ISLAMIC BANKING IN THE EUROPEAN UNION COUNTRIES
In the 1970s Islamic financial system based on religious belief emerged in some of Muslim countries. The purpose of the Islamic financial system is just like in the case of the conventional one, to facilitate the smooth flow of funds between savers and investors. However, what is distinguishable about the Islamic financial system is that it is based on principles of sharia, which is a religious law of Muslims. With the share of around 80% in total assets of Islamic financial institutions, Islamic banks play a dominant role in the Islamic financial industry. They operate in over 75 countries, not only Muslim ones, but also those, where Muslim minority live. The aim of the paper is to analyse the opportunities and challenges for development of Islamic banking in the European Union countries. The analysis should give an answer to the question whether Islamic banks can have more significant presence in the European financial market in the future, than they have today. The article consists of four parts, not counting introduction and concluding remarks. The first part of the paper is a descriptive analysis of the main principles of sharia, which have impact on operations of Islamic banks. They include: prohibition of interest (riba), avoidance of uncertainty (gharar) and prohibition of trading in illegal (haram) products. Because of the necessity to comply with those principles, the instruments offered by Islamic banks must be constructed differently than conventional ones. Islamic financial instruments are briefly described in the second part of the paper. In the third section of the article the evolution and the current state of Islamic banking in the EU countries is presented. The main focus is put on the United Kingdom, since in this country Islamic banking sector is the most developed. In the fourth part prospects for development of Islamic banking in the EU are discussed. First the factors that should contribute to the development are presented. Then challenges faced by Islamic banking industry in the EU are ...