Research Topics: Islamic Banking And Finance

International Accounting and Islamic Banking and Finance   1)     Islamic banking and finance principles contain forbidden elements that are in contrast of international accounting principles.   2)     Though Islamic banks and financial institutions adhere to legal and state requirements, there are underlying concepts not consistent with the International Accounting Standards Board (IASB).   3)     Prohibitions of Rib¯a and Gh_arar are not in consonance with Generally Accepted Accounting Principles.   4)     Islamic financing methods impose limitations in implementing international accounting standards.   5)     How international accounting standards create a competitive disadvantage for the Islamic banking and finance industry?    Credit:ivythesis.typepad.com

Islamic Banking and Finance Thesis Statements

International Accounting and Islamic Banking and Finance 1) Islamic banking and finance principles contain forbidden elements th...

ISLAMIC FINANCE BACKGROUND In just four decades, Islamic banking has been one of the fastest growing and most innovative financial industries in the international capital markets; Islamic financial activities have been growing steadily. Because of the undisputed potential and success of Islamic banking and finance, various institutions offer Islamic financial services either exclusively or in conjunction with conventional services (General Council for Islamic Bands and Financial Institutions 2003). Islamic finance is a trend which is broadening the ownership base, creating more stakeholders and thereby bringing the hope of stability to more than 1.3 billion Muslims spread across the world (Khan 2003). The concept of Islamic Finance is based on themes of Community Banking, Ethical and Socially Responsible Investments and Affinity Marketing (Khan 2003). These themes themselves are based on core ideas including individual responsibility, reliance on market mechanism, commitment to economic and social justice and mandatory care for the environment. Islamic financial systems and interest-free banking, ideals long cherished by Muslims, have become reality. The growth of worldwide financial networks and of the reputation of Muslims for trustworthiness and trends toward revitalizing Islamic laws and economics, accompanied by substantial oil revenues have fostered expansion of Islamic banking (Haqiqi & Pomeranz 2000). More than 35 Islamic banks have sprung up across the 29 member states of the Islamic Organization Conference (IOC). There is an obvious need by Muslims for institutions in which they can deposit their savings, and borrow in accordance with Shariah principles.       In the past two decades, Islamic banks have grown in size and number around the world. (Aggarwal & Yousef 2000) examine the types of financial contracts offered by Islamic banks by understanding any departures from traditional Islamic principles in the types of contracts offered. (Aggarwal & Yousef 2000) suggest an economic rationale for the constraints imposed on Islamic banks and try to determine if these constraints are likely to be social welfare improving; examine the types of projects in which Islamic banks invest. Islamic banks are supposed to offer instruments consistent with the religious beliefs and cultural characteristics of Muslim societies. According to prevailing interpretations of Islamic Law, financial instruments should emphasize profit-and-loss sharing. Interest is prohibited, which seems to exclude debt contracts (Aggarwal & Yousef, 2000).   ISLAMIC FINANCE HISTORY, GROWTH AND FUTURE Muslims’ moral equivalent of Modern Capitalism was evident in the early 1960s. The first modern Islamic bank was called Nasser’s Social Bank in Egypt (Khan 2003).  In 1975, the Islamic Development Bank (IDB) was established by the Organization of Islamic Conference (OIC). Currently, the IDB extends to private sector corporates for project and trade finance facilities. The first thorough studies devoted to the establishment of Islamic financial institutions appeared in the 1940s. Although Muslim-owned banks were established in the 1920s and 1930s, they adopted similar practices to conventional banks (Al Tamimi & Company 2003). Islamic financial institutions have emerged in a large number of Muslim countries including Kuwait, Bahrain, Qatar, Turkey, Pakistan, Indonesia soon after banks reached Saudi Arabia and the United Arab Emirates in the mid-seventies. These institutions have taken the form of commercial banks, investment banks, investment and finance companies, insurance companies (Al Tamimi & Company 2003). In the 1970s and 1980s, Islamic banking was characterized by a large number of commercial banks serving retail Muslim customers in their respective countries. In the 1990s, Islamic financial institutions have become increasingly more innovative, developing more complex instruments and structures to meet the demands of modern day business (Khan 2003). The use of instruments such as leasing and construction finance have become far more widespread. In Muslim communities, limited banking activity, such as acceptance of deposits, goes back to the time when the Prophet Muhammad was still alive. At that time, people deposited money with the Prophet or with Abu Bakr Sedique, the First Khalif of Islam (Haqiqi & Pomeranz 2000). The desirability of abolishing fixed interest rates and the Islamization of financial systems were discussed at the first meeting of the Islamic Organization Conference (IOC) in Jeddah in 1973. Subsequently, many Islamic banks were founded under the profit-and-Ioss sharing system (PLS). According to Haqiqi & Pomeranz 2000), modern Islamic banking has undergone three phases of development. The first phase is the   Emergence-1972 through 1975 which was marked by a surge in oil revenues and great liquidity and a resurgence of fundamentalist Muslim movements. The second phase (Expansion, 1976 to the early 1980s) saw the spread of Islamic banking from the Arabian Gulf eastward to Malaysia, and westward to England. More than 20 Islamic banks were established, including international and intercontinental institutions. The final phase is the Maturity–1983 to the present. Here, the Arab world was confronted by economic setbacks, including slowdowns in oil revenues, the relative strength of the U.S. dollar, higher interest rates in the United States, and capital outflows from OPEC nations. Today, more than three hundred Islamic financial institutions operate in over 40 countries around the world, from commercial banks, investment banks, investment companies to leasing, and insurance companies. Islamic banks around the world have devised many financial products based on the risk-sharing, profit-sharing principles of Islamic banking (Khan 2003, website). FEATURES OF ISLAMIC FINANCE Islam is a complete way of life that has a set of goals and values encompassing all aspects of human life (Al Tamimi & Company 2003). The body of Islamic Law is known as Sharia; it is not a codified law, but an abstract form of law capable of adaptation, development and further interpretation. The recent surge of religious consciousness among Muslims has provided the drive towards implementing and adopting Islamic principles in financial transactions. Shari`ah supervision may be thought of as the single most important distinction between a conventional and a truly Islamic financial venture. For it has no way of certifying that its services, products, and operations are actually Shari`ah-compliant (Delorenzo 2003). Shari`ah supervision signifies a real commitment on the part of management to the principles of transparency and accountability in the matter of Shari`ah compliance (Delorenzo 2003). The most obvious and immediate purpose of Shari`ah supervision is to certify for practicing Muslim consumers and clients that the financial product or service being offered to them is acceptable from an Islamic legal perspective and is therefore lawful to them (Delorenzo 2003). According to Aggarwal and Yousef (2000), Islamic legal principles regulating the conduct and content of commercial transactions in Islamic banking date back to the early days of Islam in Arabia. Moreover, Muslim scholars of the Middle Ages made elaborate efforts to establish the fundamental principles of finance and commerce; these principles are supposed to govern economic activity for Muslims today. The most important of these principles is the prohibition of riba, or any predetermined or fixed return in financial transactions. As stated in the Quran: “Allah forbids riba and permits trade.” While there is much debate about the exact nature of this prohibition on riba, there exists a widespread perception that the ban on riba implies a ban on interest (Aggarwal & Yousef 2000). There exists no example, ancient or modern, of a country that has done away with interest (Kuran 1995). Although there have always been groups hostile to interest–especially in economically primitive communities (Posner, 1980)–in no large community have interest-based financial deals ever become uncommon. Islamic economists have made great efforts, therefore, to justify a ban in terms that go beyond the simple claim that the Qur’an demands it. A common argument, found in all popular texts on Islamic economics (Afzal-ur-Rahman 1980, cited in Kuran 1995; Chapra 1992, cited in Kuran 1995)) is that it is unjust to earn money without assuming risk. To address the demand of the Muslim population to participate in the world economy without sacrificing their beliefs, alternative interest-free financing techniques have been developed by Islamic banks and the monetary authorities of several countries. The instruments of commercial financing have been based on the profit-and-loss sharing (PLS) principle (Aggarwal & Yousef 2000). The PLS principle is now considered in the Islamic legal and economic literatures as the cornerstone of financial transactions. This principle states that the bank may earn a return on invested funds provided that the bank shares in the risk of the investment and bears a loss if the project fails. Under this principle, unique types of financing emerged (Al Tamimi & Company 2003; Agarwal & Yousef 2001; Siddiqi 1999); Mudarabah financing, where the bank provides capital and the entrepreneur contributes effort and exercises complete control over the business venture. In case of a loss, the bank earns no return or a negative return on its investment and the entrepreneur receives no compensation for her effort. In case of a gain, returns are split according to a negotiated equity percentage. Musharaka financing, where the entrepreneur and the bank jointly supply the capital and manage the project. Losses are borne in proportion to the contribution of capital while profit proportions are negotiated freely. Murabaha financing, where the bank purchases an asset on behalf of an entrepreneur. The bank resells the asset to the entrepreneur at a predetermined price that covers the original cost and an added, negotiated profit margin. Payment is made in the future in lump sum or in installments. Ownership resides with the bank until all payments are made. This type of financing is the classic instrument for trade financing, dating to ninth-century Arabia. Ijara financing, on the other hand, is a financing where the bank purchases the asset and allows the entrepreneur to use it for a fixed charge. The ownership of the asset either remains with the bank or is gradually transferred to the entrepreneur in a rent-to-own contract. This kind of financing is the traditional contract for what is known as leasing today. Islamic banking and finance has been a quest for justice and morality into the ordinary business of life; however, justice and morality cannot be all encapsulated into laws and regulations, especially when it comes to protecting the small and weak from the big and strong (Siddiqi 1999). At the heart of the Islamic economic culture lies care for others as a force tempering man’s innate selfishness. In sharp contrast to neoclassical economics, which dominated the scene during the twentieth century, Islamic economics brings the social dimension of living into focus, thus downsizing individualism. As the literature shows, the last fifty years have shown several attempts to analyze morally informed human behavior in production, consumption, and exchange (Naqvi 1997). The other pillar of capitalism, along with private property, is free enterprise. The literature of hisba (accountability) (Ziadeh 1962, cited in Siddiqi 1999) as well as the economic writing of Ibn Taymiyyah, al Ghazzali, Muhammad Ibn al Hasan al Shayhani and Abu Yusuf (Siddiqi 1982, cited in Siddiqi 1999) partly capture the social and moral dimension priorities in production and consumption and self imposed limits on profit making. Further, recent attempts to study Muslim economic agents under influence of Islamic norms and values have been very few (El Ashkar 1986, cited in Siddiqi 1999). These studies reflect the continued domination of neoclassical economics. But we do have enough evidence on the reality of ethical economic behavior(Lewis & Warneryd 1994, cited ib Siddiqi 1994) in the contemporary societies in East and West to justify attempts to broaden its scope and capture new areas. For several decades, Islamic economics remained almost exclusively an intellectual exercise. Since the 1970s, however, steps have been taken to put its ideals into practice. According to Kuran (1995), dozens of countries now have Islamic banks–financial intermediaries that claim to offer an interest-free, and thus morally superior, alternative to conventional banking; many Islamic banks have proven profitable, and some are expanding rapidly. Moreover, Kuran (1995) states that Islamic economics did not emerge from a drive to correct economic imbalances, injustices, or inequalities. The final distinguishing element of an Islamic economy, according to the Islamic economists, is that its agents act under the guidance of norms drawn from the traditional sources of Islam (Siddiqi 1972, cited in Kuran 1995; Naqvi 1981, cited in Kuran 1995; Chapra 1992, cited in Kuran 1995). These norms command good and forbid evil. They promote the avoidance of waste, extravagance, and ostentation. They discourage activities that create harmful externalities. They stimulate generosity. They encourage individuals to work hard, charge fair prices, and pay others their due. Although efforts to restructure the entire economy according to Islamic criteria have been limited to a handful of countries, there is one domain, banking, where the influence of Islamic economics has spread widely. There now exist Islamic banks, or branches of such banks, in more than 60 countries (Kuran 1995). All claim that their operations are free of interest, and also that their decisions rest on considerations that go beyond profit maximization. As of the late 1980s, those based in the Arab world, which include the two largest groups of Islamic banks, were capitalized at around .6 billion, and they held assets worth .9 billion. During the entire decade of the 1980s, the assets of these banks grew by 18.8 percent a year, although the subsequent growth has been considerably slower (Ray, 1995). In some of the countries where the Islamic banks compete with conventional banks, notably Egypt and Kuwait, the banks have managed to attract around 20 percent of all the bank deposits; in most other countries, their shares, though rising, remain much smaller ( Moore, 1990; Wilson, 1990). ISLAMIC FINANCIAL CONTRACTS “Islamic Finance (A AUE Legal Perspective)”, (2003) Al Tamimi & Company, Available: http://www.tamimi.com/publications/islam-fin.htm, Accessed (2003, November 05), pp.1-24   To fully participate in economic trade, Muslims have developed contracts that comply with Islamic finance. These may be used by Islamic banks to attract funds and to provide financing in a truly Islamic way. There are four conditions required to effect a valid contract (Al Tamimi & Company 2003): 1)a price that is agreed mutually and not under duress; 2) between parties that are sane and have the legal capacity to understand the implications of their actions; 3) at the time of contracting, the subject matter of the contract should be in existence  and able to be delivered without uncertainity or deception;  and 4) the contract should not be based upon a consideration that is itself prohibited under the Sharia. The following are some of Sharia-compliant contracts: Mudaraba (Trust Financing) It is a form of partnership in which one partner provides the capital required for funding a project while the other party, manages the investment using his expertise. Although similar to a partnership, it does not require a company to be created, so long as the profits can be determined separately. Profits arising from the investment are distributed according to a fixed, pre-determined ratio. This contract may be concluded between the Islamic bank, as provider of funds, on behalf of itself or on behalf of its depositors as a trustee of their funds, and its business-owner clients. It can either be restricted or unrestricted. Where unrestricted, depositors authorize the bank to invest their funds at its discretion. In the restricted Mudaraba, the depositors specify to the bank the type of investment in which their funds should be invested.      Mosharaka (Partnership Financing) It is perceived as an old-fashioned financing technique confined in its application to small-scale investments. Profits are shared between partners on a pre-agreed ratio, but losses will be shared in the exact proportion to the capital invested by each party. This gives an incentive to invest wisely and take an active interest in the investment.  In a typical Mosharaka between a bank and a customer, at the time of distribution of profits, the customer pays the bank its share in the profits and also a pre-determined portion of his own profits, which then reduces the bank’s shareholding in the investment.  Eventually, the customer becomes the complete and sole owner of the investment.             Morabaha (Cost-plus Financing) this type of contract is the most popular form of Islamic financing techniques. Within a Morabaha contract, the bank agrees to fund the purchase of a given asset or goods from a third party at the request of its client, and then re-sells the assets or goods to its client with a mark-up profit. The client purchases the goods either against immediate payment or for a deferred payment.    Ijara (Leasing) This contract is very similar to the conventional lease. Under Islam leasing began as a trading activity and then much later became a mode of finance. Ijara is a contract under which a bank buys and leases out an asset or equipment required by its client for a rental fee. Under this contract, the client does not have the option to purchase the asset during or at the end of the lease term since this is considered under the Shari’a to be tainted with uncertainty.  Salam (Advance Purchase) Salam is defined as forward purchase of specified goods for full forward payment. This contract is regularly used for financing agricultural production.             Istisna’a (Commissioned Manufacture). Istisna’a is a new concept in modern Islamic finance that offers a number of future structuring possibilities for trading and financing. In this contract, one party buys the goods and that the other party undertakes to manufature the goods, according to agreed specifications.             Qard-Hasan (Interest-free Loan) The quard-hasan mechanism effectively amounts to an interest-free loan either to corporate customers in financial distress, or to individual clients for welfare purposes.             Takaful (Mutual Insurance) The model of takaful offers clear guidelines for the establishment of Islamic banking insurance that substitutes its conventional counterpart. Takaful aims to provide security and protection to its participants, in a way that is seen to be socially responsible and fair.    UK SHARIAH COMPLIANT MARKET ANALYSIS Matthews, R.,  Tlemsani, T. & Siddiqui, A. (2003) “Ethical banking: The Islamic mortgage in the United Kingdom”, (Centre for International Business Policy, Kingston Business School) Available: http://business.kingston.ac.uk/research/intbus/islamic_finance.pdf, Accessed (2003, November 05)   UK Shariah Compliant Market             According to the International Association of Islamic Banks (IAIB), by 1998 there were 176 Islamic banks and financial institutions operating in 38 countries. These institutions had total assets of 8 billion, paid up capital of .3billion, and generated .2 billion in aggregate net profits latest year of operation. Sir Howard Davies, chairman of the Financial Services Authorities in the UK said “there was a gap in the market for retail sector Islamic banking products, which would cater to nearly two million UK Muslims” (Matthews, Tlemsani & Siddiqui 2003). There are approximately 3 million Muslims permanently resident in the UK (i.e. 50% of all UK ethnic minorities) with estimated saving of around £1 billion, while over half a million Muslims visited Britain in 2001, spending nearly £600 million3 (Matthews, Tlemsani & Siddiqui 2003). The 5,000 richest Muslims in the UK have liquid assets of over £3.6 billion, according to wealth analysts’ data monitor4HSBC, the UK-listed bank, which has £2 billion assets under management and three Islamic funds, is predicting growth of assets under management of up to 40 per cent for year 20025. If we follow the Datamonitor (1999) research, then this indicates that out of their 1.65 million estimate, 300,000 Muslim adults in the UK have annual incomes in the range of £30000/= and above (see table 1). This means that approximately 25% of all adult Muslims are excellent prospects for banking and financial products.   Muslim Population Profile The Muslim population in the UK is predominately from the ethnic and cultural backgrounds of India (10%), Pakistan (38%), and Bangladesh (19%). Historically the ethnic groups originating from the Indian sub-continent have shown a higher rate of population growth, as compared to other groups in the UK; a trend that is likely to be confirmed anew by the forthcoming Official Census in 2001. The group earning £30,000 or more per year basically comprises of these educated professionals. Research also indicates that these professionals are more knowledgeable of their religious and social roots; thus, there is a natural inclination among them to align their financial decisions with the Islamic faith.   UK Mortgage Products Potential A salient feature of home ownership in the UK is the high proportion of homes purchased through mortgage loans. As such, acquiring a mortgage is one of the first financial decisions that an individual makes in order to lead an economically secure life. According to the Britain 2001 Year Book, during 1999 British banks have written 756,000 mortgage loans while building societies and other lenders have written 426,000 mortgage loans. However, none of these 1.18 million mortgage loans were designed to provide the Muslim community in the UK with a mortgage product in compliance with the injunctions of the Islamic faith. It is estimated that the Muslim population in the UK secures 5% of total mortgages. The Land Registry UK recently published that for the year 2001-2002, the average value of residential property In UK is £121,000, taking this estimate in account along-with the Muslim share of the existing mortgage market, the total market size for the Shariah compliant mortgages is in excess of £7 billion. The demand for the Shariah compliant mortgage by the ethically motivated consumers would also be significantly high, however due to unavailability of the relevant data it is not possible to provide an exact market size for the ethical consumer segment.   UK Investment Products Potential Datamonitor estimates for the year 2000, of those British Muslims earning above £30,000 p.a., 182,000 had savings accounts, 141,000 had IS As, Peps and Tessa’s, 86,000 owned shares and 16,000 had purchased unit trusts. Total ISA market was worth £48 billion in 2000, of which £28.4 billion in funds or shares and £19.6 billion in cash (9.3 million ISA plan holders); existing Pep market valued at £60 billion (5.5 million Pep plan holders). It is estimated that out of the above figures approximately 5% of the investment belong to British Muslims and these investors would respond favorably to the funds that observe the Shariah guide lines are UK registered and managed by leading Asset manager. It is worth noting that ISA transactions accounted for 50% of all new UK investment business; and 70% of total volume. Global Potential For Shariah Compliant Products • 0 billion of retail funds available for Shariah investment, growing by 15% p.a. • 160 Islamic financial institutions offering products/services. • 102 Shariah mutual funds • Only billion invested in Shariah funds globally, including 0 million in one Saudi Arabian fund. This compares with £3.3 billion (.8 billion) invested in 95 UK ethical funds in the year 1999. • Shariah mutual fund market expected to grow by 10% p.a. globally. However a significantly higher growth rate can be achieved by providing Shariah compliant financial products to Muslim and Ethical communities resident in Europe and USA.   U. K. Ethical Funds The growth trend in the ethically managed funds provides an indication that Shariah funds have the potential to follow a similar growth pattern in the UK. Shariah funds can attract investments from the ethically as well as religiously motivated investors. These funds would potentially offer an avenue of diversification as well as satisfying the requirement that the investments decisions of the fund managers are guided by ethical as well as faith principles.   ISLAMIC HOME FINANCE IN UK The vast majority of Muslims either is living in rented houses or has taken conventional interest-based mortgages. The total number of Muslim households as estimated by the Muslim Council of Britain is around 500,000. Of the 500,000 households, it is estimated by various market researches that approximately 40,000 families seek financing for home purchases each year (Khan 2003). It is believed that a large number of Muslims have abstained from taking the conventional mortgage because of its incompatibility with the Islamic principles (Khan 2003). According to Khan (2003), in the Islamic Home Finance, the customer chooses the property for purchase and agrees the purchase price with the owner of the property. The bank buys the property from the Seller at the agreed price. The customer will be requested to provide a deposit against the purchase price, but the Bank will remain the sole registered owner. Then the customer signs a lease agreement with the Bank. The lease will be for a period of up to 25 years with the lease rentals to be reviewed annually to reflect the capital repayment. The terms of the lease agreement will stipulate that in the event of a default the Bank will have the right to repossess and sell the property. Afterwards, the customer/lessee will give an undertaking that in the event of a default under the lease agreement, the Bank/lessor will have the right to compel the customer to purchase the property for the purchase price (which shall equal the amount of principal outstanding). There will also be an undertaking whereby the Bank/lessor promises to sell the property to the customer/lessee at the end of the agreed lease period (i.e., when the whole of the principal portion has been repaid). There will also be a provision for certain other specified instances including when the customer desires to sell the property. The above structure would allow British Muslims to get access to home financing without forcing them to choose between their religion and home ownership. It allows British Muslims to purchase homes without violating Islamic prescriptions on borrowing money on which interest is charged. Further, this initiative will be consistent with the well-established public policy of encouraging home ownership and making Muslim stakeholders in Britain. The transfer of ownership from vendor to bank at the commencement of the lease and from bank to customer at the end of the lease, may attract the payment of two sets of stamp duty. The second set would arise at the end of the term of the lease at the rate of stamp duty then applicable. The second set of stamp duty needs to be exempted because the true effect of the transfer is similar to the redemption of a conventional mortgage or charge: when the property finally vests with the customer without any encumbrance. If the second set of stamp duty is not exempted, the uncertain cost of the second stamp duty would make the Islamic home financing unattractive and cost prohibitive. Unlike the conventional mortgage the proposed product would require the appointment of two sets of Solicitors, thereby making the product more expensive. It is suggested that the Law Society should consider giving a general exemption as is done for the mortgage product. In 2003 Islamic financial products finally arrive on Britain’s high–HSBC, through its Amanah Finance subsidiary, begins the roll out of an Islamic Home Finance product (Al-Awwal 2003). This development comes at the culmination of a combination of circumstances – the increasingly forcefully expressed desire of the British Muslim community to avail itself of financial products which meet the requirements of the Shari’ah (Islamic Law), and the sensing of a growing market opportunity by financial institutions in the UK. The Muslim community has been lobbying the regulatory authorities for a number of years to find ways to use the City’s unique expertise to have viable Islamic financial products available in the UK. For them such products allow them to abide by the strict provisions banning transactions involving riba (usury/interest) in the Qur’an. A recent study by the Datamonitor Group estimates that British Muslims already have taken out over £9 billion worth of conventional housing mortgages. Many of them have done so due to the absence of a viable alternative (Al-Awwal 2003). Moreover, Datamonitor estimates that were a viable product be launched, a pessimistic scenario will see gross advances for Islamic Home Finance stand at £1.39bn at the end of 2006 in the UK (Al-Awwal 2003). Financial institutions, having access to this and their own research, have been following this growing potential with interest. London, as a leading and one of the most innovative global financial centers, has always had a large share of the estimated US0 billion plus wholesale Islamic financial products market. However, despite this, there have hardly been any retail Islamic financial products available to the 1.6 million strong British Muslim community. Shari’ah compliant equity fund offerings, tax efficient Shari’ah compliant ISAs, student loan schemes, pension provision and Takaful (insurance) related savings vehicles are expected to be in great demand. In the case of the savings products, there may also be a meeting of minds with a range of ethical offerings. Indeed, the ethical investment movement may get a boost with the launch of a range of offerings with overlapping ethical criteria. Muslim investors may also begin to look at environmental and fair trade criteria for their preferred investment vehicles. This will force progressive Shari’ah scholars to take these hitherto neglected criteria on board. Whilst many institutions have examined the viability of launching these products in the UK, the HSBC Group is probably the most advanced amongst the mainstream providers of banking and home finance facilities (Al-Awwal 2003). Customers of banks and financial institutions will begin to see offerings of a range of Islamic financial products. References Al Tamimi & Company (2003), “Islamic Finance (A AUE Legal Perspective)”, Available: http://www.tamimi.com/publications/islam-fin.htm, Accessed (2003, November 06)   Delorenzo, Y. T. (2003), “Shari`ah Supervision in Modern Islamic Finance”, Available: http://www.guidancefinancialgroup.com/pdf/Shari’ah_Supervision_in_Modern_Islamic_Finance.pdf, Accessed (2003, November 06) Siddiqi, M. N. 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A Literature Review Paper on Islamic Home Finance

ISLAMIC FINANCE BACKGROUND In just four decades, Islamic banking has been one of the fastest growing and most innovative financial indu...