Handbook of International Banking
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Handbook of International Banking

Edited by Andrew W. Mullineux and Victor Murinde

The Handbook of International Banking provides a clearly accessible source of reference material, covering the main developments that reveal how the internationalization and globalization of banking have developed over recent decades to the present, and analyses the creation of a new global financial architecture.
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Chapter 8: Islamic Banking

Humayon A. Dar and John R. Presley


Humayon A. Dar and John R. Presley INTRODUCTION Banking and finance witnessed a major rethinking in Muslim countries during the second half of the twentieth century. The new view rejects the conventional interest-based banking and proposes an interest-free model of banking based on Islamic modes of financing. The idea was first put into practice with the establishment of a rural bank in Egypt in 1963, and later a cooperative bank in Pakistan in 1965.1 Since the establishment of the Islamic Development Bank (IDB) in 1975, a number of Islamic banks and financial institutions have been established all over the world (Brunei and Bangladesh in the east, Los Angeles in the west, Denmark in the north, as well as in South Africa). At present, 166 such institutions exist throughout the world (Directory of Islamic Banks and Financial Institutions, 1996). Pakistan, Iran and Sudan have announced the abolition of interest-based banking in favour of Islamic alternatives of banking and finance. In other countries like Malaysia and Indonesia, Islamic banking has been a policy issue for many years. Some Western banks have also started offering Islamic financial products to tap the savings of the oil-rich Middle Eastern countries. Funds managed by Islamic banks and financial institutions are estimated to have now reached $100 billion. Twenty-three countries, including 16 developing and emerging market countries, are increasingly involved, with varying intensity, in Islamic banking. The funds, however, are highly concentrated in the Middle East. Over 80 per cent of the funds managed by Islamic...

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