Introduction and History of Islamic Banking

In the early stages of 20th century, the Islamic banking was only limited to models and modus operandi. The full-fledged system of Islamic banking was introduced in 1960s by an Egyptian bank 'Myt Ghamr'. The earliest Islamic banks faced serious challenges ranging from general suspicions about their viability to a common mistrust about their intentions. Since then, the Islamic banks have been steadily growing to a remarkable level at this stage. During the last decades, financial instruments used by Islamic banks have developed significantly, both on assets and liability sides. Many instruments have been developed to mobilize financial surpluses. A number of Islamic banks have launched investment instruments in the form of certificates with short-term maturities or have established funds earmarked for certain investments. Accordingly, at present, there are around 70 countries in which the Islamic financial institutions are operating in full-fledged or in part. Recently six countries including Bahrain, Saudi Arabia, Malaysia, Indonesia, Brunei and Sudan have signed a memorandum of understanding (MOU) for establishment of the first International Islamic Financial Market (IIFM) in co-operation of Islamic Development Bank (IDB). IIFM is designed to provide a co-operative framework among around 200 Islamic banks and financial institutions all over the world. A Liquidity Management Centre (LMC) is also working in Bahrain which addresses the critical need for liquidity management by Islamic banks in line with the Shariah principles. The Islamic Financial Institutions (IFIs) can be divided into two broad categories:
1. Islamic Commercial Banks 2. Islamic Investment Institutions & International Holding Companies

Legendary names of Islamic finance are as follows: Islamic financial institutions are diverse and becoming increasingly innovative. Value of their assets has reportedly exceeded $200 billion with a steady growth rate of 10-15 percent per annum. They represent a small but dynamic market, no longer confined to its original strongholds in the Middle East and South East Asia. In USA, UK and a number of other European countries, various Islamic funds have existed for a number of years. Some conventional financial institutions of international standing have established Islamic banking subsidiaries and windows. Many banks, both in the Muslim world and outside, are offering Islamic financial products and take active part in capital market transactions. Liquid instruments are emerging through Securitization by way of Islamic finance like equity/mutual funds. There is also Dow Jones Islamic Market Index.