ISLAMIC BANKING AND FINANCE IN THE UAE

Islamic Banking and Finance in the UAE, Problems and Prospects



Abstract

There have been conducted several studies in the past that discussed the Islamic banking system in different perspectives. There are quite many distinctions among the Islamic Banking and Conventional Banking System. In the study regarding the Islamic banking system, conducted by the members of the University of Brunei Darussalam, Islamic banking system has been defined as the one that makes its customers to share the risk. The Islamic banks share the risks with their customers. The study also underlines the fact that the Islamic banks use the deposits of their customers in order to finance new business activity. These business activities are closely evaluated in order to see whether the project is be fruitful or not. However, in the conventional banking system, this process is not adopted and the main factor for financing any business activity is the interest (Aftab, 2005, Pp. 57).

Islamic Banking and Finance in the UAE, Problems and Prospects

Introduction

The essay is an in-depth examination of Islamic banking and finance in United Arabs Emirates. Islam is one popular religion in UAE and as a result of doing business coupled with the desire to have interest free transaction led to development of Bait-al Mal, treasury of Muslim States. The taking of Riba or interest rate is seen to violate the Sheria'h Laws and for that matter all issues relating to financing is only enforceable via interest free zone. Historically, the first banking system that operated on this principle was Mit Ghamr in Egypt back in 1963. Proposals brought forth in a conference of foreign ministries 42 years ago saw to it that a number of Islamic banks tremendously increased among them Dubai Bank and Kuwaiti Finance House.

According to Mahlknecht, 2009 with globalization and increased demand for the services from such bank, it has been projected that globally, the demand for such banks financing will stand at $ 4.0tn in the next five years from the then $400bn in 2007. This has been seen for instance by the efforts UAE central banks to launch liquidity infrastructure aimed at expanding the ability to formulate policies geared to help Islamic banks to successfully manage money issues. Currently there are over 250 Islamic banks of which about 100 operate in Middle East.

Background

The research study is based on the issues of Islamic banking system. In today's world, the researchers and scholars are taking great interest in the Islamic banking because there is huge difference between the Islamic and Conventional banking systems. The Islamic banking system is based on the Islamic economics according to which state has an enormous role in taxation, managing public assets, policing and ensuring the circulation of wealth. Moreover, in the Islamic economics, there is a redistribution of resources so that the essential requirements of the people can be fulfilled efficiently. However, to apply such system is not an easy task for any government authority. The main difference that remains between the Islamic and Conventional banking ...