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A new dawn
Open up the pages of any newspaper in the UAE today and you are guaranteed to find advertisements from banks announcing their latest Islamic finance products.
Once perceived as a niche market, Islamic finance products today are big business with both local and international banks keen to get in on the act.
And according to experts an increasing number of non-Muslims are adopting the products as awareness of the principles behind Sharia finance grows.
A success story
According to analyst firm Standard and Poor, Sharia-compliant assets worldwide are worth an estimated US$500bn and have been growing 10% year on year.
The firm claims that in the Gulf and Muslim Asian countries, 20% of banking customers would now choose an Islamic financial product over a conventional one.
Asif Mumtaz, regional head of HSBC Amanah, HSBC's Islamic banking arm, says: "Within this region the Islamic finance industry is evolving from a niche segment to a mainstream one.
"It is our informed opinion that within the next eight to 10 years, the industry will capture half of the savings of l.6 billion Muslims worldwide."
To gain a foothold in the market many conventional banks, including HSBC have launched Islamic versions of their traditional products - including Islamic loans and credit cards.
In recent weeks Standard Chartered announced the launch of its global Islamic banking brand in the Middle East, Saadiq and its first Islamic credit card, the Saadiq Gold Credit Card.
It followed hot on the heels of First Gulf Bank's first Islamic credit card the Mekkah Credit Card, which rewards customers with the opportunity to earn steps to travel to the Holy City of Mekkah.
Islamic banking: The basics
The main difference between banks' conventional and Islamic products, and the fundamental principle of Islamic banking is the absence of interest.
Under Sharia law interest, whether nominal or excessive, simple or compound, fixed or variable is forbidden.
Sharia banking also favours asset-based transactions and prohibits involvement in the financing of activities such as gambling or pornography.
Explaining the principles behind it Dr Taha El Tayeb, head of products development and Sharia structuring at Mashreqbank's Islamic banking division Badr Al-Islami,, says: "Islamic finance and Sharia law would always recommend people to go for asset-based transactions. If you need to buy a car for instance, instead of borrowing money from a bank - that bank should take the risk, buy the car and sell it to you at a profit rate."
Mumtaz adds: "The intent of Islamic banking is very much that you are in a socially responsible banking community. Islamic banking moves away from pure speculation and more into activities that will help to grow the industry and the infrastructure-based economy.Every transaction is tied to an asset, which is a real world economy asset."
There are three main Islamic financial instruments which are used to structure Islamic loans.
Ijara works as a leasing agreement whereby the bank buys an item - such as a house or a car - for a customer then leases it back to them until they have paid off the full amount and take over ownership of the item.
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