Islamic Banking and Financing - Research Proposal Example

Islamic Banking & Financing Student’s Name Course Instructor Date Introduction This report is a comprehensive analysis of Islamic banking and finance in United Arab Emirates. Islamic banking is very popular and developed in the Middle East. This is basically because the services offered by the bank are founded on the faith of most consumers in the region. The fundamentals of Islamic banking are based on Sharia Law. One of the requirements of Sharia Law in connection to lending money relates to charging interest. The law does not permit the Islamist lenders to charge interest on the borrower of the funds. Therefore, this article looks at the way this law and other related provisions have influenced or affected the growth of Islamic banking and finance in UAE (Khan 2010: 816). This report is divided into a number of sections. The introduction part provides a reflection of what the report is going to dwell upon. It pinpoints to the reader the specific points of interests that have been addressed by the author. The literature review section provides the relevant documents and materials that have been used to specifically facilitate this report. On the research methodology, the paper exploits the main sources of secondary data used. The paper also has the analysis section which provides information that basically addresses the issue of growth of Islamic banking and finance in UAE. The conclusion summarises the key points dealt with in the paper. Finally, the reference section provides the list of references used in this report. Literature Review In order to facilitate the understanding of the subject at hand, a lot of resources have been of great use. This section breaks down some of the resources that have facilitated the compilation of this report. The literature used tackles quite a range of parts of this essay. There are books of general information that provide a rather wider perspective of the whole idea of Islamic banking. At the same time, there are also resources whose scope is narrowed to the specific issue of concern. The overall resources used in this particular report provides the basis for preparing credible academic report that can be of great use in the academic arena. The resources used for this report have been gathered from varied sources including books and academic journals. The underlying factor in analysing the materials that have been used in this report is provision of information relevant to the subject. Bassens, Derudder & Witlox (2010) provides an overview of Islamic financial services offered mainly across Middle-East. The authors provide the basic framework that was pertinent to the establishment of financial services by the Islamic group. The article tackles the expansion and growth of the Islamic financial services across the Middle East North Africa (MENA). The article also discusses extensively the growth potential of other countries in Middle East. Another resource that deals with the Islamic banking in Middle East countries and UAE in particular is Firoz (2012). The author approaches the issue of Islamic banking and financing from a critical perspective. He taunts the wave brought about by the Islamic banking in regards to some of the effects it has had to the banking systems of various countries. The article also goes ahead to explain the whole idea of the way to and the need for repositioning in the market. Besides, there is also the issue of how the Islamic religion has impacted on banking sector in UAE. Khan (2010) explains therefore, some of the necessary measures to be undertaken to ensure the religion does not ruin the banking industry. This is founded on some of the strict requirements of the law of Islam. For instance, the sharia law forbids the Islam from levying interests on loans advanced to people. This can definitely become a big challenge to commerce. Moreover, the perspective presented by Lawal (2010) portrays the success of the Islamic banking from the point of concrete economic policies. He brings out the policies that have made it possible for the expansion of the service all over the region. Besides, Grose (2010) also gives some critical background information behind the success of the banking sector in Middle East. Many other works have been done in line with the same subject that has also opened the understanding of the issues related to Islamic banking in Middle East. Kettell is one of the authors that have written extensively on this particular subject. Kettell (2011) provides an illustration of the factors that necessitated the growth of Islamic banking in Middle East countries. Apart from the issue of Islam religion, he cites economic factors that played a significant role in the success of Islamic banking. This concept has been addressed in almost all of his books he has written about Islamic banking and financing. The same information is echoed by Professor Akacem and Gilliam (2002). They address the issue of equity and debt financing in the context of Islamic banking. These are just some of the resources that have been beneficial in the writing of this report. Research Methodology This is a qualitative research. Most of the information that has provided the basis for this research is secondary data. That is to say, the information used in this particular report was retrieved from already existing resources. A large percentage of the information used in this paper is from peer reviewed journals. Apart from the peer reviewed journal, there are also other published articles that contained a lot of information to this subject. Most of these articles have been retrieved from very secure and reliable databanks in order to ensure the credibility of this research is unquestionable. Analysis The Islamic banking and financing services have had a huge impact on the growth of the economy of most of the Middle East countries. One of the countries that seem to have benefitted from the growth of Islamic banking is UAE. In as much the service has not grown so much as it is the case for Malaysia and Singapore, the prospects are quite high. Some of the projects that have been financed by the Islamic bank in UAE include infrastructure, residential properties and some other forms of corporate expansion. One of the reasons that indicate that the growth potential of the region remains high is the diversification projects that have been witnessed in the recent past. The bank is heavily investing in online and mobile bank transactions. This is specifically aimed to improve the service delivery index. Moreover, the sector’s expansion agenda does not stop there. Many other strategies are underway to ensure that the Islamic banking sector attracts the investors in the region. The Islamic bank has continued to expand its customer base as a way of expanding its financial territories. Besides, there are many other factors that point to the conclusion that the Islamic banking is growing. In United Arab Emirates, the Islamic banks control around 20% of total banking assets of the country. At the same time, the banks account for almost one third of the overall Islamic banking industry (Lowal 2010: 96). This is what has made it possible for this bank to finance a number of the country’s projects. This has experienced a progressive trend for the last about five years. The company’s success has also been boosted by the country’s growing economy. The country has had a positive trend over the past years’ and this has greatly impacted on the Islamic banking. The Islamic banking and financing sector has taken advantage of the state of banking of the commercial banks in the country. Most commercial lending institutions have re-engineered their lending policies as a strategy of cutting down losses (Farrell 2008: 112). As a result, the lending rates for most banks have been hiked. At the same time, the lending period has also been adjusted downwards in favour of commercial banks. The Islamic banks have taken that opportunity to offer quite flexible lending terms to its clients. These clients include the government and its agencies all over the region. When commercial banks are put on the same platform with the Islamic banks, it is clear that the Islamic banks are continually gaining ground. For instance, most of the Islamic banks have received numerous rewards in recognition of their contributions towards sustainability in the society. Many Islamic banks have been rewarded for extending their services to some of the assumed categories of consumers. Regardless of the risk that comes with such a dynamic environment, the growth potential remains to be very high. This is the reason most of the Islamic banks are heavily investing in diversification and expansion projects. Furthermore, the Islamic banks were not hit so much by the global economic recession as compared to commercial banks. The fact that the Islamic banking and financing sector is growing is no longer a secret. Most of the financial and economic indicators show that the Islamic banking sector has improved greatly. The way operations are changing cannot be compared to how it used to be in 1990s. Things are constantly changing even as the industry analyses ways of how to widen its customer base. For instance, most Islamic banks recorded profits during the financial year ending 2012. This is quite impressive especially when comparing what the trends have been in the past. These banks have managed to beat all the odds to offer professional banking services based on faith. The banks have become more competitive even with time. The banks can now compete on the same platform with the other commercial banks (Alemu, 2012: 460). Therefore, it is clear that Islamic banking has what it takes to advance to the next level of trading. UAE has provided that particular support that this bank required in order to achieve their strategic goals. This was facilitated the growth over the period. In as much the Islamic banking and financing has grown economically in UAE, there are some challenges inherent both in the Islamic law and trading environment that continually pose a challenge to the growth of the bank (Kettell, 2011). The rigidity of the Islamic law has made it quite challenging for the sector to train the required professionals to be able to assist the banking sector thrive. The industry attracts the lowest number of professionals and on most occasions inhibits the level of growth. For instance, dealing in lending services requires the bank to be able to assess the credit worthiness of borrowers before being offered the money. Failure to appropriately evaluate the potential borrowers can be disastrous to the bank. This is the reason the banking sector requires adequate number of professionals to be able to thrive. In the same line, there have been concerns relating to accounting policies and principles used by this banking sector to report its financial performance. There are claims that some of the policies and principles used have not been harmonized with the international accounting standards. These plus many other challenges are likely to have a negative impact on the growth of the Islamic banking sector in UAE. Conclusion The facts presented in this report make it quite easier to draw a conclusion in relation to growth of the Islamic banking and financing in UAE. The trends analysed in this particular report provide the basis on which conclusion can be drawn. The Islamic banking and financing may not have reached its peak in growth, but it has surely grown over the period. Moreover, not only has the sector grown, but the prospects in the future are still high. With most of the stimulus programs in place, the sector seemingly has what it takes to grow even further. Most of the structures and policies that have been put in place by most of the Islamic banks are paving way for more economic exploits that the company is going to undertake. Nevertheless, it is good to admit that the growth potential and prospects in UAE cannot be matched with growth realized in Malaysia and Singapore. These two countries have greatly exploited Islamic banking and financing services for economic growth (Grose, 2008: 41). The two countries are seemingly the leading countries in the Middle East in relation to growth and development of Islamic banking and financing services. In overall, the Islamic banking and financing is gaining acceptance progressively. The services are now being offered in some African countries which is a sign of growth. References Akacem, M. & Gilliam, L. (2002). ‘Principles of Islamic Banking: Debt Verses Equity Financing’. Middle East Policy. 9(1) pp. 124. Alemu, A.M. (2012). ‘Factors Influencing Consumers’ Financial Transactions in Islamic Banks Compared with Conventional Banks: Empirical Evidence from Selected Middle-East with a Dual Banking System. African & Asian Studies’. 11(4) pp. 444-465. Bassens, D., Derudder, B. & Witlox. (2010). ‘searching for the Mecca of Finance: Islamic Financial services and the world city network’. Area. 42(1) pp. 35-46. Farrell, F. (2008). ‘Voices on Emiratization: the Impact of Emirati Culture on the Workforce Participation of National Women in the UAE Private Sector Banking’. Journal of Islamic Law & Culture. 10(2) pp. 107-168 Firoz, N.M. (2012). ‘Market Repositioning of Islamic Banking in Europe’. Culture & Religious Review Journal. 3(3) pp. 111-130. Grose, T.K. (2008). The Rise of Economic Banking. News & World Report. 145(13) pp. 41-42. Kettell, B.B. (2011). Introduction to Islamic Banking and Finance. 1st Edn. New Jersey: Wiley. Kettell, B.B. (2011). Case Studies in Islamic Banking and Finance. 1st Edn. New Jersey: Wiley. Khan, F. (2010). ‘How Islamic is Islamic Banking’? Journal of Economic Behaviour & Organization. 76(3) pp. 805-820. Lawal, Y.O. (2010).’ Islamic Economics the Cornerstone of Islamic Banking’. Journal of Economics & Engineering. 4(4) pp. 95-99. Read More