Globally, Islamic finance has experienced rapid expansion over the past decade, growing at more than 10% annually. Today, Shari'ah-compliant financial assets are estimated at approximately US$2.0 trillion, covering bank and non-bank financial institutions, capital markets, money markets and insurance. A report by the International Monetary Fund (IMF) (2015) observes that out of all the sectors, the banking sector dominates Islamic finance sector making up about 80% of Islamic finance in 2013 followed by the Sukuk (Shari'ah-compliant bonds) market which accounts for 15% of the Islamic finance industry assets. Islamic banking assets have grown at a compound annual growth rate of 20.4% between 2007 and 2013. Islamic capital markets have also developed significantly over the past decade in terms of sophistication and size. Figure.1 shows the top 11 countries in terms of Islamic banking holding 54.8% of the global total Islamic banking assets (excluding Iran) in the first half of year 2014. Based on Islamic Financial Services Board (IFSB)'s report, Islamic banking assets in the Middle East and North Africa (MENA) countries (excluding the Gulf Cooperation council or GCC) make up 40% of total global Islamic banking assets, followed by the GCC (38%) and Asia (15%). Many European countries like the United Kingdom, Denmark, France, Switzerland and Luxembourg have also adopted Islamic finance.THE PRINCIPLES OF ISLAMIC BANKING: Broadly speaking, Islamic banking is a banking system where financial resources are mobilised and invested in accordance with principles of Islamic Shari'ah. Islamic finance is strictly equity-based and asset-backed. There are various concepts which underlie the functions of Islamic banking and sets it apart from conventional banking. The first and most important principle is that the charging and the receiving of interest (Riba) is strictly prohibited. However, there have been some doubts expressed by Islamic economic scholars as to whether the interest rates charged by modern financial institutions are equivalent to the Shari'ah concept of Riba. Another principle includes the sharing of profits and losses of an investment by both fund-providers and investors based on their capital share and effort. In contrast to conventional finance, there is no guaranteed rate of return. Finally, investors should be fully aware and conscious of the business to be invested in, its policies, the products it produces, the services it provides, and the impact that these have on society and the environment. One must work for profits, and simply lending money to someone who needs it does not count as work.
Performance and prospects of Islamic banking in BD
Under Islamic law, money must not be allowed to create more money. Any contract undertaken where 'Gharar' exists is null and void. Gharar is the ambiguity and uncertainty surrounding a contractual relationship, to the extent that it might provide an unfair advantage to one of the parties of a contract over the other. This ethical approach to banking avoids transactions involving usury, speculation, gambling, or industries contrary to Islamic values. Gharar also promotes risk sharing, connects the financial sector with the real economy, and emphasizes financial inclusion and social welfare.
DEVELOPMENTS AND PERFORMANCE OF ISLAMIC BANKING IN BANGLADESH: The Islamic banking industry has been playing a crucial role since its establishment in 1983, in mobilising deposits and financing key sectors of the economy in Bangladesh. The current status of the Islamic banking industry in Bangladesh is shown in Table 1.