Can islamic banking survive

The literature review section will identify studies and other authoritative literature, and review it to determine gaps in the study of Islamic banking in a contemporary banking environment. The research methods section will elaborate of the measures taken to find data and information that was relevant in answering the research questions.

Findings and discussions section will include the presentation of analysed information, which will then be interpreted to come up with conclusions about the implications of the findings to the research questions. Finally, the appendix section will include data and information sources that are relevant to this study but cannot be integrated into the main text. In addition, various documents will be included as appendices including any ethics forms, personal statement, and any other documents obtained for the study.

Due to the current demand for Islamic banking services based on curiosity or product appeal, Mahmoud and Kader observed that the current fast growth of Islamic banking is an important factor for economic growth. However, the authors stated that Islamic banking still takes second place in comparison to conventional banking in relation to marketing strategies and competitive advantages. In this regard, Islamic banking services are only viewed as supplementary products instead of possible substitutes for conventional banking products.

Mahmoud and Kader recommended that banks with Islamic banking products should have competitive strategies for marketing, especially in response to customer needs for good bank reputation, attractive returns, and high quality services.

Nevertheless, the authors commented that some positive progress has been made in regard to competitive advantage acquisition for Islamic banking products.

For instance, banks have understood that offering good banking products is not enough, but the value of such products must be communicated effectively to potential customers.

Lee and Ullah determined that sharia compliance is one of the many factors considered by customers when selecting an appropriate Islamic banking service provider. Therefore, any banking institution with the intention of offering Islamic banking services should offer value addition for customers, which can be done by identifying customer needs and expectations. Unlike conventional banking policies and regulations that are specifically made to govern financial transactions between banking institutions and their customers, sharia necessitates incorporation of Islam as a way of life.

The effects of sharia on banking transactions exceed the limited financial sector, and extend to other factors that affect transactions including the market, justice, economics, business principles and finance among others. Islamic justice advocates for equitable treatment of players in a market, which allows people from different backgrounds and financial ability to interact productively.

In addition, Islam encourages the growth of a free market, but this should happen within a given ethical framework especially in regards to profitability and exploitation of price takers in a market. The Koran also provides clear guidelines on trade and commerce, work and production, poverty and riches, communal obligations, stewardship and resources, ethical standards, and ethical principles in finance and business.

In Islamic finance, Usury is expressly prohibited, especially due to its disregard for the financial condition of the borrower and market situation, which may be exploitative and unfair Lewis, Lewis confirmed that the need for fair trade and justice in exchange is not limited to Muslims, but the Koran, sharia and other sources of Muslim law have a comprehensive guidance for Islamic banking that is not available for contemporary banking.

According to the author, this is what has made Islamic banking acceptable to customers in conventional banking environments, especially since Islam provides guidance and mechanisms for implementation. Nicholas Guantai Author. Add to cart. Introduction Islamic or sharia banking is a common phenomenon in Muslim countries, especially in the Middle East and other regions whose social, political, and economic aspects are organized according to the provisions of the Koran.

Background Islamic banking has a lot in common with conventional banking approaches, including the admissibility of institutions and customers from non-Muslim backgrounds to engage in Islamic banking. Principles of Sharia Banking As is the case with conventional banking, Islamic banking has the aim of making money by lending out funds to make money for the lending institution as one of the main purposes.

Advantages of Islamic Banking The participative nature of Islamic finance enables productive collaboration between financial institutions and their customers, which is a relationship that is devoid of exploitation of borrowers for the benefit of the lender.

Statement of the Problem Advantages and disadvantages of sharia banking in a conventional banking environment are obvious, whereby the positive and negative outcomes interact to produce mixed outcomes for conventional banks. Significance of the Study Islamic banking is being adopted in various business environments globally, whereby contemporary banks in London and other western cities are the global centres for Islamic banking.

Research Questions General Research Question - What is the extent to which Islamic banking has resulted in positive outcomes for contemporary banks in a contemporary banking environment? Specific Research Questions q1. Synthesis This introduction gives a perspective for the study, and other sections of the study will include the literature review, research methods, findings and discussion, conclusion, and implications. Literature Review Due to the current demand for Islamic banking services based on curiosity or product appeal, Mahmoud and Kader observed that the current fast growth of Islamic banking is an important factor for economic growth.

Principles of Islamic Banking Unlike conventional banking policies and regulations that are specifically made to govern financial transactions between banking institutions and their customers, sharia necessitates incorporation of Islam as a way of life.

Sign in to write a comment. Read the ebook. Islamic Banking. Prinzipien, Instrume How "helal" can an Islamic In this way, Islamic banking can be considered a culturally distinct form of ethical investing. To earn money without the typical practice of charging interest, Islamic banks use equity participation systems. Equity participation means if a bank loans money to a business, the business will pay back the loan without interest, but instead gives the bank a share in its profits.

If the business defaults or does not earn a profit, then the bank also does not benefit. In general, Islamic banking institutions tend to be more risk-averse in their investment practices.

As a result, they typically avoid business that could be associated with economic bubbles. While an Islamic bank is one that is entirely operated using Islamic principles, an Islamic window refers to services that are based on Islamic principles that are provided by a conventional bank. Some commercial banks offer Islamic banking services through dedicated windows or sections. The practices of Islamic banking are usually traced back to businesspeople in the Middle East who started engaging in financial transactions with their European counterparts during the Medieval era.

At first, they used the same financial principles as the Europeans. However, over time, as trading systems developed and European countries started establishing local branches of their banks in the Middle East, some of these banks adopted the local customs of the region where they were newly established, primarily no-interest financial systems that worked on a profit and loss sharing method.

By adopting these practices, these European banks could also serve the needs of local business people who were Muslim. Beginning in the s, Islamic banking resurfaced in the modern world, and since , many new interest-free banks have opened. While the majority of these institutions were founded in Muslim countries, Islamic banks also opened in Western Europe during the early s.

In addition, national interest-free banking systems have been developed by the governments of Iran, Sudan, and to a lesser extent Pakistan. The Mit-Ghamr Savings Bank, established in in Egypt, is commonly referred to as the first example of Islamic banking in the modern world. When Mit Ghamr loaned money to businesses, it did so on a profit-sharing model.

However, in economically good times, the bank's default ratio was said to be zero. Also, any investments involving items or substances that are prohibited in the Qur'an—including alcohol, gambling, and pork—are also prohibited.

To earn money without the typical practice of charging interest, Islamic banks use equity participation systems, which is similar to profit sharing. Islamic Corporation for the Development of the Private Sector.

Accessed Oct. International Markets. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. Is your work missing from RePEc? Here is how to contribute. Questions or problems? Can Islamic Banking Survive?