The future of Islamic Finance - Research Proposal Example

The Future of Islamic Finance-Research Proposal Introduction This paper is an analysis of a research to be carried out in order to identify the efficiency of Islamic banking system in relation to conventional banking system. The essay describes the research methodology applied in collecting data for analysis, the problem statement, research objectives, hypothesis, research significance, and operational definitions. Currently, the Islamic financial services are on a rapid growth, and they do not only have a dynamic growth, but also serious completion along cross-borders. Currently, the Islamic financial services are on a rapid growth, and they do not only have a dynamic growth, but also serious completion along cross-borders. According to literature, Islamic finance has several positive steps in their banking system making it a subject of interest in several universities. A study by EI (2011) shows that global business competition has brought about innovation in both services and products in order to meet the diverse customer requirements. Interest-free loans in the Islamic banking continue raising concerns to many researchers in relation to mobilizing savings, pooling risks, and facilitating transactions. Different researchers have confirmed this foreign banking tend to exploit their comparative advantages (Rosser & Rosser 2004). As a result, they tend to show higher efficiency compared to their domestic owned contemporary banks. This study bases on Abu Dhabi Islamic Bank discusses the rate at which Islamic banking sprung up and continued progressing. Problem Statement External financing is vital for any economic growth, and Islamic banking continues gaining its popularity globally. It is important to study this system because banks are the citadels of any economic growth. The purpose of the study is to focus on the economic growth in Abu Dhabi, where the Islamic banking sector seems to grow faster than the conventional banking highlighting growth in all aspects including investments, marker share, depositors, and branch networking among others. Research objectives This research report helps in enhancing knowledge through learning from the practical environment and applying theoretical concepts in the practical fields. As a result, the purpose of this study is reviewing the variety of aspects in relation to Islamic Banking and identifying factors of Abu Dhabi Islamic banking growth, while assessing their applicability, and validity to all customers. Other specific objectives include To review of History and Development of Abu Dhabi Islamic Banking to help readers understand the evolution of Islamic Banking and its present time needs. To focus on the growth of Abu Dhabi Islamic banking growth in relation to a report showing that Islamic banking is on a faster growth than the conventional banking. To measure the difference between Islamic banking and the interest based banking. To weigh the attractiveness of Islamic banking system for local and international banks To understand Abu Dhabi involvement and support for this proposed banking system. Hypothesis The Research Hypotheses are: There is an awareness of the rapid growth of Islamic banking system. There is a positive relationship between conventional banking system and Islamic banking system There is a positive relationship between the Government of Abu Dhabi and the Islamic banking System There is effectiveness of Islamic banking in the banking sector There is effectiveness of Islamic banking in relation to Abu Dhabi economy There is an influence of Islamic banking system on the conventional banks There is a difference between interest-on loans banks and interest-free loan banking system Importance This research remains very vital because it allows the reader to understand more on Islamic banking. According to Hassan (2007), many people fail to understand the concept of interest-free loans in relation to profit making. The study is equally vital for students studying banking and finance. However, the most important aim of the study is to enlighten people on Sharia banking in relation to conventional banking and its fast growth in the banking industry. The study enlightens customers on the advantages of Islamic banking system giving them a choice to choose on their preferred bank. This study helps the customers understand that both conventional and Islamic banking systems have similar business and specialization interests. Literature Review Islamic banking does not allow advancing of money and receiving predetermined sums at future dates. Shariah is the Muslim faith responsible for ensuring viable investments with reliable borrowers. Thereafter, the bank shares the profit in case the project succeeds. Sharia dictates that Muslims thrive from profit sharing through creation of value by the banker that compliments the borrower’s efforts. However, with globalization, the Islamic banking seems to be developing alternative financial products based on Shariah. The conventional banking system is equally adapting or embracing Shariah laws in their banking system. Schoon 2009) argues that Islamic banking started over ten years ago with only 63% understanding the difference between conventional and Islamic banking system. Globalization has caused new banking systems due to new technology, and this has caused too much competition in the banking industry. This fierce competition does not only affect the Islamic banking competition in Abu Dhabi, but the world in general. Conceptual Model Performance Performance Objectives of Ratios Ratios Islamic Banks Liquidity Liquidity Objectives of Islamic Law (Maqasid al- Ratios Ratios shariah) Solvency Solvency Ratios Ratios The chart below represents the Senkaran’s (2000) Model that helps to measure the efficiency of Islamic banking system in relation to the Islamic laws. Element (E) Dimension (D) Concept (C) Element (E) Dimension (D) Element (E) The above Sekaran (2000) Model illustrates Concept (C) as thirst, while Dimension (D) is the behavior of drinking water. Element (E) measures the amount of water taken in glasses. Operational Definitions Islamic Finance Ward (2000) defines Islamic finance as a banking that base their actions and goals on the beliefs in the Quran. Warde argues that these financial institutions are not only banks, but also any other economic mediator employing Sharia. Riba A study by Hassan and Lewis (2007) defines Riba as unjustified lending and borrowing of money above the loan amount hence Riba is debt usury. Gharar Hassan and Lewis (2007) defines Gharar concept as the risk, hazard or uncertainties in financial products that the Islamic law prohibits. Islamic Banking This is the practice of banking according to Islam laws and regulations. Its operations follow the Islamic commands and mainly deals with interest free loans. The Islamic banking system believes in loaning people to seek favor from Allah. Shariah Law Shariah is a discussion on Muslim duties based on the Muslim community opinions and an extended literature on Muslin code of conduct. This system believes in sharing of profits and not applying interest on consumer loans. On the hand, the system does not penalize defaulters, and it does not finance business operating against their beliefs like sale of alcohol, and running casinos. Conventional Banks This banking system offers loans at a given interest, and products develop on demand. Religious values and doctrines do not guide the development of these products as in Islamic banking. The loans from these banks observe cumulative interests, and unlike Islamic banking, these banks can finance any business whether it is alcohol business or casinos. Research Methodology Research design This is a study carried out in the United Arab Emirates Abu Dhabi Bank. The research would base on data collected from financial statements of the conventional and Islamic banking systems, random bank staff, and customers. Study Area and Population The study area is Abu Dhabi Bank that practices Islamic banking system. Information would come from customers from these banks. Sampling and Technique The researcher will distribute questionnaires with relevant questions to the study. The researcher will randomly issue the sample population with random questionnaires and request their return before this date. However, it is important to inform the particular bank managements upfront on the intended research. In addition, the research may include interviews from some bank managers and customers regarding the same. Some of the questions to these managers include their views on Islamic banking system’s future, and the success cases. For the customers, their questionnaires may equally address their views based on Sharia and conventional banking system. They should identify how well they understand Islamic business, how much will they have to switch their banks to Sharia banking given the chance. This population should compose of both Muslims and non-Muslim clients in order to have comparative results. The research should have mixed gender and age groups. Sampling Period The research will be done before March 15 2015. Conclusion This task has summed up the research methodology to be used in the research, Furthermore; it has outlined the research hypothesis, research questions, research significance, problem statement, and operational definitions. A qualitative research method involving Islamic bank managers and clients is vital in confirming this banking system’s effectiveness. The research may have limitations because very few people understand Islamic banking concept whether Muslims or otherwise. This may be the reason many universities have taken an interest on the subject due to its rapid growth. Regarding this concept, economics find this system theoretically efficient, and acceptable. References El, T. A. M. (2011). Islamic banking: How to manage risk and improve profitability. Hoboken, N.J: Wiley. Hassan, K., & Lewis, M. (2007). Handbook of Islamic banking. Cheltenham, UK: Edward Elgar. In Ahmed, H., In Asutay, M., & In Wilson, R. (2014). Islamic banking and financial crisis: Reputation, stability and risks. Iqbal, Z., & Mirakhor, A. (1987). Islamic banking. Washington, D.C: International Monetary Fund. Mohammad Uzair (2001)“Interest Free Banking”.Royal Book Company Report: Abu dhabi 2013. (2013). Place of publication not identified: Oxford Business Group. Rosser, J. B., & Rosser, M. V. (2004). Comparative economics in a transforming world economy. Cambridge (Mass.: the MIT Press. Schoon, N. (2009). Islamic banking and finance. London: Spiramus Press. Sekaran, Uma.(2000) Research Methods for Business: A Skill Building Approach. New York: John Wiley & Sons, Skinner, C. (2007). The future of banking in a globalised world. Chichester, England: John Wiley & Sons. Venardos, A. M. (2012). Islamic banking and finance in South-East Asia: Its development & future. Singapore: World Scientific. Warde, I. 2000. Islamic Finance in the Global Economy. Edinburgh University Press, Edinburgh. Read More