Islamic banking growing faster than conventional banks, says report
For years, Islamic banks have been growing at a double digit pace. But according to a recent report, this is two to three times faster than the rate at which conventional banks have grown over the same period, due in part to the global financial crisis. Ernst and Young (E&Y), in their latest World Islamic Banking Competitiveness report, shows the assets of Islamic banks grew at an average rate of 17% per year between 2008 and 2012. Islamic banks differ because they have to run their operations in a way that is consistent with the principles of Islamic law, or sharia. This prohibits banks from dealing with businesses that are considered sinful, or haraam, such as pork, alcohol and gambling. Admittedly, this is not much of a constraint. However, usury or riba, is also prohibited under sharia law so in principle banks cannot charge fees or interest for money lending. An Islamic Finance Task Force was launched last year by the British government with the aim of making London a western hub for Islamic finance. But as the era of cheap money ends and the huge monetary stimuli from central banks is withdrawn, growth in these regions may slow down, especially in the banking sectors. Islamic banks have tremendous scope to keep growing within the niches, compatible with sharia law and in certain parts of the world.