Introduction to the Practices and Institutions of Islamic Finance Between the Islamic World and the West

Abstract

This paper is an introduction to the practices and institutions of Islamic finance. It is very important to establish which Islamic countries have introduced an economic system based on Islamic law and which have introduced a dual system. It is also important to know where the first Islamic bank was born to understand the evolution of the spread of the Islamic banking system. To understand how an Islamic bank works it is important to understand what are the tools that it uses, and especially the international rules which must be respected in order to diffuse the Islamic system. The rules that banks must follow are the Basel Accords II of 2004 that established the appropriate asset, the Capital Adequacy Ratio (CAR), and prudential regulation. In the Islamic financial system also equity instruments were created that comply with the rules of Shari’ah, called Sukuk. Recently an Islamic insurance system, called Takaful, was also authorized. Finally, the Islamic system is also allowed in countries that they are not Muslim such as England, France, USA and Switzerland. England is the European country which is becoming the European hub for managing capital that coming from Gulf. In conclusion, it is important to remove legislative obstacles present in Italy to create an Islamic bank.