Getting started with Islamic banking landscape

In-Depth Analysis

After having seen the noble cause of Shariah compliant trading, the stage has come where we enter the Islamic banking landscape. The author notes that many people from different parts of the world in his Islamic banking and finance career were mystified as to how Islamic banks make money if they do not deal with interest. The world's first commercial Islamic bank, Dubai Islamic Bank, was launched in Dubai in 1975. It was easy to come up with the first two parts in the name of the bank such as 'Dubai' — since it was Dubai where the idea was conceived — and 'Islamic' as the modus operandi of the new institution was to be based on Shariah principles. However, the debate was on how to narrate the nature of the institution so as to let the people know that, in addition to conventional banks, this too is a place where they can deposit their funds. Finally, it was agreed to call it a 'bank' in line with the conventional banks operating in the country at the time so that the message gets across that the new institution will also accept cash deposits, similar to conventional banks. This seemed to have paved the way for the other Gulf countries which saw the emergence of Islamic banks, some without using the word 'bank' such as Kuwait Finance House. Recently, Emirates Islamic Bank in the UAE also rebranded itself simply as Emirates Islamic by shortening its name without using the word 'bank.' An Islamic bank's objective for trade and investment is served through various contracts: some of them are categorized as sale contracts and others are called investment contracts. The main sale contracts commonly used by Islamic banks worldwide are Murabahah, Salam, Istisna, and Ijarah, whereas the investment contracts are Mudarabah, Musharakah, and Wakalah.