Running head: ISLAMIC BANKING IN THE UNITED STATES 1
ISLAMIC BANKING IN THE UNITED STATES 5
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Current status of Islamic banking system in the United States
Islamic banking practice is a banking system that abides by the Islamic law or Sharia law and. Many countries adopt Sharia law alongside the conventional banking principles. The paper seeks to review the current situation of Islamic banking in the United States. The paper will discuss the factors in favor of and against Islamic banking in the United States as well as the impacts it has had on economic development. The Islamic banking concept will also be reviewed.
Islamic banking concept
The principles that govern Islamic banking mainly focus on sharing of mutual risks incurred and profit between the bank and its clientele. Consequently, the transactions are based on the commercial value of the business activity, as well as on the acquired asset value to ensure fairness. The principles help achieve societal development and capital gain to traders engaged in the different forms of entrepreneurial undertakings (In Choudhury, 2016). Islamic banking practices discourage financial institutions from exploiting their clients through interests (Riba), exploratory business engagement (gharar), and betting (maisir). The financial concept presumed by Islamic banking emphasizes flexibility in all financial dealing mainly through profit sharing (mudharabah), joint partnership in property acquisition (musyarakah), and financial chartering (ijarah). By upholding these grounded concepts, financial investment enhances that traders partnering with genuine supporters realize high standards, accountability, and reduced risks (In Choudhury, 2016)
The growth of Islamic banking in the United States
In the United States, various factors that have contributed to the growth of Islamic banking. To begin with, the population growth of the Muslim community has led to the development and growth of Islamic banking. As a result, most Muslims look for products that comply with Sharia laws and Islam banking offers these products. The other factor is that various financial institutions have devoted themselves to the battle of creating products and contracts that will abide both by religious law and with US regulations while still securing their banking interests. Moreover, certain government officials are laying focus on accommodating the various forms of Islamic finance to cater for the banking needs of the “under-banked” especially the Muslims who cannot use conventional banks due to religious beliefs(Taylor,2008).
Regulatory challenges facing Islamic banking in the United States
No law in the United States specifically encourages Islamic banking, so the challenge for Islamic fund suppliers has been to prove to the regulators how their products are the functional counterparts of products offered and admissible under financial regulations. Regulatory measures have likewise prompted the issue of deposits whereby the U.S. regulatory structure would not allow any deposit whose principal has higher risk exposure (Jammeh, 2010)
Role of Islamic banking in economic growth and development in the United States
The major way that Islamic banking contributes to economic development in the United States is through issuing bonds known as sukuk. Sukuk frequently impersonate the income structure of bonds by offering a last payment similar to the initial payment and also fixed amounts of profit routinely through profit distribution. Using the Sukuk, many people have been able to establish businesses that help build the economy (Jammeh, 2010).
Islamic Banking has not lasted more than fifty years, yet it has officially had an enduring effect on the financial world. The fate of Islamic Banking in the United States in the hands of International Banking and Finance Institute. If they can effectively advertise their products as really Sharia-compliant alternatives to conventional finance, the industry could encounter double-digit development rates for the predictable future. But, the absence of a clear target market in the American Muslim people can likewise be a potential detour for the business, if it cannot characterize itself as the genuinely focused, reasonable and Islamic alternative to regular banking in the United States.
In Choudhury, M. A. (2016). Islamic financial economy and Islamic banking.
Jammeh, B. E. (2010). Prospects and Challenges of Islamic Banking and Finance in the United States. SSRN Electronic Journal. doi:10.2139/ssrn.1680471
Taylor, J. M. (2008). Islamic Banking-The Feasibility of Establishing an Islamic Bank in the United States. American Business Law Journal, 40(2), 385-414. doi:10.1111/j.1744-1714. 2002.tb00850.x