Islamic finance is governed by its
own set of rules, the remarkable ones being:
- No interest on money lent
- No investment in gambling
- No investment in business engaged
into prohibitory activities
- No speculation, not even in
derivatives markets
- Loans to be against real economic
asset
Islamic banking has turned out to be
quite a successful one specially in case of recent downturn,
specially because of its principles. It turned out to be a very
safe bet because it had least or almost zero exposure in the toxic
assets because of its conservative principles.
However, the practicability of this
Islamic banking is far and fewer:
- Lack of familiarity with Islamic
Banking across the globe: Lack of awareness is limiting its
growth.
- Not charging interest is
contradictory to the basic principal of finance such as time value
of money, reward for the risk taken, return, return expectation
etc. It's very unlikely that Investors and lenders across the globe
will accept and implement Islamic banking.
- There is no uniform and legal
framework for the Islamic banking. They are regulated by various
Shariah boards. Such Shariah boards have empirically given
different opinion and prescribed different rules in similar
situations. There is no uniform global code for Islamic
Banking.
- Such a banking can't be run without
government intervention. It's practically impossible to be run by
private companies because if such a banking is not allowed to
charge interest, how will the private companies / banks make
money.
- The Islamic banking is still very
primitive and not driven by technology. It lacks the convenience
that conventional banking offers.
Because of these and many more other
reasons, the Islamic Banking lacks popularity and
acceptability.