WENTWORTH INSTITUTE OF TECHNOLOGY
COLLEGE OF ARTS & SCIENCES
THE ISLAMIC BANKING
“Its Principles, Progresses, and Challenging Issues”
A BRIEF OVERVIEW
HOSSEIN NOORIAN
PROFESSR
DEPARTMENT OF BUSINESS MANAGEMENT
A Presentation at the 6th Annual Polytechnic Summit 2014
Boston, Massachusetts
June 12, 2014
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MOTIVATION:
Appearance of an article in the “Business Week” magazine about the growth of the Islamic
Banking in 2010; play a major role in my decision to take this study. According to that article,
the Citi Bank from U.S. and the British bank of HSBC; were the major players in that growth.
Recent financial turmoil both in the U.S. and in the European countries.
Admissions of many U.S. banks of wrong doing, particularly in their real-estate financing
activities and transactions.
Imposing of heavy penalties on banks and other Financial Institutions by the U.S. Justice
Department, the Securities and Exchange Commission (SEC); and some of the European
countries.
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Motivation
• Islamic Banking played a major role in my decision to take this study
• Citi Bank from U.S. and the British bank of HSBC; were the major players in that
growth.
• Recent financial turmoil both in the U.S. and in the European countries.
• Admissions of many banks of wrong doing, particularly, in their real-estate
transactions
• Imposing of heavy penalties on banks and
other Financial Institutions by the U.S.
Justice Department, the Securities and
Exchange Commission(SEC); and some of
the European countries.
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The Facts:
The origin of Islamic banking system can be traced back to the advent of Islam when
the Prophet Mohammed himself carried out trading operations for his wife.
The first model of Islamic banking system came into picture in 1963 in Egypt.
In 1974, the Organization of Islamic Countries (OIC) had established the first Islamic
bank called the Islamic Development Bank or IDB.
By the end of 1970, several Islamic banking system have been established throughout
the Muslim world, including the first private commercial bank in Dubai (1975), the
Bahrain Islamic Bank (1979) and the Faisal Islamic Bank of Sudan (1977).
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The Facts (cont.):
Islamic banking is growing at a rate of 10-15% per year and with signs of
consistent future growth. Islamic banks have more than 300 institutions spread
over 51 countries.
It is estimated that over US $822 billion worldwide sharia-compliant assets are
managed according to “The Economist” magazine.
According to the CIMB Group Holdings, CIMB (a universal bank headquartered in
Kuala Lumpur); Islamic finance is the fastest – growing segment of the global
financial system and the sales of Islamic bonds reached by 24% to $25 billion in
2010.
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Conclusions:
You do not have to be a Muslim; either to offer this type of banking activities or to
get services from a bank that offers this type of products.
In some cases, it requires a close cooperation and sharing of the financial
information and the related risk(s) between the borrower (individual, or
corporation) and the creditor (a bank or financial institution).
Should this type of banking will be initiated in the U.S., we would then need
additional standards in place by the respective organizations; such as the Securities
and Exchange Commission (SEC) and the Financial Accounting Standards Board
(FASB).
These and other regulatory organizations
need to closely look into the many facets of
this form of banking activities and will need
to offer their own guidance on reporting and
analysis of each transactions respectively.
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The Challenges:
The introduction of the Islamic Banking in U.S. needs the government
and the Congressional approvals. This requires a determination either
from a politician or a group of them to introduce a new “Banking Bill” to
the Legislative Branch. Judging the recent major overhaul of the banking
law; (THE DODD-FRANK WALL STREET REFORM AND
CONSUMER PROTECTION ACT); the chance of that appears to be zero
or slim at the best.
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Acknowledgement
I am grateful to the Sabbatical Committee and in particular, the Wentworth
Institute of Technology’s leadership for granting me this opportunity to do
this research.
Hossein Noorian
Professor
Department of Business Management
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