...RISK MANAGEMENT IN ISLAMIC BANKING AND FINANCE: THE ARAB FINANCE HOUSE EXAMPLE Bilal A. Fleifel A Thesis Submitted to the University of North Carolina Wilmington in Partial Fulfillment of the Requirements for the Degree of Master of Business Administration Cameron School of Business University of North Carolina Wilmington 2009 Approved By Advisory Committee Howard Rasheed Cetin Ciner William H. Sackley Chair Accepted By DN: cn=Robert D. Roer, o=UNCW, ou=Dean of the Graduate School & Research, email=roer@uncw. edu, c=US Date: 2010.01.21 15:02:51 -05'00' ________________________ Dean, Graduate School TABLE OF CONTENTS TABLE OF CONTENTS ..................................................................................................... ii ABSTRACT........................................................................................................................ vi ACKNOWLEDGMENTS .................................................................................................. vii DEDICATION .................................................................................................................. viii LIST OF TABLES .............................................................................................................. ix LIST OF FIGURES...............................................................................................................x GLOSSARY .............................
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...Islamic Revivalism Movement Towards The Establishment Of Islamic Banking And Finance In Malaysia Islamic revivalism refers to a revival of the Islamic religion throughout the Islamic world, that began roughly sometime in 1970s and is manifested in greater religious piety, and community feeling, and in a growing adoption of Islamic culture, dress, terminology, separation of the sexes, and values by Muslims. It has been defined by some of the Muslim scholar as the cleansing in an effort to return Islam to its original pure form. One striking example of it is the increase in attendance at the Hajj, the annual pilgrimage to Mecca, which grew from 90,000 in 1926 to 2 million in 1979 (Kepel, Gilles, Jihad: on the Trail of Political Islam, Harvard University Press, 2002) The emergence of the Islamic revivalist movements in Malaysia in 1970 was spawned by the global Islamic resurgence and internal fissures or cracks in the Malay Muslim community. There has been an intensification of Islamic activities since the 1970s which include the establishment of Islamic banking and finance. The process of Islamization in Malaysia started in line with the concept of Islam as Ad-deen, a way of life in this world and the Hereafter, every ibadah commanded by Allah S.W.T. is of benefit in this and the next world. Since the beginning Muslims are obligated to perform the Hajj pilgrimage. And Muslims have to find enough money for the journey to the Holy Land. To avoid riba' (usury) which is haram...
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...Islamic Banking and Finance: History Development Slide #1 Some Issues History Of IBF Development of IBF -Overview- 2. Islamic Banking and Finance: History and Development History and Development of IBF in Bahrain Full Fledged IB vs. IB windows • Word ‘bank’ comes from the word ‘banco’ - A table or a bench on which Italian money-changers used to display their monies and records and conduct their transactions History of Islamic Banking and Finance • Arabic financial and economic system preIslam – Trading based arrangements were common • Bay’ al-musawamah (bargaining) • Bay’ al-muzayadah (auctioning) • Bay’ al-amanah (trust sale) – Al-murabahah (resale with profit) – Al-tawliyyah (resale at cost) – Al-wadiah (resale at loss or below cost) History of IBAF- (2) – Barter trade was common – Al-sarf (money exchange) • Lack of standardization – for e.g., 10 grams of gold in coin form = 15 grams of gold in bracelet form – Institutionalization of riba – Widespread gharar and maysir – Monopoly, fraud and economic injustice was common History of IBAF- (3) • With the advent of Islam, – Eradication of riba institutions and practices – Eradication of gharar transactions – Institutionalization of fair and equitable markets • No monopoly, fraud • Standardization of money and commodity exchanges – Hadith on the six commodities – Islamization of many business organizations and institutions • Mudarabah, musyarakah, salam, muzara’ah (sharecropping or partnership...
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...Proposal on Islamic Banking Table of Contents TOC \o 1-2 1) Research Title PAGEREF _Toc \h 3 2) Introduction to the Research Topic and Main Research Question PAGEREF _Toc1 \h 3 3) Literature Review Outline and Detailed Research Questions PAGEREF _Toc2 \h 5 3.1) Introduction PAGEREF _Toc3 \h 5 3.2) Background of Islamic Banking PAGEREF _Toc4 \h 5 3.3) Features of Islamic Banking PAGEREF _Toc5 \h 6 3.4) Determination of Whether Islamic Banking is a Matter of Semantics PAGEREF _Toc6 \h 8 3.5) Detailed Research Questions PAGEREF _Toc7 \h 10 4) Ethical Considerations PAGEREF _Toc8 \h 10 References PAGEREF _Toc9 \h 12 Bibliography PAGEREF _Toc10 \h 17 1) Research Title “Islamic Banking: A Matter of Semantics?” 2) Introduction to the Research Topic and Main Research Question Islamic banking is denoted as a banking system, which is mainly governed by the principles that have been formulated by the Islamic Shariah (Hasan, 2012). In general, the term Islamic banking is not only typically based on evading internet-based transactions that are strictly prohibited under the law of Shariah, but also discards any sort of unsocial or unethical practices (Ahmed, 2011). With this concern, it can be affirmed that Islamic banking is regarded as the procedure of transforming predictable money lending into transactions that are fundamentally based upon real as well as tangible services (El-Gamal, 2006). This banking system, if...
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...ISLAMIC BANKING INDUSTRY Course Title Instructor Institution City and State Date Abstract Islamic banking is on a steep rise in western countries. The increase is due to the management and the demand of Islamic financial products from both the Muslim and the non-Muslim residents in the United Kingdom. Another contributor to the increase in Islamic financing is the fact that the opponents are slowly joining and investing in the Islamic financial products due to their high demand. The United Kingdom has emerged to be the core of Islamic banking for over thirty years now. The reason behind the tremendous performance in the Islamic banking industry is the fact the Islamic population is greatly increasing offering ready market for the financial products. The purpose of this paper is to examine in details the major contributors to the expanding Islamic banking industry as well as the major setbacks that face the Islamic banking industry mostly in the United Kingdom. The findings were collected from random questionnaires given and also interview conducted on four major groups which are; Islamic banking staff, the Islamic banking competitors, the clients and also the non-clients. Background The paper presents the general background of the Islamic banking industry in the United Kingdom as well as the challenges. The Islamic banking started as a result of the Egyptians’ Mit Shamir, who opted to share profits and losses back in the year 1963. After three years of operation...
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...8th International Conference on Islamic Economics and Finance Prospects and Problems of Islamic Banking from Bank’s Perspective: A Study of Bangladesh Dr. Muhammad Z Mamun 1 This paper focuses on the prospect and growth potentials of Islamic banks in Bangladesh as perceived by Islamic and conventional bankers. The study noted that there is a high demand for interest-free banking services from a segment of people in Bangladesh who have a strong desire to abide by the rules and principals set by Shariah. Along with religious requirement, economic exigencies provide a new outlook to the role of banking in promoting investment/ productive activities, influencing distribution of income and adding stability to the economy. The Islamic banking sector is, however, criticized on several grounds by the Conventional bankers. The banks are believed not to apply the rules of Shariah completely. Islamic banks are said to include interest in their dealings to compete effectively with the Conventional banks. Moreover, conventional banks offering Islamic banking as a parallel service are thought to do so only to add to their profitability, by attracting people who value the Shariah based system by enjoying the advantages of the special treatments from the Central bank. According to the survey, suitable and supportive legal framework would facilitate better growth of this sector. Moreover, the lack of an inter-bank money market and sufficient supportive and link institutions in the sector, act...
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...1.0 Abstract Islamic Finance is an abstract concept until the first half of the twentieth century. In Malaysia, it has been almost three decades when the first Islamic bank makes its debut. Islamic banks have to compete with its competitors which is a conventional banks which have longer history than Islamic banks. For this competition, Islamic Finance have to know the awareness, understanding and perceptions of Malaysians towards it. Islamic Finance not only available for Muslims, but it also available for non-Muslims as well. In Malaysia, 40% of the population is non-Muslims and hence non-Muslims market is equally important to Islamic Finance (Bashir & Mail, 2011; Latiff, 2007). The purpose of this research is to examine the level of awareness, understanding and perceptions of Muslims in Malaysia of Islamic Banking products and services. In additional, this study also aims to investigate if any demographic influence it’s means the structure of population of the awareness, understanding and perceptions of Islamic Finance products and services among Muslims in Malaysia. A total of 50 respondents from different course and carrier in Unikl are selected for the purpose of this study. For the analysis, we used the primary data and Secondary data was adopted to analyse the results. The results show that more than half of the respondents are aware of the Islamic Finance in Malaysia but they do not aware of most of the products and services offered by Islamic banks. Muslims understanding...
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...I. History of Islamic Banking in Malaysia Malaysia started Islamic banking in early 1980’s. Islamic Banking is especially true for Muslim world where currently Islamic banking strides at two separate fronts. At one side, efforts are also underway to convert the entire financial systems in accordance to Islamic laws (Shariah). At the other side, separate Islamic banks are allowed to operate in parallel to conventional interest based banks. Malaysia opted for the alternative gradual way of developing and implementing Islamic banking system. 1.1 Origin of Islamic Banking in Malaysia The roots of Islamic Banking in Malaysia should go back to 1963 when the government established Tabung Haji or Pilgrims Management and Fund Board. The organisatio was established to invest the savings of the local Muslims in interest free places, who want to carry out pilgrim (Haji). Tabung Haji utilizes Mudarabah (profit and loss sharing), Musharikah (joint venture) and Ijara (leasing) modes of financing for investment under the guidance of National Fatawah Committee of Malaysia. The first call for separate Islamic bank was made in 1980, in a seminar held in the National University of Malaysia. The members who attend had passed a decision requesting the government to create a special law to setup an Islamic bank in the country. Thereafter, the government had set up a National Steering Committee in 1981 to study legal, religious and operational aspects of organized an Islamic bank. The committee...
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...January/February 2009 Volume 25, Number 1 The Evolution Of Islamic Finance In Southeast Asia: The Case Of Malaysia (1) Rika Nakagawa, Institute of Developing Economies, Japan ABSTRACT The purpose of this paper is threefold: to explain why the Islamic financial system was introduced in Malaysia; to outline how the Malaysian government has promoted this system; and to analyze the development of the Islamic financial system with a specific focus on the banking sector. In Malaysia, the first Islamic bank, Bank Islam Malaysia Bhd., was established in 1983. One turning point of the Islamic financial system in the country was the Financial Sector Master Plan presented by the central bank in 2001. The government, in accordance with the plan, has taken a strong initiative in the development of an Islamic financial system. As a result, the country has succeeded in promoting a comprehensive Islamic financial system, banking and insurance sectors and capital markets. In the banking sector, this paper reveals that the profit-sharing system does not seem to be popular in this country although the reward system is central to Islamic Finance. In order for further development of the Islamic financial sector, the reasons why the percentage of contracts under the profit-sharing system is small need to be analyzed. Keywords: Islamic Finance in Malaysia, Financial Sector Master Plan, New Economic Policy, Bank Islam Malaysia Bhd., Islamic Banking Scheme INTRODUCTION I n the globalized economy, large...
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...1. Introduction History of Islamic Business Transaction Without a doubt, the history of Islamic Banking is quite interesting. Since the medieval era (1,000 – 1,500 AD), businesspeople in the Middle East engaged in financial transactions. At this time though, these transactions used the same financial principles as the Europeans. Early History of Islamic Banking Since the Arabs of the Ottoman Empire traded extensively with people in Spain, they also developed certain no-interest financial systems that worked on a profit and loss sharing method. These systems, in turn, financed trade and other business affairs. When the Middle Eastern and Asia began to be more important trading partners for various European companies, the Europeans opened banks in these countries – with many of these banks based on the interest-bearing financial system. As the trading relationship with the Europeans continued to play an important role, these types of financial institutions began to be more prominent outside of Europe. However, even when local trading business owners used these commercial banks, they often only transferred money between accounts. Both borrowing and depositing money was limited as the local population wanted to refrain from partaking in interest-bearing transactions. Further, certain co-operative institutions based on the original profit and loss sharing model still existed, but only in certain locations. As economic demands increased, avoiding banks was not an option...
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...Journal of Islamic Banking and Finance Vol. 2, No. 1; March 2014 23 Islamic Banking Scenario of Bangladesh Salahuddin Yousuf1 Md. Ariful Islam2 Md. Rayhan Islam1 Abstract With an aim to explore the current Islamic banking scenario of Bangladesh, this study examines the key concepts of Islamic banking and its history in the world and in Bangladesh as well. This secondary data based research meets its objectives of reviewing relevant concepts, history and current performance of the Islamic banks of Bangladesh through both qualitative and quantitative approaches. From the establishment of first Islamic bank in 1983, this country has currently eight Islamic banks. Except one individual bank (ICBIBL), most of the Islamic banks show remarkable growth in their profitability in the last decade. One reason behind this consistent negative figure in profitability of this bank is the frequent change of ownership. But overall significant contribution of the Islamic banks in the banking industry is visible from the research. This paper provides up-to-date scenario of the Islamic banking in Bangladesh. Keywords: Islamic Banking, Riba, Performance, Banking Industry JEL-classification: E44 G10 G21 1. Introduction Islamic banking and finance is a creation of modern age. Capitalism argues, capital- one of the key factors of production, deserves fixed return whereas the entrepreneurs have to bear all the risks. The conflict of opinions with the Islamic values starts from this very...
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...Islamic Banking: Answers to Some Frequently Asked Questions 9 ISLAMIC DEVELOPMENT BANK ISLAMIC RESEARCH AND TRAINING INSTITUTE ISLAMIC BANKING: ANSWERS TO SOME FREQUENTLY ASKED QUESTIONS Mabid Ali Al-Jarhi and Munawar Iqbal Occasional Paper No.4 1422H 2001 Mabid Al-Jarhi and Munawar Iqbal 10 Islamic Banking: Answers to Some Frequently Asked Questions 11Mabid Al-Jarhi and Munawar Iqbal 12 Islamic Banking: Answers to Some Frequently Asked Questions 13 FOREWORD In the last quarter of a century, there has been a great interest in the Islamic banking system both at private and public levels. There is an earnest and widespread desire to understand the system. Academicians, bankers and general public, all, have some genuine questions and concerns. Policy makers in the monetary and financial sectors of the IDB member countries have also often asked the Islamic Research and Training Institute (IRTI) some basic questions of theoretical and practical importance about the elimination of interest from the national economies of Muslim countries and the transformation of the prevailing conventional system to an Islamic one. Some of these questions reflect a desire to understand the basic concepts of Islamic finance while others relate to the creation of an enabling environment through macroeconomic reform and structural adjustments that are needed to establish the Islamic financial system and the complications that arise when an effort is made to bring about the transformation...
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...paper focuses on the prospect and growth potentials of Islamic banks in Bangladesh as perceived by Islamic and conventional bankers. The study noted that there is a high demand for interest-free banking services from a segment of people in Bangladesh who have a strong desire to abide by the rules and principals set by Shariah. Along with religious requirement, economic exigencies provide a new outlook to the role of banking in promoting investment/ productive activities, influencing distribution of income and adding stability to the economy. The Islamic banking sector is, however, criticized on several grounds by the Conventional bankers. The banks are believed not to apply the rules of Shariah completely. Islamic banks are said to include interest in their dealings to compete effectively with the Conventional banks. Moreover, conventional banks offering Islamic banking as a parallel service are thought to do so only to add to their profitability, by attracting people who value the Shariah based system by enjoying the advantages of the special treatments from the Central bank. According to the survey, suitable and supportive legal framework would facilitate better growth of this sector. Moreover, the lack of an inter-bank money market and sufficient supportive and link institutions in the sector, act as impediments to growth of Islamic banking. Also, banks perceive the availability of training and education on Islamic banking to be inadequate in Bangladesh. To deliver superior services...
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...undertaken to provide an overview of previous studies related to this particular study. The first section starts with the Principles of Islamic Banking and a description of the products. The next one consists of studies indicating the relief provided by Islamic Microfinance institutions globally. The remaining sections comprise of the factors affecting the demand of Islamic financial products namely, awareness, religious factors and trust among parties. The last sections include the Mauritian government’s assistance in introducing Islamic Finance in the country and measures taken to set high standards and women empowerment. 2.1.1 Products...
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...ISLAMIC BANKING SYSTEM & PRODUCTS Name Course Instructor Institution Date Islamic banking Introduction Over the past decades, Islamic banking has expanded into a distinctive and fast growing competitive substitute to conventional banking in many countries. Despite the rapid expansion of the Islamic banking system in recent years, little is however understood of how it differs from conventional banking systems, especially in the non Muslim world. Although Islamic banking works in accordance with the Islamic laws (shariah), in other countries, they are allowed to operate incomparably with the conventional banks that are interest based. The desire of Muslim communities to reorganize their social economic activities, and revival of financial institutions such as Zakah on an interest free basis can be said to be the main drivers to the development of Islamic baking over the past (Wilson, 1994: 110). Nevertheless, Islamic banking is not a religious product as it may insinuate, but it can rather be understood as a series of growing financial products that are developed with the aim of meeting the requirements of Islamic culture and its people (Sole, J. A., 2007: 6). Thus theses systems have developed so as to enable Muslims to invest savings and equally raise finance without compromising their religious and ethical practices. In order to comprehend the fundamental principles of operation of the Islamic banking system, it is thus necessary to understand what it is. There is...
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