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WENTWORTH INSTITUTE OF TECHNOLOGY COLLEGE OF ARTS & SCIENCES THE ISLAMIC BANKING

WENTWORTH INSTITUTE OF TECHNOLOGY COLLEGE OF ARTS & SCIENCES THE ISLAMIC BANKING “Its Principles, Progresses, and Challenging Issues” A BRIEF OVERVIEW HOSSEIN NOORIAN PROFESSR DEPARTMENT OF BUSINESS MANAGEMENT A Presentation at the 6th Annual Polytechnic Summit 2014

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WENTWORTH INSTITUTE OF TECHNOLOGY COLLEGE OF ARTS & SCIENCES THE ISLAMIC BANKING

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  1. WENTWORTH INSTITUTE OF TECHNOLOGY COLLEGE OF ARTS & SCIENCES THE ISLAMIC BANKING “Its Principles, Progresses, and Challenging Issues” A BRIEF OVERVIEW HOSSEIN NOORIAN PROFESSR DEPARTMENT OF BUSINESS MANAGEMENT A Presentation at the 6th Annual Polytechnic Summit 2014 Boston, Massachusetts June 12, 2014

  2. MOTIVATION: Appearance of an article in the “Business Week” magazine about the growth of the Islamic Banking in 2010; play a major role in my decision to take this study. According to that article, the Citi Bank from U.S. and the British bank of HSBC; were the major players in that growth. Recent financial turmoil both in the U.S. and in the European countries. Admissions of many U.S. banks of wrong doing, particularly in their real-estate financing activities and transactions. Imposing of heavy penalties on banks and other Financial Institutions by the U.S. Justice Department, the Securities and Exchange Commission (SEC); and some of the European countries.

  3. Motivation • Islamic Banking played a major role in my decision to take this study • Citi Bank from U.S. and the British bank of HSBC; were the major players in that growth. • Recent financial turmoil both in the U.S. and in the European countries. • Admissions of many banks of wrong doing, particularly, in their real-estate transactions • Imposing of heavy penalties on banks and other Financial Institutions by the U.S. Justice Department, the Securities and Exchange Commission(SEC); and some of the European countries.

  4. The Facts: The origin of Islamic banking system can be traced back to the advent of Islam when the Prophet Mohammed himself carried out trading operations for his wife. The first model of Islamic banking system came into picture in 1963 in Egypt. In 1974, the Organization of Islamic Countries (OIC) had established the first Islamic bank called the Islamic Development Bank or IDB. By the end of 1970, several Islamic banking system have been established throughout the Muslim world, including the first private commercial bank in Dubai (1975), the Bahrain Islamic Bank (1979) and the Faisal Islamic Bank of Sudan (1977).

  5. The Facts (cont.): Islamic banking is growing at a rate of 10-15% per year and with signs of consistent future growth. Islamic banks have more than 300 institutions spread over 51 countries. It is estimated that over US $822 billion worldwide sharia-compliant assets are managed according to “The Economist” magazine. According to the CIMB Group Holdings, CIMB (a universal bank headquartered in Kuala Lumpur); Islamic finance is the fastest – growing segment of the global financial system and the sales of Islamic bonds reached by 24% to $25 billion in 2010.

  6. Conclusions: You do not have to be a Muslim; either to offer this type of banking activities or to get services from a bank that offers this type of products. In some cases, it requires a close cooperation and sharing of the financial information and the related risk(s) between the borrower (individual, or corporation) and the creditor (a bank or financial institution). Should this type of banking will be initiated in the U.S., we would then need additional standards in place by the respective organizations; such as the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB). These and other regulatory organizations need to closely look into the many facets of this form of banking activities and will need to offer their own guidance on reporting and analysis of each transactions respectively.

  7. The Challenges: The introduction of the Islamic Banking in U.S. needs the government and the Congressional approvals. This requires a determination either from a politician or a group of them to introduce a new “Banking Bill” to the Legislative Branch. Judging the recent major overhaul of the banking law; (THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT); the chance of that appears to be zero or slim at the best.

  8. Acknowledgement I am grateful to the Sabbatical Committee and in particular, the Wentworth Institute of Technology’s leadership for granting me this opportunity to do this research. HosseinNoorian Professor Department of Business Management

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