Edited by Andrew W. Mullineux and Victor Murinde
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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