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.