THE SPREAD OF ISLAMIC FINANCE OUTSIDE THE MIDDLE EAST by Aykut Alan
• Ijara (Islamic leasing): These are
Islamic banks have been integrated
finance tools are used in about 60
into the world financial and banking
countries. The Islamic financial market
operational or financial leasing
system in the last 20 years, although the
accounts for 1% of the global financial
contracts similar to leasing. The bank
banking system in Islam is much older.
system, estimated at roughly $2.5 trillion,
buys assets on behalf of its customer
However, Islamic banking and financial
covering some 1400 institutions spread
and makes it available to third parties
instruments offer a limited service to
across 80 countries.
with a fixed lease. The property is owned by the bank but shares the
investors compared to the banking Islamic financing is not to use interest or
THE MAIN STRUCTURES OF ISLAMIC FINANCE
“riba” in the words of those who manage
The basis of Islamic finance is the
these banks in any financial investment or
prohibition of interest. There is no problem
banking transactions.
in terms of profit from an investment. The
practices we know. The basic principle of
basic principle is not to make money from The concept of Islamic finance, defined as
money, but to make money by turning
“interest-f ree banking” or “participation
your money into an investment, but in this
banking” in the economic literature,
case, there is a possibility of loss. The main
requires that financial transactions and
structures used in the Islamic financial
banking operations be carried out in
market are:
not applied when borrowing or lending. It is also prohibited to use financial instruments open to speculation in the Islamic financial market. Today, Islamic
• Mudaraba (instalment sales): It is a partnership in which the bank provides capital and the other party provides labour, knowledge, and experience. • Sukuk (Islamic bonds): Islamic bonds give partial ownership. The holder gets assets.
• Istisna’a: It refers to the exception to the financial institution borrowing to its clients for a project that has not been produced yet, to provide capital with a contract.
investor.
a fixed share of the income from the
accordance with the basic rules of Islam. In Islamic financial institutions, interest is
profit from the rental fee with the
These various forms of financing provided by both Islamic banks and the Islamic finance departments of international banks can be provided as part of a project finance package, in line with traditionally lending banks.
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