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MUSLIMCREED Indonesia and Jordan have recently developed Islamic banks and universities respectively. This has led many to wonder why both these countries have decided to develop such institutions and what role they may play in the future of their financial markets and universities. A lot of these questions are answered in this report, which looks at the history of the development of these institutions, where they currently stand and where they may be headed in the near future.
Why?
There has been a growing trend in the country of Indonesia where many Indonesians are turning to alternative banking institutions. These new banks are called Islamic banks and abide by strict guidelines set forth by Muslim law. Although these banks first started in the Gulf region, they have now spread to other parts of the world including Indonesia. The government of Jordan has seen this trend as well, but instead of focusing on creating new Islamic banks, they have decided to focus on improving their existing universities to be more focused on religious studies. In recent years, there has been an increase in the number of Muslims around the world. As a result, many countries are looking for ways to accommodate their religious beliefs. Indonesia and Jordan have made strides in this area by developing Islamic banks and universities. For example, Islamic banks have been popping up all over Jakarta with six opening just last year. As for Jordan’s universities, they are putting money into programs like teaching Arabic to non-Muslims so that students will be able to gain skills needed in the workforce.
What is an Islamic Bank?
An Islamic Bank is a financial institution that operates in accordance with the principles of Sharia, which forbids the charging of interest. The most common type of financial transactions are loans, investments, deposits, and trade finance. Investment banking (or securities trading) is not allowed under Islamic law because it involves excessive speculation.
An individual or company might deposit money into an account at an Islamic bank, where the deposit earns no interest but carries no risk of loss either; on the other hand, if an individual takes out a loan from an Islamic bank, they must pay back both principal and profit to avoid violating Sharia law. In addition, investment instruments can be created such as sukuk, which are bonds that generate income without paying interest. In order for a country to create their own Islamic banks and universities, they must first have enough qualified professionals to work there. For this reason Indonesia has started developing their own universities for professionals who want to pursue degrees in Islamic banking or finance. Jordan is also seeking to build more universities for the same reason so that their workers will be able to qualify for jobs after graduation.
Read Also : University of Islamic Finance: The Best Choice for Your Monetary Future
What are the benefits?
Islamic banks are more popular in Indonesia, with 41% of the population using them as opposed to 21% in Jordan. The benefits of having an Islamic bank is that they do not charge interest rates on loans, which are a major source of income for many banks. It also means that any profits from the lending go back into the bank, rather than going to shareholders. One study found that Muslim countries where Islam is practiced have a GDP growth rate of 6%, whereas non-Muslim countries only have a GDP growth rate of 4%. With such high rates, it seems as if a lack of interest charges could be beneficial. In addition, Islamic banking could offer better financial stability because there would be no risk of defaulting on loans (as this would go against the tenants of Islam). On top of this, people who use Islamic banks tend to save more money because they don’t get charged any interest.
