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Introduction

The essay is an in-depth examination of Islamic banking and finance in United Arabs Emirates. Islam is one popular religion in UAE and as a result of doing business coupled with the desire to have interest free transaction led to development of Bait-al Mal, treasury of Muslim States. The taking of Riba or interest rate is seen to violate the Sheria'h Laws and for that matter all issues relating to financing is only enforceable via interest free zone. Historically, the first banking system that operated on this principle was Mit Ghamr in Egypt back in 1963. Proposals brought forth in a conference of foreign ministries 42 years ago saw to it that a number of Islamic banks tremendously increased among them Dubai Bank and Kuwaiti Finance House.

According to Mahlknecht, 2009 with globalization and increased demand for the services from such bank, it has been projected that globally, the demand for such banks financing will stand at $ 4.0tn in the next five years from the then $400bn in 2007. This has been seen for instance by the efforts UAE central banks to launch liquidity infrastructure aimed at expanding the ability to formulate policies geared to help Islamic banks to successfully manage money issues. Currently there are over 250 Islamic banks of which about 100 operate in Middle East.

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Importance of Islamic banking

It is worth noting that the quest and the increased demand for Islamic banking are as results of its importance. In UAE the bank has offered those people who are not Muslim a chance of engaging in transactions that promote fair distribution of resource through risk sharing. On the same note, the banking industry has enabled Muslims to preserve and tighten their bond of Islamic brotherhood.
It is no doubt that Islamic banking has brought about empowering of Muslims in terms of economy. Through it, Muslim businessmen and women via financial aid have remained competitive in the world full of fierce competitions. It is thanks to the industry that some Muslims have secured jobs from the lower positions to the top ones. Additionally, doing business globally there by increasing revenue generation has been made possible by the initiative (Mahlknecht, 2009). Additionally, Islamic banking and finance have encouraged Muslims as well as non-Muslim to save money for future use as depicted by A.S in a manner that is in line with Allah laws. Lastly, the industry has been hailed and given thumbs up for supporting Muslim activities as well as amassing resources to support each other internationally.

Problems facing Islamic banking

Despite the fact that the industry has been hailed to serve the interest of Islam, there are a number of challenges facing Islamic banking and financing "preventing it from attaining an even higher pace of growth". Among the problems facing this institution in the recent past and event at present is inadequate number of professionals in the industry. Similarly, the pace with which the demand for the banking is growing worsens the scenario. This has seen to it that service delivery is below par and something needs to be done.
Since the venture has not fully developed, there are instances of lack of uniformity when it comes to credit analysis. It has been noted by various scholars that Islamic banks do not have appropriate standards of analyzing credits. This has made issues relating to financial feasibility studies, venture monitoring as well as evaluating of portfolio a nightmare. Before the central bank of UAE resorted to formulating laws and regulation that sought to harmonize Islam banks and its operations, there were conflicts between the two entities (Karimi, 2010). The former being superior over the later meant that operations of Islamic banks were not smooth. On this same line of thinking, the bank can potentially conflict with other domestic banks, foreign one especially in terms of doing business together.

Another serious challenge facing the industry is lack of adequate accounting principles and standards. For this reason, there are a number of pitfalls that are bound to occur especially in disclosures of accounts information, matching revenue as well as expenses. Subsequently, the actual reports on profits and losses cannot be clearly communicated to the relevant stakeholders. Future exchange of Islamic bank is jeopardized by short-term investments (Rosly, 2006). The principles of does not allow engagement of the bank to interest bearing bonds which include mutual funds, insurance companies as well as pension fund among others. This places the bank at risk because their need for market equity is much above as compared to no Islam banks.

Differences between four Islamic banks

The four major banks in UAE that offer Islamic banking as well as financial services are Abudhabi Islamic bank, Dubai Islamic bank, al noor Islamic bank and Al hilal Islamic bank. Noor Islamic Bank was founded in 2006 and complies with Sheria'h principles of banking. The institution supports full banking, investing as well as risk management for clients. It emphasizes unique and personalized services to customers. It operates around the clock having branches throughout UAE. The bank was named the best new bank in 2009. Al Hilal Bank is fully owned by the government and started its operation in 2008. It has a total of 19 branches operating in AbuDhabi, Al Ain, Sharja and Ras Al Khaimah. It has 90 operational Automated Teller Machines. It has been hailed for best customer experience and positioned number 10 in customer satisfaction out of 29.

Dubai Islamic bank is the oldest bank among the four being established in 1975 is credited to being the first bank to incorporate Sharia'h principles in its operations. The banks shares are listed in Dubai Financial Market operating in 62 different locations. Its operations are felt in Jordan, Turkey and Pakistan. Abu Dhabi Islamic Bank came to being in 1997 and was operational in 1998. The divisions through which the bank offers services include personal, corporate, private, and institutional as well as investment banking. The bank has been in the forefront in coming up with new innovative products; for instance Al Khair (Rosly, S2006).
The most preferred Islamic bank in UAE is Dubai Islamic bank. This is clearly seen through the various accolades it has received. Customers are happy with service delivery, "innovative nature of its Sharia'h compliant products and services" as well as how they are handled. In 2010, the bank was named to be the best Islamic bank by the global finance magazine. The effective kind of leadership is attributed to this.

Opinion about Islamic banks

From the review of Islamic banking, it is apparent that the industry is growing to be popular as demand for its services is on the rise. It is no doubt that Islamic banking has a lot of significance for instance supporting Islamic activities, encourage saving, provision of employment among others. The challenges facing the industry are many for instance conflict with domestic, foreign and central banks, lack of accounting principles among other. Among the banks that provide Islamic banking, there are some differences. The success of Islamic banks will stem from amalgamating financial, economic as well as human attributes to conform to the principles of Islamic banking. Additionally active involvement of all relevant stakeholders will be of significance in propelling the industry to greater heights (Mahlknecht, 2009).

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