Finance: Global Development Financial Market Essay

Question:

Discuss about the Finance for Global Development Financial Market.

Answer:

Importance of Islamic Finance to global Development financial market:

Introduction:

The Islamic Finance is regarded as one of the rapidly rising sections of the global fiscal markets and during the initial glimpse its principles are attractive. The purpose of Islamic Finance is to set up a highly reasonable economic and financial order with transaction friendly and secular principles. Henceforth, Islam is regarded as the foundations for the incorporation of ethics and right magnitudes of finances and market.

During the last decade’s higher emphasis is undertaken to structure the Shariah-complaint financial products (Gheeraert and Weill 2015). Efforts have been undertaken to advance and institutionalise the Islamic capital markets so that the Islamic finance is conventional and investment oriented to mainstream. The study examines the importance of Islamic Finance in the current global fiscal structure or whether it helps to redefine the position quo of international financial markets.

Discussion:

The Islamic Financial industry has experienced expansion at a rapid pace during the last decade and attained growth at a rate of 10 to 12 per cent on annual basis (Rasid and Shah 2017). Presently, financial assets that are Sharia-complaint is assumed to be around US $12 trillion that covers the bank and non-banking fiscal institute, capital markets, money markets and insurance.

In several Islamic nations, the assets of Islamic banking have been rising at a quicker rate than the orthodox banking assets (Shaban, Duygun and Fry 2016). It is noteworthy to denote that there is a growing interest in the Islamic finance from the non-Islamic nations such as UK, Hong Kong, South Africa and Luxembourg. The Islamic finance has arisen as the actual instrument in backing the expansion across the world along with the non-Muslim nations. Key monetary markets is noticing strong indication that Islamic finance has by now been regarded as the mainstream in the international financial system. The Islamic finance has the potential to assist in addressing the challenges of finishing the poverty and improving communal wealth.

The Islamic finance is regarded as fairness based, supported by asset, ethically, globally and communally accountable mode of investment. The Islamic finance endorses the factor of sharing risk, joins the monetary segment with the real economy and places emphasis on the financial inclusion and social welfare.

The involvement of world bank in Islamic Finance is directly associated with the work of bank in reducing poverty, increasing the admittance to finance, evolving the fiscal sector and creating steadiness in the financial sector by promoting resilience in client nations (Waemustafa and Abdullah 2015). The sustainable expansion of Islamic finance provides benefit for financial expansion, lowering poverty and encouraging communal wealth. Islamic finance largely contributes to economic expansion by serving as the direct link among the physical assets and real economy. The usage of profit and loss distribution measures promotes the establishment of fiscal sustenance to creative enterprises which can raise the output and produce employments. The importance on the tangible assets makes sure that the business only lends its support to transactions that acts as the real purpose and discourages financial speculation.

Islamic finance helps in promoting the development of financial sector and widen the monetary enclosure. By widening the variety and influence of the fiscal products, Islamic finance helps in improving the financial access and strengthening the addition of those assets that are deprived of the fiscal services (Kammer et al. 2015). Islamic finance places emphasis on the partnership mode of financing that is beneficial in enhancing the access of the finance for the small business. It helps in improving the access to finance for agricultural finance by reducing the gap in access to finance as non-Muslims are not limited to access the Islamic finance services. Islamic finance helps in strengthening the financial stability. When the international financial crisis ravaged financial system across the world, the Islamic finance remained untouched. It was safeguarded by the important functioning values of sharing risk and avoided the leverage or speculative financial products.

From the mid 1990 the Islamic finance witnessed a new push when the well-established western bank expressed their interest in the growing market and several large banks across the world walked in (Iqbal and Mirakhor 2017). For instance, Citibank released the first Islamic subsidiary during 1996. Later in the year 1998 HSBC opened its worldwide division of Islamic banking. In addition to this large number of conservative banks opened Islamic institutions. After some years specialized Islamic fiscal institutes started to arise in Western, non-muslim nations.

As equity mode of finance is largely considered as Shariah complaint, minimal exertion has been given to make a distinct Islamic stock marketplace. Nevertheless, in recent years it is noticed that is an increasing amount of salience of Islamic debt market. The causes of resurrection of Islamic economics and finance over the past years are large in numbers and can be only affected in a brief manner. A number of expansions in Islamic financial markets have increased with specific historic situation since the world has passed through the sequences of critical stage. Nevertheless, in the words of Hussain, Shahmoradi and Turk (2015) the expansion of the Islamic finance markets is particularly driven by the political and social economic factors.

According to Samra (2016) the first gulf war have led to the reversal of fortune for several middle east nations. Combined with declining price of oil during the 1990s it exhausted currency reserves and resulted a rise in international borrowings. Thus, the dependence of the Saudi Arabia and other Gulf nations increased at the time of intervention of Western power in the areas of economic and political relationships. In the later stages efforts were undertaken to develop the states capital markets can be viewed as the effort of lowering the international dependencies by being capable of generating and managing funds nationally and provincially. The rising price of oil over the years has significantly resulted in increasing oil wealth with demand for appropriate investments rising in the gulf nations and beyond. This corresponds with the cumulative attempts to inverse the flight of capital from the countries of OECD regions by enhancing the national financial infrastructure.

According to the Islamic principles the increase in investment in asset is accompanied by the growing institutionalisation of the regulatory arrangements relating to global Islamic finance in the areas of both the private controlling and civic controlling level (Waemustafa and Sukri 2016). Islamic finance tends to be highly globally oriented than the traditional funding. In several countries Islamic finance arrived lately and has discover its place together with the traditional structures.

The two main legitimising constituents and significant source of private epistemic authority in the modern era of international finance are the indices. This includes measuring the performance of stocks and worthiness of credit ratings of the financial instrument entities. Both the performance measures stock create visibility, credibility and invisibility of the financial products (Widia et al. 2015). This is necessary for the Islamic capital markets and instrument more than the conservative instrument. Primarily, they are emergent and only had the restricted amount of time span for testing.

An important considerations relating to Islamic finance is that indices make a world of investible stock having measureable performance. Financial pointers have presumed the starring part of outlining markets and exemplifying the objective movements. The creation of Islamic indices is regarded as the vital milestone in the expansion of the Islamic fiscal markets. According to the argument put forward by Abedifar et al. (2015) Islamic finance formed a crucial element in the formation of the Islamic mutual funds that on their own may barely afford the cost of related with the screening stocks. Inside the span of one year the creation of the first Dow Jones Islamic Market Index resulted in more than hundred Islamic mutual funds on offer.

An additional case point is relating to the participation of the big conservative marketplace actors namely the Citibank, HSBC, UBS or Deutsche Bank that are progressively turning out to be significant providers of Islamic fiscal products (Ho et al. 2014). Additionally, the involvement of this bank is largely considered to be necessary further improve the fortune of Islamic Finance. Islamic finance provides a clear advantage to the industry as the whole in order to inspire the contribution of the global giants as it brings reliability to the overall financial sector.

The inventive skills of the major market actors and the means of investing in the expansion of the Islamic fiscal products are regarded vital the development and normal ability of the business. The Islamic finance principle objective is to create, improve and endorse the Islamic money and capital markets. Most importantly, Islamic finance emphases on the establishment or expansion of mutual platforms and values for Islamic financial markets.

Conclusion:

For most of the upcoming developments in the financial areas, it remains to been considered whether the Islamic finance would be capable of liberating itself from the current information and power or whether it would end up as the inconsistency of the secularised Islamic finance. From the study, a conclusion can be derived by stating that there is a real likelihood that rather than making a more equal cost-effective order, the presently rising regulatory structure of Islamic Finance would truly help in legitimising and correcting the current financial structures.

Reference List:

Abedifar, P., Ebrahim, S.M., Molyneux, P. and Tarazi, A., 2015. Islamic banking and finance: recent empirical literature and directions for future research. Journal of Economic Surveys, 29(4), pp.637-670.

Gheeraert, L. and Weill, L., 2015. Does Islamic banking development favor macroeconomic efficiency? Evidence on the Islamic finance-growth nexus. Economic modelling, 47, pp.32-39.

Ho, C.S.F., Rahman, N.A.A., Yusuf, N.H.M. and Zamzamin, Z., 2014. Performance of global Islamic versus conventional share indices: International evidence. Pacific-Basin Finance Journal, 28, pp.110-121.

Hussain, M.M., Shahmoradi, A. and Turk, R., 2015. An overview of Islamic finance (No. 15-120). International Monetary Fund.

Iqbal, Z. and Mirakhor, A., 2017. Ethical Dimensions of Islamic Finance: Theory and Practice. Springer.

Kammer, M.A., Norat, M.M., Pinon, M.M., Prasad, A., Towe, M.C.M. and Zeidane, M.Z., 2015. Islamic finance: Opportunities, challenges, and policy options (No. 15). International Monetary Fund.

Rasid, M. and Shah, M.E., 2017. Islamic equity market.

Samra, E., 2016. Corporate governance in Islamic financial institutions.

Shaban, M., Duygun, M. and Fry, J., 2016. SME's lending and Islamic finance. Is it a “win–win” situation?. Economic Modelling, 55, pp.1-5.

Waemustafa, W. and Abdullah, A., 2015. Mode of islamic bank financing: does effectiveness of shariah supervisory board matter?.

Waemustafa, W. and Sukri, S., 2016. Systematic and unsystematic risk determinants of liquidity risk between Islamic and conventional banks.

Widia Astuty, S.E., Si, M. and Ak, Q.I.A., 2015. The extraordinary solution for Indonesia economic crisis: Shariah capital market. Journal of Finance, 3(2), pp.47-56.

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