Islamic banking in the United States


The recent collapse of the present financial system has severely shaken the confidence of many people in the banking and credit mechanism as implemented by the Western economic markets. Most of any of the financial operations are tied to the procedures adopted by the Western banking system, ergo when the collapse of the system occurred, every economy on the planet responded and felt the effects. Is this the time that the world consider calls for the adoption of a new financial order, one that is not anchored on the values and beliefs of the West?

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Islamic Banking in the United States

            Islamic banking and Islamic banks cannot be surmised into one organization or developmental institution (Thomas Timberg). The practice of Islamic banking is inclusive of many organizations and elements (Timberg). The practice of this particular style of banking is not limited to countries that are predominantly Islamic or practiced by Muslim nationals (Timberg). Many Islamic institutions have sprung up in the Western world, inclusive of the United States (Timberg).

            How then can Islamic banking be differentiated from the banking practices that are practiced in the West? For one, Islamic banking practices are anchored on their religious beliefs (Scott Schmith, 2005). The amount that is in the Islamic banking system is enormous, with an aggregate amount of $270 billion dollars held by 300 banks in at least 25 countries (Schmith, 2005). The largest Islamic banking institutions are currently located in the United States, Indonesia, France, and Saudi Arabia (Schmith, 2005). It is also expanding in countries such as Malaysia, the United Arab Emirates, Pakistan and Indonesia (Schmith, 2005).

            When the first winds of the Islamic banking practice were being espoused, the markets around the world exercised a healthy degree of skepticism (Institute of Islamic Banking and Finance). Many believed that the banking system as practiced under the ambit of Islamic religion would be next to impossible (Islamic Banking). Not a few surmised that the ethics as espoused under stringent Islamic law would be incompatible with current financial practices (Islamic Banking).  But as years have passed, the outlook on the Islamic practice and conduct of banking has deserved a second look (Islamic Banking).

            The growth potential of the finance market in the Islamic banking sector has been substantial (Schmith, 2005). Among financial circles, it is estimated that the next decade will see half of the Islamic world will deposit their savings in the Islamic banking sector (Schmith, 2005). With a worldwide population running into 1.5 billion Muslims, the amount derived from the countries in the Middle East will total around $905 billion alone (Schmith, 2005). The amount is expected to enlarge if the Muslims residing beyond the borders of the predominantly Muslim Middle Eastern region (Schmith, 2005).

            In history, the banking and finance system that was in early practice was mainly used in the propagation of business interests in the Middle Ages (Schmith, 2005). However, with the emergence of the oil industry and the fact that Middle Eastern “petroleum economies” were awash with revenues, the Islamic banking system became a player in the market only in the 1970’s (Schmith, 2005). Many countries, like Indonesia, the volume of transactions consummated in the Islamic banking system only produced a fraction of the financial operations in the country (Timberg). Those that advocate the use of Islamic financial mechanisms prefer that the transaction is tethered to the tenets of Islamic religious law (Timberg).

In Islamic banking, the transaction is hinged on the practice of sharing the profits or the turnover is halved between the parties (Timberg).  This would bring the transaction more in consonance with Islamic laws (Timberg). One of the peculiar features of the Islamic banking practice is the “profit-and-loss” concept (Been Soon Chong, Ming-Hua Liu). But this factor is not the main driver in the surge in Islamic banking (Chong, Liu).

It is mainly pegged on the rise in the acceptance of Islam rather than on this factor (Chong, Liu).  This value based practice is the main factor by which the system can cater to and source monies form both Muslim and non-Muslim clientele (Islamic Banking). But there is a growing consensus on measures to reduce the disparities in conventional or Western patterns of banking and that of Islamic mechanisms (Timberg). The United States has begun to adopt regulations that will bring the two systems in harmony with each other (Timberg).

The use of interest on loans is not one system that is practiced within the Islamic banking community (Rodney Wilson, 2009). They believe that the use of the riba, or interest is a conduit for abuse, as was the case of the sub prime lending fiasco (Wilson, 2009). Instead of the riba, banks practice a decreasing partnership scheme, or musharaka (Wilson, 2009). This would allow the client to borrow up to 10 percent of the cost, and the banks shoulders 90 percent of the loan cost (Wilson, 2009).

In the United States, the formulation of regulations dealing with the practice of Islamic banking has been on a case-to-case basis (William Rutledge, 2005). In this context, financial and market regulatory officials deal with issues as they are bought up to their attention (Rutledge, 2005). The practice is carried out as such since the practice of this type of banking is still in the formative stages in the country (Rutledge, 2005). In the market, Islamic banking services are still very few and the providers of such services comprise a very small niche in the financial system (Rutledge, 2005).

The grounds for the acceptance and development of the new banking practice have taken root since the collapse of the financial crisis (Islamic Banking). In the aftermath of the global financial meltdown, the skepticism of entrusting hard earned funds to an unsound and unethical banking system is mirrored in the fact that these systems pour fund into dubious activities (Islamic Banking). Islamic bank operators not only conduct themselves not only on paper, but also in conformance in their religious beliefs (Islamic Banking). The United States for its part has strove to acquiesce with Islamic banking practices, and has made steps to institute regulations to make the system compliant in the United States market (Rutledge, 2005).


Chong, B.S., Liu, M. (n.d.). Islamic banking: interest free or interest based? Retrieved March 9, 2009, from

Institute of Islamic Banking and Insurance. (n.d.). Islamic banking-status of Islamic banking. Retrieved March 9, 2009, from

Rutledge, W. (2005). Regulation and supervision of Islamic banking in the United States. Retrieved March 9, 2009, from

Schmith, S. (2005). Islamic banking experiencing rapid growth. Retrieved March 9, 2009, from

Timberg, T.A. (n.d.). Islamic banking and its potential impact. Retrieved March 9, 2009, from

Wilson, R. (2009). Why Islamic banking is successful? Islamic banks are unscathed despite of financial crisis. Retrieved March 9, 2009, from


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Islamic banking in the United States. (2016, Oct 27). Retrieved from