ISLAMIC FINANCE

Islamic Fund Management & Conventional Fund Management

Islamic Fund Management & Conventional Fund Management

Introduction

The paper aims to emphasize on the modern Islamic Finance along with the conventional fund management practices in the modern world. The development and growth of modern Islamic finance practices are provided in the paper. Moreover, the elements that are prohibited in Islamic finance are also discussed in the paper. Furthermore, the Islamic finance instruments are explained in the paper.

Islamic finance is the broad concept used to explain a wide range of financial transactions that have been accepted by a recognised authority as compliant with Islamic law (Shariah). This concept refers to a financial system that operates on the principles of Sharia law. The main feature of this system, which distinguishes it from the traditional financial system, is the prohibition of earnings from interest (Riba) through lending services (Billah, 2003). It also prohibits the direct or indirect relationship with any business related to alcohol, pork, tobacco and weapons along with the prohibited of any form of speculation, betting and gambling. The main difference between Islamic and conventional finance is the prohibition of interest under the Shariah. At the same time traditional and Islamic banking have some common characteristics and a significant number of differences. In particular, there, and there are provided to guarantee payment of principal demand deposit. However, Islamic banking does not provide guaranteed payments on time deposits. Also not defined and guaranteed rate of interest on investment deposits. In traditional banking, it depends on the refinancing; the cost of money does not depend on the profitability of the bank, while it is determined by its profitability and return on investment (Chapra, 2000).

Islamic finance sector has become the fastest growing and most dynamic sector of global finance with the average annual growth rate of 15-20%. Over the last decade, the global market for Islamic financial services has grown, according to various estimates, between a trillion and a half trillion dollars with a trend of sustained growth. Moreover, according to some estimates, this market has the potential to develop up to $ 4 trillion dollars in the coming years (Cizakca, 2002). The rapid development of the sector of Islamic finance in the world and the stability of the global financial crisis, and the growing demand for Islamic finance products in the population and the increasing need for new alternative ways of financing the economy have created favourable conditions for the development of industry in Kazakhstan (Dusuki, 2007).

Background

In recent years, several Western companies linked to banking and the insurance sector began offering financial products on the market in accordance with the provisions of Islamic Sharia. Initially, the target markets were only the Arab and Islamic countries mainly in the Middle East. Recently, the trend also extended to Western markets and aims to attract Arab investors' liquidity and configure products 'ethical' for Muslims living in Europe and North America. Financial institutions have appeared in Western-Islamic countries at the end of the last century largely as branches of ...