Although Shariah-influenced finance has existed for centuries, the first modern Islamic banks were not established until the early 1960s. Today, Islamic banking is spreading throughout the Middle East and Africa, in countries where a majority of the population is Muslim. Combining modern technology with ancient religious principles, Islamic banking is rich with opportunity for financial firms seeking to serve this growing consumer market, especially those who have not been served well by conventional banks.
Shariah Non-compliance Risk in Islamic Banks, and What It Means for Meeting Capital Adequacy Requirements
Islamic banks, which operate according to Shariah principles, are growing rapidly worldwide, claiming billions in assets. IBs appeal to conservative Muslims worldwide because of their adherence to concepts such as profit-and-loss sharing instead of taking interest. But what happens when an Islamic bank fails to fully comply with Shariah rules? One consequence of this risk of loss is that it can limit the bank’s ability to meet capital requirements.
The familiar adage We learn best from our own mistakes is particularly apt for Bank Islam, which in the past 10 years has completed a turnaround that saw it recover from a state of crisis to gain its current status as Malaysia’s Islamic-banking leader. Its transition from multiple mainly credit-related failures to overwhelming successes is an inspiration for struggling banks the world over.
Bank Islam has made a remarkable comeback in the past 10 years, recovering from years of heavy losses to become one of the region’s financial powerhouses. In our interview with the bank’s Deputy CEO Khairul Kamarudin, we discover some of the bank’s avenues to success.
Islamic banking is gaining momentum in traditional as well as non-traditional markets and the industry is likely to maintain the current trajectory in the foreseeable future. In many regions, Islamic banking has evolved from being an emerging ethical niche market into being part of the mainstream financial services landscape.