Examining Islamic Banking in Saudi Arabia

Significant developments in Islamic banking over the last decades have attracted many financial researchers. Saudi Arabia has the highest amount of assets based on Islamic laws after Iran. Examining Islamic banking in Saudi Arabia in the present study indicates that in despite of the fact that there are no specific laws and frameworks for Islamic banking in that country and the initial resistance of Saudi Arabian Monetary Agency (SAMA) against developing of Islamic banking system, people’s need for this type of banking as well as banks’ innovations in providing services based on the Islamic Sharia in using some contracts like Morabaha, have lead to an increase in the share of this type of banking up to half of all that of the overall banking system of Saudi Arabia. However, lack of inspection on the part of SAMA and formation of various self-regulated religious coalitions in Islamic institutes have led to some controversies about the accordance of the products and services with the Islamic Sharia, thereby posing obstacles for development of Saudi Islamic banks especially outside the country. Yet, the existence of the two systems of banking, i.e. Islamic and conventional, and the competition between them especially in providing services based on the Sharia for covering its increasing demands, have made promising perspectives for Islamic banking system in that country.