Journal Article

Islamic finance: meeting financial needs with faith based products

Abstract: This article explores the demand for and the availability of financial products for Muslims who adhere to religious prohibitions against receiving and paying interest. This is an evolving area of consumer and small business finance, and the goal of this article is to provide an overview of the potential market for Islamic finance, to describe the organizations that currently provide these products, and to highlight some of the challenges of satisfying both religious tenets and government regulations. Two facets of financial products, asset financing, and investments, are addressed. Furthermore, the article identifies three types of organizations that offer Islamic financial products and services: financial entities, nonprofits, and for-profit ventures that sell models of Islamic finance products and consulting services to firms. Drawing largely on interviews with regulators, practitioners, and experts in the field, we find that the few financial entities that offer formal Islamic finance in the United States are often motivated by strong grassroots demand in their local service areas. These entities are often charting new territory in terms of product development and conformity with government regulations. Regulatory issues have not yet been tested on a large scale, and decisions as to whether a bank may offer an Islamic financial product are typically determined on a case by case basis.

Keywords: Finance (Islamic law);

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Profitwise

Publication Date: 2006

Issue: Feb

Pages: 8-14