Islamic Finance

Abstract

“It took me six months to realize that Islamic finance was a legitimate way of doing business” stated the United States Secretary of Treasury, Paul O’Neill, in 2002 (Akhtar 2008). This statement came not long after the tragic acts of Muslim Terrorists on September 11, 2001. With the rapid growth of Islamic Finance worldwide and so many partnering countries of the United States using this financial system, the U. S. Treasury Department held its first seminar on Islamic Finance in April 2002 (Goodenough 2008). Islamic Finance is based on principles of “Sharia” or “Islamic Law.” Some of the components of Sharia regarding financing are a ban of interest payments, an adherence to risk sharing and profit sharing, promotion of ethical investments that are for the greater good of society and asset backing. Sharia assets have grown between ten to fifteen percent annually since 2002 and in 2008 comprised of over one trillion dollars in assets and expected to reach four trillion dollars worth by 2010. Islamic financing has historically been concentrated in Persian Gulf countries, but has expanded globally to both Muslim and non-Muslim countries. There is a small but growing market Islamic finance in the United States. Through international and domestic regulatory bodies, there has been an effort to standardize regulations in Islamic finance across different countries and financial institutions. Challenges remain with this, critics of Islamic finance express concern about ties between finance and political agendas or terrorist financing and use of Islamic financing to circumvent United States Sanctions. Proponents argue that Islamic finance presents significant new business opportunities and provides alternate methods for capital formation and economic development. With the integration of Islamic Finance and banking in more than seventy-five Muslim and Non-Muslim countries, the appeal for this system is expanding as a market for global capital (Akhtar...