ISLAMIC INVESTMENTS AND SHARIA

Commercial banking has been a part of the Western business world for hundreds of years. It is common for Westerners to deposit money into an institution and receive interest on that money. The financial institutions loan or invest the money at higher interest rates than they pay, which is how they are able to make a profit. Traditionally, lending is done with collateral, often the thing being purchased, so that a bank might lend money to a consumer to purchase a home at eight percent interest, and the home itself is collateral. If the borrower fails to make the payments, the home is taken by the bank. Islam prohibits the paying and receiving of interest, and also prohibits the types of investments that can be made--Muslims are forbidden from investing in gaming establishments, for example. As Islamic countries and individuals have become interwoven with Western financial institutions, conflicts have arisen--Muslims must either live outside the Western financial realm, or find ways in which they can abide by the religious precepts within the financial world. Islamic banking has gained attention as the market for such institutions has grown in recent years, and this research considers the basis for Islamic banking, the religious laws that govern it, and one institution in particular--Noriba--and its application of Islamic banking principles.

Islamic law (sharia) specifically prohibits both the

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serve most of the Middle East, just as Swiss banks serve most of the West ("Islamic Banks," 2000). Bahrain is one of the few countries that allows dual banking. Sudan, for example, has only Islamic banks; the same is true with Pakistan and Iran. On the other hand, Saudi Arabia has no Islamic banks except for Al-Rajhi, although not all observers consider Al-Rajhi a true bank ("Islamic Banks," 2000). Operating in a dual system enables Bahrain's banks to serve as a financial link between European and American business interests and interests in Muslim countries. This provides greater flexibility while allowing all of the parties to participate in the banking system with which they are most comfortable. In December 1999, there were 173 traditional banks and financial institutions in Bahrain, 12 Islamic investment banks, and two Islamic offshore banking units. The aggregate assets of all Islamic banks in Bahrain was nearly $5 billion at that time. Islamic banking at the end of the 1990s represented a $200 billion a year industry worldwide (Dudley, 2001). That market has not gone unnoticed by Western banks. Some Western banks have entered into joint ventures with Islamic financial institutions, while others, including Citic

Category: Foreign - I