosures allow the market to assign the appropriate risk premiums to companies, thereby enhancing the potential for market discipline to take effect. These features, which are required by Shariah (Islamic law) injunctions, provide built-in checks and balances which serve to ensure the financial stability of the IF system.
Because of these features, IF has experienced major transformations and growth especially since 2000, and its volume has reached almost $1.5 trillion. It has been one of the fastest growing financial markets over the last five years and is expected to continue expanding at an even faster rate.
Its rapid evolution is particularly evident in four dimensions of its development. Firstly, today IF is viewed as a competitive form of financial intermediation, drawing significant participation by non-Muslims. The total assets of the Islamic financial system have surpassed $1 trillion, a fivefold increase over their magnitude just five years ago. IF is now among the fastest growing financial segments in the world, with an estimated annual growth of 20 percent.
Secondly, with the emergence of more diverse IF institutions and the development of IF markets, the scope of IF business has been expanded to include private equity, project finance, the origination and issuance of sukuk (bonds), and fund, asset and wealth management activities.
The third dimension in which there has been significant evolution is in the regulatory and legal framework of IF, which is shaped by the distinct features of IF transactions. This has ensured that the growth and development of IF is accompanied by the corresponding development of this framework.
Fourthly, the international dimension of IF has rapidly gained significance as it evolves to become an increasingly important part of the international financial system and as it becomes poised to contribute to greater global financial integration. The expansion of the network of links among intermediaries and markets in various regions will contribute towards a more efficient allocation of financial resources across borders and thus contribute to enhancing global growth prospects.
Benzer Haberler 
