Reasons for the rapid spread of Islamic finance in the modern world

The development of Islamic finance, their crisis-resistance and the possibility of using the experience of this sector in the traditional banking industry are the subject of research in many countries, including non-Muslim ones. Although followers of Islam are the main target group of Islamic financial institutions operating under Islamic religious law (Sharia), their offer of financial services is not only limited by Muslims, but also available to followers of other religions.

Aggregate Islamic financial assets at the beginning of 2010 were estimated at $ 964.2 billion, which is only 1% of the global financial services market. However, the importance of Islamic finance, especially in Muslim countries, is gradually increasing. According to the report on the development of Islamic finance, in 2018 they grew to $ 2.5 trillion.

Let's first define the main provisions that the religious community offers:

• 1.    conducting economic transactions based on clarity and ethics;

• 2.    sharing of risks between financiers and clients;

• 3.    the loan should strengthen the position of the borrower;

• 4.    not to be drawn into a debt hole;

• 5.    linking financing to the real sector of the economy.

First of all, the main reason why Islamic lending is growing in nonMuslim countries is the intensive spread of Islam, the number of followers of which at the moment is more than a quarter of the entire earthly population. Muslim population in non-Muslim countries is constantly growing. Hеnce the need for Islamic finance exists in these areas. The Muslim community wants to act in accоrdance with Sharia and therefore must engage in Islamic lending, not conventional lending. Also, the globalization of international markets requires that every method of financing be included in market governance. The world is now one big trading floor and the Muslim population is one of the main buyers and sellers. Thus, in order to satisfy their needs and desires, non-Muslim countries are paying more and more attention to Islamic finance. Many of them even believe that Islamic finance and conventional banking can coexist. They do not see Islamic finance as a competition, rather, they see this as an opportunity to grow their client base, a significant part of which is Muslim.

Also, investment account holders of Islamic banks have a greater incentive to control banking activities than lenders of traditional banks, as they share in the profits and losses of their Islamic bank. Strong monitoring of Islamic banks can help establish the market discipline necessary for financial stability. Moreover, traditional banks mainly assess the reliability of the borrower and use collateral to hedge credit risk. Many traditional banks may not assess the main objectives of borrowers and are expanding financing for speculative purposes, especially when the risk of default can be passed on to investors through the sale of debt. Islamic banks, however, often require rigorous project appraisal, especially with regard to mudarabah and musharakah funding.

The next factor of growing spread of Islamic banking is the mobilization of financial resources, especially in countries with low personal income. Here, special attention is paid to working with small clients, and the Islamic bank plays the role of a social and educational incentive. Also, active investment activities play role as an advantage. The investment logic of Islamic banks follows from the principle of increasing public benefit.

Another very important function of an Islamic bank is to provide detailed information about its customers, except in cases where it is a commercial secret. In addition, banks are called upon to preach and develop Islamic morality. The Bank, being part of the Islamic model of economic development, creates a balance between material and spiritual principles and allows maintaining a balance between rights and responsibilities. An Islamic bank should contribute not only to the establishment of justice in the Muslim society, but also to consolidate society on the basis of a single religious idea.

In terms of deposits, these are investments in projects carefully selected from the point of view of risks that comply with the rules and principles of Sharia, plus a profitability that can be higher than on deposits in traditional banks.

With regard to the Islamic mortgage, this is a transparent and understandable margin, which is known to the client immediately, and a convenient method of payment - in equal monthly payments.

In the banking sector, there are two payment methods - annuity and differentiated payments. In traditional banks, most of the customers choose an annuity as more convenient, due to the same monthly payments. In Islamic bank, the payment schedule is based on the annuity principle, but at the same time, the total overpayment for the entire term of the mortgage, all other things being equal, is much more attractive to the client than if the client had used an annuity with a traditional loan. The level of the bank's requirements for a client wishing to receive such financing is quite high.

In principle, an Islamic bank can provide its clients with almost all the same products as our banks, but according to its own principles. Usury is prohibited in Islam, but trade is permitted. Therefore, financial transactions look like trading, the bank here acts as a trading company.

The expansion of Islamic finance in Muslim states and beyond is explained by a number of factors:

• -    stability and resilience of the performance of Islamic banks during the crisis due to strict financial discipline prohibiting transactions with non-essential asset;

• -    the absence of interest rates on loans restrains inflationary processes, investment risks and investment activity, which contributes to the formation of a stable economy in the long term;

• -    increase in assets and income that contribute to the growth of trust in the public;

• -    participation of international financial organizations and associations in the formation of Islamic infrastructure and standardization of the Islamic finance system;

• -    moral component, social responsibility, involvement in the charitable sphere of the Islamic model of financial activity;