Islamic finance

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In Islamic finance, financial endeavors must conform to Sharia law, which prohibits (for example) charging or paying interest on loans, "gambling" with certain derivatives and options, and investing in firms that make alcohol, pork products, or pornography. [1] As such, it is a form of socially-responsible investing, or "ethical investing."

Islamic finance also bans people from selling what they don't own, which rules out short selling, and from entering into contracts that have excessive uncertainty on either side, which rules out traditional insurance. Instead, Islamic banks use "takaful," in which a number of people get together and pool their risk.

In the 1990s, HSBC and Citigroup established global Islamic finance divisions. They and stand-alone Muslim banks have been creating instruments that parallel many of the Western world's financial products, from consumer loans to insurance to bonds. There are at least $500 billion worth of Islamic finance assets worldwide (compared to the approximately $12.7 trillion in assets held by U.S. banks alone, according to the American Bankers Association). However, Islamic banking has grown by more than 10 percent annually over the past decade. [2]

Dubai is the current hub of Islamic banking and has more listed sukuk, or Islamic bonds, than anywhere else. Outside the Muslim world, London is the leader in Islamic finance. [3]

References

  1. Islamic Finance. Forbes.com.
  2. God and Mammon. Forbes.com.
  3. Contenders for the Crown. Forbes.com.