Foundations of Islamic Finance series
Edited by Mervyn K. Lewis, Mohamed Ariff and Shamsher Mohamad
Chapter 5: Towards making ‘Islamic’ banking Islamic
The Islamic Finance Industry (IFI) has made impressive progress for almost four decades, posting double-digit annual rates of growth. Such phenomenal growth for such a long period is unprecedented. The size of the industry is estimated to be over $1.3 trillion as at 2011, spread all over the globe, with around 1500 institutions in more than 40 countries. Banks incorporated as Islamic banks have out-performed conventional banks on the most commonly used performance evaluation variables, such as rates of growth of equity, deposits and assets as well as on performance ratios such as return on assets (ROA), return on equity (ROE), cost-to-income ratio and liquidity ratio (production cost efficiency is lower compared to the conventional banks). However, on one important criterion, serious doubts have been raised. That is the status of Shari’ah-compliance of the most popularly used products by Islamic financial institutions.
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