Assets and Liabilities of Islamic Banks

The Islamic banking and finance industry has captured substantial interest in the financial market particularly in the aftermath of the 2007/2008 global financial crisis. Due to its increased presence in the global financial scenario, the Islamic banking and finance industry is no longer seen as peripheral to its conventional counterpart, but currently is playing a complementary role that has high potential to be developed further as a viable alternative to the conventional financial system. Currently, the Islamic finance industry has been growing rapidly worldwide. From the theoretical perspective, Islamic banking is different from the conventional banking. The Islamic banks are bounded to some basic principles outlined in the Holy Quran. In particular, the Islamic banking transactions must be free from interest (riba), and contractual uncertainties (gharar and maysir), adherence to risk- and profit-sharing, promoting of halal investment that enhances society, and must be asset-based. Islamic banking is dedicated to the elimination of the payment and receipt of interests in all forms. As interest rate is prohibited, Islamic banking introduces profit- and loss-sharing mechansm.