Samy Nathan and Chris Pierce INTRODUCTION Islamic financial activity commenced in the Middle East relatively recently. Arguably the first bank in the region to be founded on Islamic principles was the Arab Bank of Palestine in 1930. In 1963, the first Islamic bank was established in Egypt followed by small banks in Egypt as well as in Saudi Arabia. Currently, there are more than 300 Islamic financial institutions (IFIs) in over 50 countries around the world and over 250 mutual funds that comply with Islamic principles (Solé 2007). Islamic assets account for less than 1 percent of the world’s total banking assets (Pace 2007). However, this sector of banking is currently growing at over 20 percent per annum. McKinsey, the consultancy firm, have identified that Islamic banking assets and assets under management in 2006 were approximately US$750 billion and have forecast that they are expected to exceed US$1 trillion by 2010. This exceptional growth has been caused by: 1. New banks entering the market For example, new Islamic banks that have recently been launched include the Inmaa Bank (Saudi Arabia), the Al Hilal Bank (UAE), the Al-Noor Islamic Bank (UAE), the Al Masraf Bank (Bahrain) and the Global Banking Corporation (Bahrain). Conventional Western banks converting to Islamic banks Recent conversions include the Al Jazira Bank (Saudi Arabia), the National Commercial Bank (Saudi Arabia) and the Kuwait Real Estate Bank (Kuwait). In Indonesia, Panin Bank has converted Bank Harfa to an Islamic bank after acquisitions. Also, BRI has acquired...
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