A New Financial Dawn

In an uncertain market environment where stakeholders’ pessimism about conventional financial institutions has shaken world markets, the steady growth and resilience of Shari‘ah-compliant financial instruments has surprised the gurus of conventional financial market. The major reason for this is the way both share risks and treat money. In an Islamic financial system any profit or loss relating to trading is shared between the borrower and lender according to Shari‘ah principles and equity financing. These two basic conditions make the Islamic financial sector less volatile by absorbing economic shocks. The economic down-turn caused by lack of trust in conventional financial markets has not only revealed the weaknesses of conventional financial sector and the strengths of Islamic finance but also offers unique opportunities for expansion of Islamic financial institutions through innovation and a viable alternative market to the discontented customers who no longer trust conventional financial institutions. However, many people in the financial sector lack knowledge and understanding of the Islamic financial system, which is a major obstacle to expansion of Islamic banking around the world. This knowledge gap is filled by this book. It strives to explain Islamic finance concepts and underlying theories, and financial practices, through comparison of the two systems. Further, the authors assess the potential of Islamic financial institutions to integrate into the global financial system by exploiting future growth opportunities. A feature that distinguishes their discussion is the exposition of the strengths and opportunities of Islamic financing as well as its weaknesses (lack of trained Shari‘ah scholars) and the dangers it faces (diverse interpretation of Shari‘ah Law), which may hinder its expansion and be a source of volatility.