...Introduction The current global financial crisis has not only shed doubts on the proper functioning of conventional “Western” banking, but has also increased the attention on Islamic banking.1 Academics and policy makers alike point to the advantages of Shariah-compliant financial products, as the mismatch of short-term, on-sight demandable deposits contracts with long-term uncertain loan contracts is mitigated with equity elements. In addition, Sharia-compliant products are very attractive for segments of the population that demand financial services that are consistent with their religious beliefs. However, little academic evidence exists on the functioning of Islamic banks, as of yet. This paper describes some of the most common Islamic banking products and links their structure to the theoretical literature on financial intermediation. Specifically, we discuss to which extent Islamic banking products affect the agency problems arising from information asymmetries between lender and borrower or investor and manager of funds. Second, we compare the business model, efficiency, asset quality and stability of Islamic banks and conventional banks, using an array of indicators constructed from balance sheet and income statement data. In separate regressions, we focus specifically on the relative performance of both bank groups during the recent crisis. While there is a large practitioner literature on Islamic finance, in general, and specifically Islamic banking, there are few...
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...Stability of Islamic and Conventional Banks During the Financial Crisis 1. Ratio Analysis The performance and the stability of banks can be quantified and measured through the analysis of their financial ratios. We can have several hundreds of ratios at our disposal. However, we will use only those that are common, and of some meaning for the analysis of the banks. Also, it is important to note that we should use only major and comparable ratios in order to fully understand the financial position of these banks as compared to all those ratios that may include some vagueness in the research. Mainly five categories of these financial ratios are used to eliminate the vagueness created by redundant use of the financial heads and items from the financial statements. Hence, the five categories are: (CFA 2009, p498): - Profitability Ratios - Activity Ratios - Liquidity Ratios - Solvency Ratios - Valuation Ratios However, for the banking industry, which is our main concern, we will use only the first four categories, making an exception of the Valuation category. The financial stability department of the State Bank of Pakistan, which is the central bank of this major economy in the Muslim world, and actively involved in the promotion of Islamic Banking, suggests that the financial ratios fairly reflect the stability, health and the performance of the banks. Hence, these ratios can be used for our purpose. 2. Z-score Instead of just doing the Financial Ratios Analysis, we should...
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...Islamic And Conventional Banking banking in two groups as follows 1) Islamic Banking 2) Conventional Banking. 1.1-ISLAMIC BANKING. When we discuss about Islamic banking... Save Paper Islamic And Conventional Banking Practice conventional and Islamic bank as a conventional bank is a riba based bank and an Islamic bank is a profit based bank. Conventional banking... Save Paper Stability Of Islamic And Conventional Banks During The Financial Crisis Islamic or conventional banks however, it has generally been seen that while conventional banks were wiped of several billions of dollars, Islamic banks ... different... Save Paper The Comparison Between Islamic Loans And Conventional Loans In Relation To Market Power Islamic economics and Islamic banks have grabbed the attention of millions of people around the world. That is because Islamic banks... Save Paper Comperative Study Of Corporate Social Activities Of Bank And Non Bank Financial Institute banks. Importance of Corporate Social Responsibility Abstract Companies are, in a broad sense, a group of different ... etc.), driving up efficiency; gaining new... Save Paper Is It Necessary To Combine Investment Banking And Commercial Banking? banks and investment banks to function as two different units. GSA was targeting to prevent banks... Save Paper Mobile Banking In Brack Bank banking event, the Excellence in Retail Financial Services Convention. Mr. Abdur Rahman, Head of Branch Banking of...
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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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...BETWEEN ISLAMIC AND TRADITIONAL BANKS: PRE AND POST THE 2008 FINANCIAL CRISIS Mohamed Hashem Rashwan1 The British University in Egypt ABSTRACT This study tests the efficiency and profitability of banks that belongs to two different sectors: a) Islamic Banks (IBs) and b) Traditional Banks (TBs). The study concentrates on the pre and post 2008 financial crisis with an aim to test if there are any significant differences in performance between the two sectors. The study applies the MANOVA techniques to analyze the financial secondary data for only publicly traded banks in the same region. The findings of the study show that there is a significant difference between the two sectors in 2007 and 2009 and there are no significant differences in 2008, which indicates the effect of the crisis on both sectors. IBs outperform TBs in 2007 and TBs outperform IBs in 2009. This result indicates the spread of the crisis to the real economy where IBs usually operate. INTRODUCTION Forty years ago Islamic Finance was virtually an unknown system; interestingly it has expanded to become a distinctive and fast growing segment of the International Financials markets. With a growth rate that ranges from 15% to 20% (EL- Qoroshy 2005). Islamic Finance in general and Islamic banking in specific become main players in the financial world. According to the IMF survey (2010) the total capital managed under Islamic Finance systems was estimated to be $820 billion at the end of 2008. More than 200 Islamic Banks...
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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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...| Introductory Paper | Inside job documentary | | Mouna Jama Ali Osman | 10/19/2013 | | The movie "Inside Job" gives a deep look at the financial crisis as it discusses the reasons of the global financial crisis that has cost people's money, their houses and property and also their jobs. The movie begins with one of the most famous examples that affected by the crisis which is Iceland. Notably by their nature, picturesque view and a strong economy, Iceland began the deregulation policy which would cause major problems in the environment and the economy. When the financial crisis happened, the government was owed billions of money as debt and lots of people lost their money and jobs. The movie then went to explain the roots of the problem as the crisis was actually doing not happened suddenly but began thirty years ago at the former President Reagan’s era. He reorganized investment laws and reduced suppression to allow the saving and loan companies to make riskier investments with their customer’s money. As the deregulation was implemented, the illegal activities that are done by the biggest financial companies was increasing such as money laundry, customers defraud and etc. The legal and legislative lenient were the reason to create new and suspicious products called derivatives which would have a bad effect in the economy. Using derivatives, they can gamble on anything even in bankruptcy of the company and failure of investment. Although there were attempt...
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...displaced the bezant gold coin as the major international currency, circulating throughout the Muslim world and the Christian Europe as well. The creation of dirhams and dinars is one of the blessings of Allah. They are stones having no intrinsic usufruct or utility but all human being needs them because everybody needs large number of commodities. The needs to revisit the gold dinar as a monetary stability has been voiced out by many scholars and ulama’s since 1970s. The resistance towards the interest economy could be the major motivation for the comeback of gold dinar. The prohibition of interest is not only mentioned in the Quran but the Bible and Torah. The gold prices are indeed relatively stable compared to other commodity prices, exchange rate movement and the stock market index. Manipulation of currencies and the impact toward one economy could be reduced because of the fact that gold does not inflate in value as it is a commodity and, thus has an intrinsic value. The counterfeiting would be checked if gold coin were used. By sing dinar and elimination of interest, Islamic country would have a stable currency and monetary systems, money supply growth can be expected not to overshoot growth in the real sector, thus eliminating the inflationary pressure in the economy. If all these exchange rates are eliminated by means of a single currency like...
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...MP A R Munich Personal RePEc Archive Impact of Interest Rates on Islamic and Conventional Banks: The Case of Turkey Erge¸ Etem Hakan and Arslan Bengul Gulumser c ¨ ¨¨ January 2011 Online at http://mpra.ub.uni-muenchen.de/29848/ MPRA Paper No. 29848, posted 4. April 2011 06:17 UTC Impact of Interest Rates on Islamic and Conventional Banks: The Case of Turkey Etem Hakan Ergeça* and Bengül Gülümser Arslanb Abstract Identifying the impact of the interest rates upon Islamic banks is key to understand the contribution of such institutions to the financial stability, designing monetary policies and devising a proper risk management applicable to these institutions. This article analyzes and investigates the impact of interest rate shock upon the deposits and loans held by the conventional and Islamic banks with particular reference to the period between December 2005 and July 2009 based on Vector Error Correction (VEC) methodology. It is theoretically expected that the Islamic banks, relying on interest-free banking, shall not be affected by the interest rates; however, in concurrence with the previous studies, the article finds that the Islamic banks in Turkey are visibly influenced by interest rates. JEL classification: G21; E52 Keywords: Interest-free banking, monetary policy I. Introduction Islamic banks1 are defined as financial institutions that rely on the principle of Profit and Loss Sharing (PLS) with the entrepreneurial partners in their relevant banking...
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...All you need to do is to answer all the questions for the different discussions (200 words each) Topic 1: What factors affect the consumer's perceptions of fast food and its services? Summary: The two studies by M.K. Brady et al and Kim et al are concerned with the same question: what factors affect the consumer’s perceptions of fast food and its services? But while Kim et al. focuses on American college students to find out what factors that segment finds favourable in a fast-food service, M.K. Brady et al takes their study to the international level to find out how different cultural values can affect the consumer’s behavioural intentions relative to the fast-food industry and its services. Both articles agree that the majority of America customers prefer to trade-off between quality of services and expenditure required (expense-conscious). The American consumer tends to judge consumption of goods and services with a ‘neutral’ and logically based mindset; always asking the question of “is it worth my money?” Kim et al claims that due to relatively inexpensive, quick and convenient service, fast-food is becoming more and more popular among college students in North America. How could restaurants attract this emerging market? Further discussing in particular the college student market, and selecting Wendy’s, Burger King and McDonald’s as target examples will figure out the way to attract college students in fast-food services restaurant. Several factors are taken into consideration...
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...economy banks play very important role. A bank is a reliable financial institution, which has core business of mobilizing the savings of people for investment purposes. It receives the money from one group and lends to other group of people. So bank performs the duty of financial intermediary. Usually there are two types of banks, conventional banks and Islamic banks. In simple words Islamic banks operate in interest free system. Prohibition of interest is ordained in Islam in all forms and intent. This Prohibition is strict, absolute and unambiguous. The Holy Qur'an in verse 278 of Surah Al-Baqarah states: "O ye who believe! Fear Allah and give up what remains of your demand for Riba, if ye are indeed believers." Verse 2: 279 says: "If you do it not, take notice of war from Allah and His Messenger. But if ye turn back, ye shall have your capital sums. Deal not unjustly and you shall not be dealt with unjustly." It therefore, follows that interest is prohibited as it leads to injustices and Islam is against all forms of injustices and exploitations and pleads an economic system, which aims at securing extensive socio-economic justice. The Islamic law of prohibition of Riba, which includes interest, was originally not based on economic theory but on Divine Authority, which considers the charging of interest as an act of injustice (Dr. Siddiqui). Islamic banks appeared on the world scene as active players two decades ago. But many of the principles on which Islamic banking...
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...Islamic Finance: A Therapy for Healing the Global Financial Crisis Miranti Kartika Dewi 1 *Researcher of Centre for Islamic Economics and Business ** Lecturer of Department of Accounting Faculty of Economics, University of Indonesia Ilham Reza Ferdian * Student of Master of Science on Finance Programme Kuliyyah of Economics and Management Sciences International Islamic University Malaysia ** Fellow of PT. Bank Muamalat Indonesia ABSTRACT Global financial crisis which hit many too-big-too-fail countries and financial institution in the world was mainly made happen by debt securitization. Derivative instruments resulted from this process obviously were not backed by real asset. When any party came up with investment on these instruments, the investment would never support the development of real sector economy, instead, it just worsen the situation by creating bubble economic. This condition becomes more harmful when the securitized debts default. This practice is strictly forbidden according to Islamic finance principles. It has inherent risk management tools to prevent the crisis. This paper attempts to examine the root of the financial crisis and find the solution from Islamic finance principles. Keywords: Financial crisis, Derivative, MBS, CDO, CDS, Islamic finance 1 Corresponding author can be contacted by email: miranti_k_dewi@yahoo.com. “The credit and capital markets have grown too rapidly...
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...Is Islamic Finance A Solution to the Financial Crisis? | Is Islamic Finance A Solution to the Financial Crisis? Lecturer Ms Tahira Jaffery Prepared by Mohammed Haider Hassan Mohammad Javed Najwat Rehman Mehdi Maloof December 30, 2009 Contents THE GLOBAL FINANCIAL MELTDOWN AND ITS IMPACT ON PAKISTANS ISLAMIC BANKING SECTOR 4 The Root of All Cause: What Caused the Financial Crisis? 4 THE ISLAMIC BANKING MECHANISM 7 Roles of Different Players 7 Modes of finance 9 CONVENTIONAL AND ISLAMIC BANKS AMID THE CRISIS IN PAKISTAN 14 Differences Between Islamic and Conventional Banks 14 GROWTH OF ISLAMIC BANKING INSTITUTIONS 18 Prevailing Trends in the Past Year 19 ISLAMIC BANKINGS CAPACITY TO WITHSTAND RECESSIONARY PRESSURES 21 CHALLENGES AND OPPORTUNITIES 24 Problems With Islamic Finance 24 Opportunities 28 Bibliography 30 THE GLOBAL FINANCIAL MELTDOWN AND ITS IMPACT ON PAKISTANS ISLAMIC BANKING SECTOR The Global Financial Crisis took the world by storm in late 2007 and has since then has created all sorts of nuisances around the world. Economists consider it to be the worst financial crisis ever since the Great Depression of the 1930s. The crisis caused losses worth trillions of U.S dollars throughout the world resulting in the failure of businesses, decline in consumer wealth, government deficits, and an overall decline in economic activity. The Root of All...
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...Is Basel III a better support to Islamic banks than Basel II? International Interdisciplinary Conference On Changes, Challenges and Consequences In Commerce, Engineering, Technology and Social Science. Institute of Business Management and Research, Chakan & Choice Institute of Management Studies and Research, pune, 15th March, 2014. Dr. Atmaram palnitkar Research Guide& Principal of Dayanand College OF Commerce, Latur. palnitkarav@rediffmail.com&9423347478 Abdul-Jabbar Qasem Ali Al-badaani Research Scholar of Com and Magt Sci, SRTM University, Nanded. Amaf3600@gmail.com&7709670130 ------------------------------------------------- ------------------------------------------------- ABSTRACT Banking activities involve many risks calculated and otherwise. Banks have to take appropriate measures and require management of their capital and credit and implementation procedures in keeping with the best international practices, to mitigate potential losses and avoid projected pitfalls. In view of the recent financial crisis, due to wrong management or improper implementation as well as the collapse of large economies has had a cascading effect all round the world in the form of collapses of famous institutions and banks, and thus arose a decision to have a better financial control in the form of Basel I to be later followed by Basel II and Basel III. Thus a new culture in financial controls and risk management has arisen to safeguard the banking...
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...Business and Finance, Ahlia University P.O. Box 10878, 1st Floor Gosi Complex Exhibitions Road, Manama, Kingdom of Bahrain Akram Jalal Management Information System Department College of Business and Finance, Ahlia University P.O. Box 10878, 1st Floor Gosi Complex Exhibitions Road, Manama, Kingdom of Bahrain Tel: 973-3838-3411 E-mail: ajalal@ahliauniversity.edu.bh Received: February 25, 2011 Accepted: March 22, 2011 doi:10.5539/ijbm.v6n8p216 Abstract Recently, Knowledge Management System acquires high attention in all sectors, since it is a valuable instrument in improving performance. In this study, an explanatory research on evaluating knowledge management systems will be conducted for the Central Bank of Bahrain (CBB) based on a survey of decision makers working in the Central Bank of Bahrain (CBB). It is our intention to evaluate the impact of implementing the knowledge management system on decision making by evaluating the impact of the knowledge key factors which are the information technology infrastructure, human resource, knowledge sharing and the culture of the organization. The study investigates the relationship between knowledge management and decision making. It reveals that the knowledge management factors are crucial indicators which need to be effectively implemented to make success decisions. Keywords: Knowledge management system, Decision making process, Business performance 1. Introduction Businesses have witnessed a fast motivation of the governments toward...
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