Theme : Global Evolution of Islamic Finance

Transcription

1 Master Islamic finance Theme : Global Evolution of Islamic Finance Elaborated by ACHAACH Hind ACHERRAT Samia El MHASSANI Souhaila MAAROUF Oumaima Supervised by Dr. Akherif Amine

2 Abbreviations CDVM: Club Dirigent Vendit Marketing GCC: The Gluf Cooperation Council HSBC: The Hongkong and Shangain Banking Corporation - 3 -

3 List of tables Table 1: The Trend of Islamic Finance in Major Countries In Africa.. 22 Table 2: The Trend of Islamic Finance in Some Countries In Europe.23 Table 3: The Trend of Islamic Finance in Major Countries In The Middle East and Turkey 24 Table 4: Islamic Financial Institutions In North America

4 Table of Content Abbreviations 3 List of tables.. 4 Table of content..5 Introduction...7 Chapter1: History and Development of Islamic Finance 9 Section1: The Definition of Islamic finance...9 Section2: Islamic Tradition. 10 Section3: The Quran and Islamic Economics.10 Section4: Golden Age of Islamic Civilization : Financial innovations in the Islamic world : Islamic Coinage in Europe : Ottoman Empire...12 Chapter 2: Some strategies and some Global experiences of Islamic finance 14 Section 1: Modern Era : Emergence in India during the 1930 s : Critical Mass in Post Colonial Era : Middle East Growth : South East Asian and Malaysia Growth : Pakistani Growth : UK growth...16 Section 2: Strategy of Islamic Finance.. 16 Section 3: Requirement to sustain growth...17 Section 4: Morocco experience in Islamic finance.. 18 Chapter 3: Recent Development of Islamic Finance..21 Section1: Trend of Islamic Banking in Africa

5 Section 2: Trend of Islamic Banking in Europe.. 22 Section 3: Trend of Islamic Banking in Middle east and turkey. 23 Section 4: Trend of Islamic Banking in North America 25 Conclusion...27 References

6 Introduction Islamic finance is known as a new phenomenon nowadays. However, its concepts have been around for a long while. Islamic finance is as long as the Islamic religion with its pillars and principles primary derived from the Quran, which was revealed some 14 centuries ago. Islamic Finance is based on principles that are derived from the Quran in addition to the teachings and practices of the Prophet Muhammad under the Sharia framework (the law of Islam). Therefore, no financial activity, or instrument would be considered Islamic if it does not comply with Sharia. In Islamic finance, money has no intrinsic value and cannot be more than a measure of value. Thus, the main role of money in this discipline is to be a payment mechanism for the tangible assets or services exchange of ownership. Furthermore, Islam prohibits several common instruments in conventional banking such us: interest (Riba), speculation (Gharar), and uncertainty (Maysir). Therefore, there are no equivalents to these instruments in the Islamic finance. Moreover, risks in this discipline are shared between all parties: investors and entrepreneurs. Islamic Finance provides several instruments that can compensate conventional banking s ones, without violating Sharia law. The most common instruments in Islamic banking are: o Sukuk: Islamic type of bond Representing the ownership by the Sukuk holders in the underlying asset o Murabaha: Asset purchased by the Bank and sold on to the customer with an agreed mark-up o Ijara: Asset purchased by the bank and leased to the customer over a specified period o Musharaka: Investment partnership in which profit sharing terms are agreed in advance and losses are attributable to the sum invested. Similar to a joint venture agreement o Mudaraba: Partnership financing Contract under which one party provides the labour whilst the other provides the capital o Takaful: Mutual insurance Any business proposal received by Islamic banks should be assessed in order to make sure that it is sharia compliant, and that no forbidden activities are included. Forbidden activities in Islamic Finance are the ones related to alcohol, pork products, conventional financial services, gambling, pornography, weapons and defence. During the last few decades, Islamic banking expanded rapidly to reach a market value of over $2 trillion. This is thanks to its high growth rate that ranges between 10 and 12% annually. This banking discipline has been growing faster than conventional banking in many majority Muslim countries. Even non-islamic countries started to show interest to this banking system such as the UK, South Africa, Hong Kong, and Luxemburg. In this paper we will be discussing how Islamic Finance did evolve, develop and adapt over the last 1400 years? - 7 -

7 Chapter 1: History and Development of Islamic Finance - 8 -

8 Chapter 1 : History And Development Of Islamic Finance Islamic finance, while emerging over the past four decades, has its roots in the past as well as the present. These links to the past relate to the fact that it is based on principles and features which were established more than 1,400 years ago. Its links to the present relate to the fact that these ancient features are now being presented to contemporary society in a form which is both modern and innovative. Islamic finance is distinct from conventional finance in many respects but has a common goal in achieving the same economic benefit as conventional finance offers to society. Section 1: The Definition of Islamic Finance Islamic finance is a term that reflects financial business that is not contradictory to the principles of the Shari ah. Conventional finance, particularly conventional banking business, relies on taking deposits from and providing loans to the public. Therefore, the banker-customer relationship is always a debtor-creditor relationship. A key aspect of conventional banking is the giving or receiving of interest, which is specifically prohibited by the Shari ah. For example a conventional bank s fixed deposit product is based on a promise by the borrower to the bank to repay the loan plus fixed interest to the lender (the bank) that is the depositor. Essentially, money deposited will result in more money which is the basic wealthproducing structure of interest based finance. In other non-banking businesses, conventional products and services, such as insurance and capital markets could be based on elements that are not approved by Shari ah principles such as uncertainty (Gharar) in insurance and interest in conventional bonds or securities. In the case of insurance, the protection provided by the insurer in exchange for a premium is always uncertain as to its amount as well as its actual time of happening. A conventional bond normally pays the holder of the bond the principal and interest. Conventional practices could also involve selling or buying goods and services that are unlawful from a Shari ah perspective. These might be non-halal foods such as pork, non-slaughtered animals or animals not slaughtered according to Islamic principles, alcohol or services related to gambling, pornography and entertainment. In short, conventional business practices could. Be non-compliant from a contractual structure perspective (if they are based on interest and uncertainty) and / or from a transactional perspective when they are involved in producing, selling or distributing goods and services that are not lawful according to the Shari ah. (Alawode, 2015)

9 Section 2: Islamic Tradition The essence of Islam is that it derives its principles and values from the Qur an and the Traditions of the Prophet Muhammad. The history of Islamic law begins with the revelation of the Qur an which contains legal principles and injunctions dealing with subjects such as ritual, marriage, divorce, succession, commercial transactions and penal laws. In contrast, the Traditions of the Prophet Muhammad record the sayings, actions and tacit approvals of the Prophet Muhammad. The literature of the Traditions of the Prophet Muhammad covers a much wider range of topics than the legal verses in the Qur an. Muslims believe that Islam starts from a given or self-evident premise, namely the revelation. It was with the aim of directing and guiding humanity to the realization of its moral potential and worldly worth that Islam undertook to create a system known as the Shari ah. Shari ah refers to commandments, prohibitions, guidance, and principles under Islam and is the clear path for believers to follow in order to obtain guidance in this world and deliverance in the next. The Shari ah provides guidance in terms of belief, moral conduct and practical rulings or laws. According to Islam, a complete system of life is based on both legal prescriptions and moral and good conduct. Moral values have been incorporated as legal requirements in some specific contracts such as Amanah (honesty) in Murabahah (mark-up) financing. Other principles of moral values pertaining to commercial transactions include: Timeliness in the payment of debt or delivery of an asset. The failure to observe this aspect might involve legal consequences. Tolerance in terms of bargaining, where the parties are encouraged to be considerate to other s requirements and circumstances. Mutual revocation of a contract on request by one party if one party finds him or herself uncomfortable with the outcome of the transaction. Honesty or Amanah in all statements, representations and warranties. These principles are not meant to be exhaustive but rather to highlight areas where, according to Islam, morality is relevant in commercial dealings. (Moinuddin, 2014). Section 3: The Quran and Islamic Economics Islamic finance products are based on permitted economic and commerce activity as outlined in the Quran within which is revealed permissible sources of income, the prohibiting of other types of income including riba (interest), moral directives in conducting business, unethical trade practices, charity, consumption, wealth accumulation, social responsibility as well as communal development. Islamic finance is simply the products developed based on these requirements. (Naveed, 2015)

10 Section 4: Golden Age of Islamic Civilization The early Muslims engaged in transactions based on Sharia, and Islamic Economic principles are documented as being practiced during the Golden Age of Islamic Civilization which occurred during the Middle Ages from the mid-7th century to the mid-13th century. During this era inhabitants established trade routes which stretched from Gibraltar (Jabal Tariq in Arabic) to the Sea of China along which flowed trade based on the principles of Islamic commerce. (Naveed, 2015). 4.1 Financial innovations in the Islamic world Shaikh M Ghazanfar in his article Capitalist Traditions in Early Arab-Islamic Civilization states financial innovations during this period led to the development of precursors of today s financial products which were developed by a need to safeguard the integrity of money transactions. He describes One such device was the bill of exchange or letter of credit (suftajeh), which became well established in state and private commerce. A sakk (the singular to the plural Sukuk) was used as an international cross border cheque, and Ghazanfar further states One can find precursors of the modern stockexchange/money market in Islam: there was not only the wholesale/retail commercial exchanges in the funduqs, but also activities typical of the modern commodity exchange. It should not be surprising that early developments of financial products in the Islamic world have greatly contributed to modern conventional finance products, as it is consistent with other fields such as science and agriculture, where knowledge was also disseminated and bought back into Europe through trade as well as by the Crusaders. (Naveed, 2015). 4.2 Islamic Coinage in Europe Post-Roman Europe was demonetized and used the trade of furs and lumber with the Islamic Caliphate to get desperately needed hard currency in the form of Islamic coinage. Finds of Islamic coins have been discovered in Europe and illustrate the monetary might of the Muslims. Muslim coinage spread rapidly and dominated the economies of Europe and the Middle East, as well as India. Herman Van Der Wee, an eminent Belgian economic historian, states that the re-monetization of Europe post the Roman Empire and the rebirth of the European banking system owe much to the flow of Muslim coinage to Europe. (Naveed, 2015)

11 4.3 Ottoman Empire During the Ottoman Empire ( ) global trade grew, but the development of Islamic finance products was limited though it is believed the first Sukuk was issued in 1775 by the Ottoman Empire when it borrowed money against future income on tobacco customs levies to fund its budget deficit. (Naveed, 2015)

12 Chapter 2: Some strategies and some Global experiences of Islamic Finance

13 Chapter 2 : Some strategies and some Global experiences of Islamic Finance There is clearly a natural evolution that has taken place in Islamic Finance throughout the years. In this chapter we will treat the modern s era of Islamic revolution, strategies and requirement to sustain its growth, also we talk about morocco experience In Islamic Finance. Section 1: Modern Era 1.1 Emergence in India during the 1930s Modern Islamic economics emerged amongst Indian Muslims in the 1930 s as the country s Muslim minority feared an independent and Hindu-dominated India would subject them to hostility and discrimination. These worries were based on the build-up of debt by Muslim farmers, mostly to Hindu moneylenders who were prepared to expropriate the lands of defaulters. Later after a movement to ban usury in Pakistan gained prominence in the 1950s, a push to include a ban on usury in the 1956 constitution did not succeed. As a result a segment of the Muslim population in Pakistan decided to support a Pakistani bank that would lend money without charging interest. This bank did not succeed and soon had to close its doors having run out of deposits and with problems acquiring trained staff. However, this idea was soon followed by another Islamic bank in Egypt, founded in 1963 by Ahmed El-Nagar. This bank was a success, and eventually led to the founding of the Nasser Social Bank, although it still faced the same problems as the initial bank in Pakistan. These banks were merged thanks to a grant of $2 million USD from the government of Egypt. The new bank was strict in its adherence to Shariah. All loans were interest free. Loans were given out with a preference for social welfare and projects. Housing for example, had a priority over capital gains or speculation. There were also strict restrictions preventing depositors from re-depositing credit from this bank into conventional banks in search of interest gains. Through various profit sharing ventures and support from its head office in Cairo, this bank was able to participate fully in important community projects. (Naveed, 2015). 1.2 Critical Mass in Post-Colonial Era Indonesia gained independence in 1945 and Algeria in In between these two dates, all Muslim majority countries became independent at which point, Islamic finance can be seen as developments in the Gulf, Pakistan and Malaysia and by the late 1970s, the first forays into cross border Islamic Banking. (Naveed, 2015)

14 1.3 Middle East Growth The Egyptian Nasser Social Bank was seen as a success by other Muslim countries, which looked to emulate its banking model. Saudi Arabia, in particular, supported the founding of other Islamic banks in Gulf States. Dubai was one of the first countries that responded to this Islamic finance movement and, in 1975; the Dubai Islamic Bank was established. This bank was a modern Islamic bank that was privately owned and operated. It consulted with a committee of religious advisors for all matters of policy. Next, the Kuwait Finance House was established in 1977 which, unlike the Dubai Islamic Bank, was majorly owned by government ministries. Two additional banks were founded in 1977, the Faisal Islamic Banks of Sudan and the Faisal Islamic Bank of Egypt, named after Prince Mohammad bin Faisal of Saudi Arabia who played an important role in their founding. During the 1980s, Iran and Sudan initiated reforms in their respective countries resulting in the removal of all forms of interest from their national banking systems. Based on this Iran is widely regarded as the world s biggest Islamic finance market with assets of $300 billion as of (Naveed, 2015). 1.4 South East Asian and Malaysian Growth The initial failure of the Pakistani bank inspired Asian countries to attempt the establishment of an Islamic bank in a way that would be successful. In 1973, the Philippine government established the Philippine Amanah Bank which offers Islamic banking services alongside conventional banking. Although Southeast Asia has been the birthplace of many practices, products, and services of the modern Islamic banking system, it did not play an important part in the development of Islamic banking practices until the establishment of the Islamic bank in Malaysia, which was founded in Malaysia has since played a fundamental role in the modernization of Islamic banking practices and their incorporation into the mainstream global banking system. In this country, an Islamic financial institution already existed before the establishment of the first Islamic bank. The Muslim Pilgrims Savings Corporation, founded in 1963, helped pilgrims in Malaysia perform Hajj. This corporation was later renamed Tabung Hajj and helped pilgrims invest their Hajj savings into businesses in a way that adhered to Shariah. Tabung Hajj was so successful that it eventually led to the Bank Islam Malaysia. In fact, Tabung Hajj was responsible for 12.5% of this bank s initial capital. Islamic banks in Malaysia currently operate conventional and Islamic banking systems side to side, reflecting the global intentions of these banks. While Bahrain was initially at the forefront of Islamic banking on the global market, Bank Islam Malaysia quickly overtook them and currently is years ahead of Bahrain in regards to innovation. (Naveed, 2015)

15 1.5 Pakistani Growth In Pakistan, a new attempt to create an Islamic banking system took place in 1979, gradually eliminating interest from all banking operations by It is important to note that this forced conversion to Islamic banking is characteristic of banks in Pakistan and financial institutions in countries like Sudan and Iran, which is very different from more successful financial institutions like those in Malaysia. Although Pakistan was a pioneer in Islamic banking, the idea of Profit and Loss Sharing, which is fundamental to modern Islamic banking, was not carried out, with most of the banks transactions being carried out in other ways. (Naveed, 2015). 1.6 UK growth Islamic Finance first came to the UK in the 1980s, with the introduction of Murabaha transactions. The first UK Islamic bank, Al Baraka International, launched in This was followed by the growth of bespoke Sharia-compliant products in trade finance, leasing and project finance. In the early 2000s the UK Government started to take a serious interest in Islamic Finance, and developed a work program to make the UK s financial services regulations compatible with the growth of Islamic Finance. Changing the tax treatment, to ensure that Islamic and conventional finance transactions with an equivalent purpose resulted in equivalent tax bills, was also an important step to allow the market to grow. At the same time, there has been significant growth in the offer of retail Islamic Finance services, providing choice to more than 2.5 million Muslims resident in the UK. At the present, there are five fully Sharia-compliant banks in the UK, with twenty institutions offering Islamic Finance services. To service this growing industry, a wide scale program of professional education and training in Islamic Finance developed. At present, four professional institutes and nearly 70 universities and business schools offer qualifications in Islamic Finance. The Islamic Bond (Sukuk) market in the UK started in 2007, and has continued to grow. By 2015, 57 Sukuk had been listed on the London Stock Exchange, with a total value of $51bn. In 2014, the United Kingdom Government became the first Western government to issue sovereign Sukuk, over 11 times oversubscribed. insurance, fund management and banking sectors. (Ord-Smith, 2015). Section 2: Strategy of Islamic Finance The World Bank Group involvement in Islamic finance is directly linked to the Bank s work on reducing poverty, expanding access to finance, developing the financial sector, and building financial sector stability and resilience in client countries. By helping expand the use of Sharia-compliant modes of financing in World Bank Group operations, we are helping deliver benefits to client countries in three areas: The sustainable development of Islamic finance offers benefits for economic growth, reducing poverty and fostering shared prosperity. Islamic finance can significantly contribute to economic development, given its direct link to physical assets and the

16 real economy. The use of profit- and loss-sharing arrangements encourages the provision of financial support to productive enterprises that can increase output and generate jobs. The emphasis on tangible assets ensures that the industry supports only transactions that serve a real purpose, thus discouraging financial speculation. Islamic finance helps promote financial sector development and broadens financial inclusion. By expanding the range and reach of financial products, Islamic finance could help improve financial access and foster the inclusion of those deprived of financial services. Islamic finance emphasizes partnership-style financing, which could be useful in improving access to finance for the poor and small businesses. It could also help improve agricultural finance, contributing to improved food security. In this regard, Islamic finance can help meet the needs of those who don t currently use conventional finance because of religious reasons. Of the 1.6 billion Muslims in the world, only 14% use banks. It can help reduce the overall gap in access to finance, since non-muslims aren t prohibited from using Islamic financial services. It helps strengthen financial stability. As the 2008 global financial crisis ravaged financial systems around the world, Islamic financial institutions were relatively untouched, protected by their fundamental operating principles of risk-sharing and the avoidance of leverage and speculative financial products. (Alawode, 2015). Section 3 : Requirement to sustain growth There is no doubt that the Islamic finance sector has felt the repercussions of the financial crisis, but on the whole it has weathered the storm better than conventional finance and its prospects remain high. Governments are in a position to give a direct impetus to this recovery through their involvement in the Sukuk market. The UK government has been in discussions for many years over the issue of a sovereign Sukuk, but deferred action in For the UK a sovereign Sukuk could be an ideal platform to help fund the 2012 Olympics. As it stands, 2010 could see several countries accessing the Sukuk market to help finance major investment projects. Such countries include the UK, Japan, Turkey and Russia who hope to tap into the massive liquidity which exists in Asia and the GCC via Shari ah compliant investment products. If Islamic finance is to compete with mainstream global finance, the industry needs to improve transparency and foster credibility by harmonizing standards and practices, not least, the variety of Shari ah interpretation between regions and at times between institutions. Regulatory oversight needs to be sharpened as well. These measures could be critical in broadening the appeal of Islamic finance and strengthening the credibility of the Islamic system as a sustainable alternative the mainstream financial system. The Islamic finance industry also needs to work on innovation. Shari ah compliant products can be more complex than mainstream ones because every transaction is based on a trading agreement. Many sustainable equivalents to mainstream financial instruments are still lacking, including corporate treasury and derivative products. At the same time, innovation is hampered by the limited number of Shari ah board members (Shari ah scholars) able to vet financial products for Shari ah compliance

17 Finally there is a huge shortage of suitable skilled employees working within the industry. This scarcity of suitably qualified human capital can only be redressed by increasing awareness of the career possibilities within the industry and by the offering of globally accepted qualifications. (Moinuddin, 2014). Section 4: Morocco experience In Islamic finance We found that the commercialization of alternative products in 2007 failed essentially due to the omnipresence of several constraints that faced their competitiveness compared to their conventional counterparts, the most important of these constraints were: The over-taxation that penalized the prices of alternative products commercialized and the high cost of fees and commissions that were applied by the Moroccan banks. The discrimination of the political communication since the target audience could not perceive the specifics of such finance. As a result, the same policy has not pushed enough people to look for such funding formulas. The low involvement of socio-economic operators who did not want to invest in such new markets. Despite all of that, there is a huge potential of Islamic finance in Morocco. In fact, 1/3 of the Moroccan population is predisposed to place more than 700 DH / month in an Islamic savings account and 1/4 plans to block their savings in it for a minimum period of 2 years (IFAAS). And due to difficulties in mobilizing resources in conventional banks, they could find in Islamic finance growth opportunities to broaden and enrich their commercial offering to serve a segment of the population that refuses to be banked for several reasons, from which, religious. According to a study conducted by CDVM, 90% of issuers consider a Sukuk issuance, in condition that it s allowed by the regulation. Thus, market issuers consider that the costs associated with a conventional bond issue are very high. 50% of companies reported in the same study that for the same cost, the Sukuk can replace conventional emissions. Then, the system is more likely to succeed in 2016 because big changes have taken place in this regard, thanks to the redesign of the National Banking Act that provides for the first time in the history of the country, a legal framework allowing the establishment of Islamic banks (called participatory) in Morocco. These changes have been added to the securitization law that we already have since 2012, whose main contribution is introducing the possibility of issuing Sukuk on the Casablanca financial centre, and to the draft on TAKAFUL insurance that will accompany the introduction of Islamic banks because they cannot operate without having insurance that will meet strictly with Sharia requirements. Any success requires adequate ingredients in all confused field and it is not possible to succeed in this new introduction without a comprehensive legal framework. So, we found that the implementation of the laws mentioned earlier is the most important ingredient for the success. Therefore, the Moroccan system is facing a big challenge in coexisting

18 conventional and participatory systems in a stable and correct way, without discrimination or preference. For this, it needs after the regulatory framework, a national strategy clearly defining what we wish to do with this finance. In other words, it should put in place an action plan outlining the roadmap for the achievement of strategic objectives to be set; in the short term to succeed in the reintroduction of this finance in Morocco, and especially in the medium and long term to continue and sustain it. (Soudi & Cherkaoui, 2015)

19 Chapter 3: Recent Development of Islamic Finance

20 Chapter 3 : Recent Development Of Islamic Finance This chapter will illustrate the historical development of Islamic banking industry. In addition, it will provide information about the Islamic banking development in many countries around the world (Africa, Europe, Middle east, turkey and North America) Section1: Trend of Islamic Banking in Africa The central banks of the countries in the Monetary Union of West African monetary formed a committee to gather information about the possibility of establishing Islamic banking in their countries. Information was gathered and analyzed from June 13, 1982, to August 13, After the committee submitted its report to the seven countries governments, a council made up of finance ministers from the seven countries amended the third paragraph of Article 2of the monetary union s provision on central bank laws, which allowed union-member governments to grant exceptions to Islamic financial institutions. The amendment was signed into law on September 22 23, This led to the establishment of several Islamic financial institutions: Faisal Islamic Bank of Niger (February 22, 1983), the Islamic Investment Company of Niger (March 9, 1983), Faisal Islamic Bank of Senegal (February 22, 1983), and the Islamic Investment Company of Senegal (March 9, 1983). Sudan, another country in the African continent, had an idea to Islamize its entire financial system and this initiated when Omdurman University introduced the subject of having an Islamic economy as the primary method of business in The process went through three phases before the whole financial system became Islamic. The first phase of the Islamization of Sudan s banking system took place from 1983 to In this phase, interest was abolished in the country, and the banks faced several difficulties due to the lack of experience in forming Islamic contracts and converting conventional contracts to Islamic contracts (Muhammed et al. 2006). The second phase occurred from 1985 to In 1985, the government passed an act that allowed banks to offer Islamic and conventional products. This continued until the middle of 1989, when the new government issued some laws that led to the elimination of the dual- bank system. The third phase started in 1989 and ended in This phase marked the real implementation of Islamic banking in the country. The government issued several laws in the 1990 s that made Islamic banking the only method of banking allowed in the country. Other countries in Africa will follow the steps of Sudan in Islamizing their entire financial system such as Libya, and this triggered by the Arab spring (Arab spring started on December 17, 2010). In general, the Islamic banking industry is thriving in the African continent as even countries with small Muslim population began to offer Islamic banking to its citizens. Examples of those countries are Ethiopia, Kenya, Tanzania, Mauritius, and South Africa. (Alharbi, 2015)

21 Table 1: Trend Of Islamic Finance In Major Countries In Africa Source: Development of the Islamic Banking System by Ahmad Alharbi Section 2: Trend of Islamic Banking In Europe Islamic finance is developing rapidly in Europe and many European financial intuitions perceive it as a profitable opportunity to create new business. The first attempt at Islamic banking in the Western world took place in Luxembourg in l978 when the Islamic Banking System International Holding was established. Dar Al-Maal AlIslami Trust, made Switzerland its headquarters and this was In the same year, Al-Baraka Intentional Company was founded in the United Kingdom (Bekkin 2007). Also, the International Islamic Bank of Denmark incorporated in 1983 (the bank liquidated in 1986 due to excessive financing exposure to a single client; Bekkin 2007; Grais & Pellegrini 2006). Bosna Bank International Sarajevo was established on October 19, In February 2001, ABCIB Islamic Asset Management was established as a wholly owned subsidiary of ABC International Bank, it located in the UK. In August 2004, the Islamic Bank of Britain was established in the UK, making it the first full-fledged Islamic bank to operate in the country. Islamic Bank of Britain was authorized and is regulated by the British government s Financial Services Authority. Also, the European Islamic Investment Bank was incorporated in January 2005 and received authorization from the Financial Services Authority in March Later that year, Bank of London and the Middle East incorporated and received authorization from the Financial Services Authority in July

22 This trend continued all over Europe, as full-fledged Islamic banks or branches of established Islamic banks emerged in different countries. There are several reasons for the growing interest in Islamic banking across Europe. First, the number of Muslims in Europe is estimated to be 15 million. This number continues to grow and is already large enough to attract financial-service providers. Second, demand is growing for ethical products and socially responsible services. Islamic finance fits conveniently into this, as Islamic principles prohibit trade in debt and ensure that all financial activities are related to the real sector of the economy. Another reason is that some countries wish to attract investors from Islamic nations. Yet another reason is diversification: Many investors are looking for new instruments, products, and asset classes that are unrelated to existing products and services to diversify their portfolios. Islamic finance provides this for those investors. Finally, the current financial crisis has played a role by reducing the relative strength of the conventional banking system. Islamic banks have managed to avoid the effects of this crisis, which has strengthened their position and financing model (Husain 2005; Nouri 2009).Europe offers huge potential for Islamic banks to grow, especially because there are significant Muslim populations in several countries. There are great potentials for Islamic finance industry in European soil. Many countries in Europe are considering issuing laws to promote Islamic banking industry. Countries like France, Germany, and Italy are taking positive steps to implement Islamic finance on it. (Alharbi, 2015). Table 2: The Trend Of Islamic Finance In Some Countries In Europe Source: Development of the Islamic Banking System by Ahmad Alharbi Section 3: Trend of Islamic Banking in Middle East and turkey The first attempt to establish a modern Islamic bank in the world took place in this region (Egypt) in 1963 when the late Ahmed Al-Najjar created a series of savings and investment houses in a few small rural towns in northern Egypt. The first branch incorporated in a town called Mit Ghamr, which inspired the name of the company. The number of branches reached 53, with 85,000 customers (all Muslim) before the government required that the branches be liquidated and merged with conventional banks in 1967 (Shehata 2005)

23 The Egyptian government s action was attributed to its feud with the Islamic groups at that time. The second commercial Islamic bank in the world incorporated in United Arab Emirates in Like Sudan, Iran the Islamization of the banking system in Iran has gone through three phases. The period from 1979 to 1982 marked the first phase, when the banking system nationalized, restructured, and reorganized. The second phase began in 1982 and lasted until The defining events in this period were the approval of the Usury-Free Banking Operation Law on September 1/1983, and its implementation on March 21, The third phase began in 1986 and continues today. The Usury Free Banking Law was enacted 3 years after the war with Iraq broke out. The banks were given 1 year from the date of the law s passage to convert their deposits to the new system and 3 years to convert all other operations. The region s population is almost all Muslim though the Islamic banks were flourishing in the region The Islamic financial market in the Middle East has been concentrated mainly in GCC countries, which account for 41%of the total shariah-compliant assets in the world. Global shariah-compliant assets stood at USD billion in 2008, and the non-gcc Middle East and North Africa (MENA) region accounted for 38.8%of the total market (Time well and DiVanna 2008). (Alharbi, 2015) Table 3: The Trend Of Islamic Finance In Major Countries In The Middle East And Turkey Source: Development of the Islamic Banking System by Ahmad Alharbi

24 Section 4: Trend of Islamic Banking In North America The history of Islamic finance in the United States began with the establishment of the Amana Funds in1986, located in Washington, and American Finance House-LARIBA in California in In its first year, the institution mainly provided home financing to American Muslims. In 1998 LARIBA acquired Bank of Whittier. However, research by Dr. Al- Qudah (2005) indicates that LARIBA s financing contracts do not adhere to shariah principles. The other milestone for Islamic finance in the United States took place in the late 1990s, when the New York branch of United Bank of Kuwait obtained two interpretive letters issued by the Office of the Comptroller of the Currency to offer Islamic retail banking services in the country. The first approval letter was issued in 1997, which involved a residential net lease-to-own home- finance product through an ijarah wa iqtina contract. Under this scheme, the Office of the Comptroller of the Currency determined that United Bank of Kuwait would act as riskless principal because the bank would not buy real estate until the lessee requested it and then rent it to the lessee. The bank would hold the legal title of the property until the payment of the final lease installment, at which point the lessee would take the title of the property. The second letter was issued in 1999 in response to the bank s proposal to offer certain murabaha- based financing products. Similar to the previous scheme, the Office of the Comptroller of the Currency viewed the bank as acting as riskless principal in such transactions and therefore permitted the activity. In 1999 the mortgage company HSBC was authorized by the New York State Banking Departmentto offer a murabaha product for real estate financing. However, HSBC s New York City office had limited success and recently withdrew from the market. The Islamic financial market in the United States stands at about USD 1.5 billion. The licensed mortgage lender, Guidance Financial, is the current leader in the Islamic residential finance market, operates in 32 states, and to date has sold over 900 million dollars in musharakah transactions. Guidance Financial is a one-product company because the musharakah structure is not a legal asset for US banks, which restricts the bank from selling this product. Chicago- based Devon Bank, which is owned by a Jewish family, is the major player in Islamic commercial real estate financing and now operates in several states with a USD 20-million portfolio (Ranzini 2007). Another player in the Islamic financial market in the country is banking giant HSBC, which offers several Islamic solutions to its customers. Islamic finance seems to have a great future in the United States and will likely be driven by the growing number of Muslims in the country. From the regulatory side, U.S. regulators have an open mind about Islamic finance, and this should drive the Islamic financial market to grow in the country. In Canada, although there are some Islamic financial products available in Canada, the Islamic financial-services sector is still peripheral and limited, as there are no major financial institutions offering shariah-compliant products. UM Financial in Ontario,

25 Canada, is one of the primary Islamic financial providers in the country. UM Financial specializes in Islamic mortgages using musharakah contracts in a partnership with the Central Credit Union of Canada. In an 18- month span from 2006 to 2007, UM Financial provided USD 86.1 million in home financings. However, UM had some problems and had to declare bankruptcy, and this might affect the future of Islamic financial intuitions in the country, especially with Canada still lagging behind other countries in promoting Islamic financial products. Several new Canadian banks have applied to the Office of the Superintendent of Financial Institutions in Canada to offer Islamic financial services. (Alharbi, 2015). Table 4: Islamic Financial Institutions In North America Source: Development of the Islamic Banking System by Ahmad Alharbi

26 Conclusion: In conclusion, we have found that the Islamic finance is more ethical compared to its conventional counterpart as it gives priority to collective well-being by financing projects conducive to the development of society while avoiding any opportunistic or speculative behavior. Also, we answered the question asked in the beginning which is how did Islamic Finance evolve, develop and adapt over the last 1400 years? We have found Muslims, financial transactions are a matter of balancing religious considerations with the demands. of a modern economy. Sharia law prohibits riba(interest) and gharar (unequally shared risk) so many conventional Western financial processes are disallowed. However, today Muslims have a number of choices when it comes to Sharia compliant financing. In the middle ages, Middle Eastern traders in the Ottoman Empire and elsewhere practiced financial transactions that were based on Sharia principles. However, it was not until the 1960s and 70s that scholars developed a uniquely Islamic economic philosophy that would address modern economic issues. This philosophy was committed to social justice, equitable distribution of wealth, and concern for the poor. It rejected both capitalism and socialism. The first Islamic bank was established in Egypt in 1964, but the first to be explicitly based on Sharia principles was created by the Organization of Islamic countries (OIC) in Islamic banks continued to proliferate throughout the 80s and 90s and today the Islamic finance market is growing at an average annual rate of 10 15% a year and shows no signs of slowing down. Sharia law provides an ethical framework for these financial institutions which emphasizes economic well-being and individual development as well as values such as fairness, honesty, and generosity. These Shariah compliant institutions also avoid interest, risk, and speculation. Also we have found with Islamic banking markets growing and developing throughout Africa, Morocco seems to be the next emerging market due to an increase in the demand for project and infrastructure financing, due to the backing of a supportive government as well as due to a majority Muslim population and its relative stability. At present, Morocco s financial market lacks liquidity and foreign investment. The introduction of Islamic banking should therefore help increase financial inclusion, investment stability and accelerate economic development for the nation. It has also been predicted that there will be a rise in the use of contactless payments and Sharia-compliant credit cards

27 These efforts to facilitate access and harmonize finance signposts Morocco s path toward becoming an important economic crossroad between Africa and the rest of the world. It is also an important development for the global Islamic finance industry, as its rapid expansion over the past decade has seen a surge in interest from both Muslim and non-muslim countries. The real question is what is the future of Islamic finance in the world and so in Morocco? What are the risks it might have in the near future? And will islamic banks dominate financial market?

28 References: Alawode, A. A. (2015, March 31). Islamic Finance. Retrieved December 20, 2017, from Alharbi, A. (2015). Development of the Islamic Banking System. Journal of Islamic Banking and Finance, 3(1), doi: /jibf.v3n1a2 Moinuddin, C. (2014). AN INTRODUCTION TO ISLAMIC FINANCE. Chartered Institute of Management Accountants. slamic%20introduction%20brochure_mar2015.pdf Naveed, M. (2015, October 22). A History of Islamic Finance traces orgins to modern form. Retrieved December 20, 2017, from Ord-Smith, R. (2015). Islamic Fiance in the UK. Retrieved December 20, 2017, from _Is_Fin_A5_AW_ENG_WEB.pdf Soudi, L., & Cherkaoui, A. (2015). Morocco Experience in Islamic Finance between the Failure of the Past and the Promising Future. Retrieved December 20, 2017, from