Chapter 1 1.

0 Introduction In the mid-1940s the model of Islamic banking gained drive which was relatively very old. Over the years for the evolution of the Islamic banking model many Islamic scholars such as Qureshi in 194 ! "hmad in 19#$! %&air in 19##! 'aududi in 19 1! "l-"rabi in 19 ! (iddi)i in 19 * and "l-(adr in 19*4 +layed a very vital role. In the late 19*0s the staggering amount of oil money +rovided a strong urge for the develo+ment of several Islamic banks in the 'iddle ,ast. -hen other Islamic countries did likewise and sha+ed their own Islamic financial institutions with the course of time. .ut the real +ositivity and +rogress about Islamic banking has been seen over recent decades. /ithin last decade it has +roved to be the fastest-growing division of global finance due to fre)uently high oil +rices in international markets and other encouraging social and +olitical effects. It is booming in "frica! "sia! ,uro+e and 0orth "merica. In *0 countries! there are nearly 100 Islamic financial institutions which are holding the ca+ital investments worth of %(2#00-300bn! with the average growth of 1# +er cent +er annum 4"rekat! $00 5. It is accumulated that by $010 the Islamic banking will have a market worth of %(24 trillion 46ader! $00*5. It is likely to secure about 40-#0 a+iece cent of the total savings of 1.1 billion 'uslims globally within the ne7t 3 to 10 years 4"lam! $00 5. -here has been an astonishing escalation and dee+ening of Islamic banking +roducts 8takaful or Islamic insurance services! e)uity funds! hedge funds! assets and wealth management! risk and li)uidity management! sukuks or Islamic bonds! real estate and cor+orate finance 49han and .hatti! $0035. 'alaysia is the +rime releaser of sukuks! worth more than %(21$bn 4"lvi! $00 5. (ukuks consist of about 3# +er cent of the 'iddle ,astern ca+ital market 8 %(211bn of them have been released there with an average increase rate of over 4# +er cent through $00$-0* 4Islamic :inance 0ews! $00 b5. -he 'iddle ,ast and "sian regions will largely de+end on sukuks! to meet u+ with their %(21.# trillion infrastructure re)uirements over the ne7t five years 4-he 9halee; -imes! $00*5. -here are more than $#0 takaful com+anies globally. In $00# they gained +remiums which are worth of %(2$bn. -hey are likely to raise %(2*.#bn by $01# 4-he <ulf 0ews! $00 5. 6urrently above 1#0 Islamic e)uity funds! as well as the =ow >ones (' Islamic :und 4I'"0?5! handle assets in e7cess of %(24bn with a yearly growth rate of nearly about 1#-$0 +ercent 4Islamic

:inance -raining! $00*5. -here has been convincing growth in the Islamic banking infrastructure with last few years. In recent decades the su++ort of Islamic banking has increased considerably s+ecially in the 'iddle ,ast and .ahrain has a++eared as the largest focus of Islamic .anking /orldwide. It is e7+ected that the current boom in 'iddle ,astern economies will deliver %(213 trillion or more in su++lementary revenues in ne7t five years! and at least more or less 0 +ercent of this su++lementary income will find its way into (hariah-com+liant banking and investments 4<raham! $00 5. /here as the e7+ected de+osits of -he Islamic banks@ in <66 countries are to be value more than %(2110bn by $010 4"bdulmalik! $00 5. In $00 ! comes u+ as the second biggest hub of the Islamic banking and finance world was 'alaysia! Islamic banking assets constituted 11.3 +er cent of total assets in the 'alaysian banking sector! accelerating with the rate of over $* +er cent in the last ten years. .y $010 -he 'alaysian government is targeting a $0 +er cent market share for Islamic .anking 4International Aerald -ribune! $00*5. In $00# Islamic banking assets in total Indonesian banking was 1.3 +ercent. .ank "ccording to some research by $011 Indonesia has formed a ten-year roadma+ to guarantee a +er cent market share for Islamic banking 4Aarisman! $00 5. In (inga+ore they have a +laned to become the chief trading centre for sukuks! +ro+erty funds! hedge funds! etc. In Bakistan! the total numbers of Islamic .anks are si7 which are holding a $.$ +ercent share of the total banking market with estimated assets worth %(21.1bn. .y $014 in Bakistan the Islamic banking de+osits are likely to rise to %(211bn! structure the ten +ercent of total banking de+osits in Bakistan 4"l-Cefai! $00 5. In .angladesh! in between si7 Islamic banks they hold 11 +er cent of total banking de+osits and they hold 1# +er cent of total investments at the end of year $00# 4Cana! $00 5. :inancial (ervices "uthority 4:("5 in -he %nited 9ingdom 4%95 has been viewing a more accessible a++roach towards Islamic banking. -he Islamic .ank of .ritain! the ,uro+ean Islamic Investment .ank! A(.6 "manah and Dloyds -(. are offering great Islamic banking and insurance +roducts to 'uslims in the %9! while D"CI." in the %("! %niversity Islamic :inancial 6or+oration! <uidance :inancial <rou+! (hariah 6a+ital and others deliver (hariah-com+liant +roducts and services to 'uslims. Cecently in Ontario 6anada! %nited 'uslims :inancial has underway Islamic mortgage services to 6anadian 'uslims. In "ustralia the 'uslim 6ommunity 6oo+erative "ustralia 4'66"5 and "BE (ydney :inance
2

give Islamic financing in +ro+erty and real estate to "ustralian 'uslims. In addition to the mentioned banks and services! to su++ort Islamic banking in ,uro+ean and /estern markets a considerable number of /estern financial institutions such as ".0 "'CO! 6itibank and <oldman (achs have formed +artnershi+s with Islamic +layers. -he main +layers from both Islamic and conventional streams may +ond their +roficiency and assets to develo+ more moral and ca+able solutions in business! investment and finance. 1.1 Aim and Objective -he dissertation re+resents the study of the need for Islamic .anking in the %9! a country which has minority of 'uslims in its +o+ulation which is around $.4 million according to recent statistics. (imilarly %9 has now Islamic .anks! so the study will +rinci+ally seeks to know the level of knowledge! want and +ur+ose that 'uslim +eo+le have in the %9 in relation to the culture of Islamic .anking and the attitude of 'uslims in the %9 towards some of the Islamic .anking and finance +rinci+le. (imilarly the theory of Islamic banks will also be investigates and will be com+are with conventional banks with Islamic windows offer and what 'uslim demand in %9. "lso the im+ortance of Islamic banking role will be analysed by kee+ing +resent banking situation and how Islamic banks are hel+ful to overcome from such situation. -he theme of Islamic banking is based on Brofit and Doss (haring 4BD(5! so different +roducts and instruments offered by Islamic banks will also be discussed in detail because most of the +eo+le are unaware about Islamic banks +roduct. -he study will discuss the banking on faith 4Islamic bank5 and its feasibility in the %9. -he ob;ectives of the study areF -o analyse and discuss the conce+t of Islamic .anking! its instruments and +roducts. -o find out the motives and needs of 'uslims in the %9 towards Islamic .anking. -o find out the awareness in 'uslims living in the %9! about Islamic .anking terms and its +roducts. -he intentions of the 'uslims who are dealing their finances through Islamic banking. -o com+are the im+ortance of Islamic banks and its +roducts in +resent banking crisis. 1.2 Why is the Researcher Interested in the Study?
3

Islamic banking is booming at +resent des+ite conce+t of interest free business. -he %9 is a multicultural society which consists of many communities including 'uslim community. 'uslims from all over the world visit the %9 for em+loyment! business and studies. "s interest is forbidden in Islam and 'uslims avoid entering into any business deal that involves interest. :urther there is a need of an alternate banking system to other non-'uslim that is based on variable rate of return 4Brofit and loss sharing5. "lso conventional banking is fragile based on interest. "ll the risks involve to borrower and bank have no intension. In this way the bank allocate it funds inefficiently. On the other hand the main theme of Islamic bank is develo+ment and social welfare. -hey monitor their fund so as the borrower manage and utili&e them conveniently. :oregone in view! the researcher interest develo+ed in the to+ic and has chosen the sub;ect to+ic for dissertation. 1. !ethodo"o#y -he researcher will use secondary data that will be gathering from different sources such as >ournals! re+orts! books! maga&ines and news +a+ers etc. -he secondary information is very hel+ful as will be used to com+are findings from different +revious associated studies and it will be used in the literature review. 6orres+ondingly )uestionnaires and documented review will be used as data collection methods for this study. :irstly the )uestionnaires will intend to attain the study goals. " total 1*0 )uestionnaires will be distributed to 'uslims across the %9. -he )uestionnaires will either randomly given to 'uslims in the streets! mos)ues and Islamic community centres in .irmingham! Dondon and 6ardiff. (econdly documented review of various recent and +ast +ublished 4documents5 literature will be analysed and discussed 1.$ %imitations o& the study -he limitations related to given research +ro;ect wereF 1.$.1 'enera"i(ation -he researcher has used convenience sam+ling for collection of data. 6onse)uently! the research findingsGclaims of the research cannot be generalisable 4:ogelman! $00$! +.1015. In addition! the researcher has limited his research to 1*0 customers across due to time constraints as well as feasibility that rendered the findingsGclaims non-generalisable.
4

1.$.2 Accessibi"ity to Samp"in# )rame -he researcher had avoided convenience sam+ling method with a view to giving his research findings generalisability. Aowever! due to limitation of his accessibility to obtaining the list of all the following Islamic .anking is im+ossible due to =ata Brotection "ct of the %9 and certain ethical issues. 1.$. *ime !ana#ement " fi7ed time +eriod is allocated to the researcher to finish the research +ro;ect. .ut the research will mainly be de+endent on the data collected from the customers of the banks. Bossibility of delay in collecting data is always being there. 1.$.$ )inancia" Resources ,very +ro;ect re)uired some financial resource in terms of money etc because to get some literature re)uired money. Aence there is a chance that the researcher may not get a++roach to high )uality data. -he +ro;ect is conducted on individual basis! no financial benefits is involved in the research +ro;ect. 1.$.+. %an#ua#e ,arrier 'ost 'uslim across the %9 came from different origins and backgrounds therefore their native language is not ,nglish. ,nglish being a second language for most of the res+ondents! made it difficult for some to understand the vocabulary and contents and many of them refused to do the )uestionnaire due to this reason! es+ecially old +eo+le. -he )uestionnaire is written in ,nglish because it is the most common language between 'uslims and because 'uslims s+eak different languages according to their origins! the )uestionnaire was not translated to another language.

Chapter 2 %iterature Revie5

2.0 Introduction Islamic banking has shown incredible growth over the last 10 years. -he +ractise of Islamic banking now s+reads all over the world from the ,ast to the /est! all the way from 'alaysia! .ahrain to ,uro+e and the %( 4'okhtar! "bdullah and "lhabshi! $0035. -he si&e of the banking industry assets is hundreds of billions of dollars as com+ared to hundreds of thousands of dollars in the 19*0s. "ccording to .ahrain 'onetary "gency 4$00 5 cited by 0athan and CibieHre 4$00*5 Itwenty-five years ago Islamic banking was virtually unknown. -oday the market si&e is estimated! by some commentators! to be growing at a double digit rate +er annum. Islamic banks currently o+erate in a++roaching *# countries and the industry has a market estimated at %( 2$#0-100 billionJ. -he given cha+ter will discuss the evolution of Islamic banking. -he markets and diversification of Islamic banking and the regions where they o+erate are highlighted. 'oreover the e7isted Islamic banks and banks offering Islamic windows in the %9 are e7amined. -he Organi&ation of Islamic 6onference 4OI65 defined an Islamic bank as Ia financial institution whose statutes! rules and +rocedures e7+ressly state its commitment to the +rinci+les of Islamic (hariah and to the banning of the recei+t and +ayment of interest on any of its o+erations.J 2.1 .vo"ution o& Is"amic ,an/in# -he world is ra+idly moving towards globalisation! so the concentration of +ower among few multinationals 46arlos! $00#5. :urther! it creates ine)ualities among societies. -he socioeconomic idea of Islam is change from others that believe on eradicating of interest and all other une)ual elements from the economic s+here 49han and .hatti! $0035. 'oreover! the Islamic financial system e)ui++ed with elements of lending! borrowing and investment functions on a risk-sharing basis. In this way it facilitate market forces to establish the +roductivity of ca+ital instead of fi7ing it in +riori as an KKinterest rate@@ to sabotage the free market mechanism and encourage s+eculative use and hoarding of ca+ital. -he Islamic financial system ensures the o+timal rate of ca+ital formulation and its efficient utili&ation leading to a sustainable economic growth and fair o++ortunities for all. (iddi)i 4$0005 cited
6

0a)vi! 4193$5 Lar)a! 419315 and "hmed 419945 that it is a value-based system which fundamental ob;ectives is to make sure the moral and material welfare of the individual and society as a whole. 'eanwhile! Islamic banking system also introduce new Islamic financing schemes according to the Islamic (haria 4Daw5 that is +laying a uni)ue role in rendering financial services to rural-based small and cottage industries 4(6Is5 in many develo+ing and least develo+ed countries of the world. "ccording to a "lam 4$00$5 that among other factors the lenderborrower relationshi+s between Islamic banks and the rural-based small industry owners are influenced by different societal sector institutions. (imilarly >ansson 4$00$5 argues that these ty+es of institutions like country culture! familyGclan! legal! and +olitical system and the government influence the economic and social life of a nation. -he conce+t of Islamic .anking and :inance is very old but it has taken boom from last few decades. "ccording to 9han and .hatti 4$00#5! the conce+tual develo+ments of Islamic banking got fame in late 1940s and in the ne7t two decades! they got to a +oint of yielding a model which was ado+ted in the 'iddle ,astern countries to fulfil their as+iration of having their own banks. -he result became many re+utable Islamic banks in 19*0s such as 0asser (ocial .ank 6airo 419*$5! Islamic =evelo+ment .ank 4I=.5 419*#5! =ubai Islamic .ank 419*#5! 9uwait :inance Aouse 49:A5 419**5! :aisal Islamic .ank of (udan 419**5 and =ar "l-'aal "l-Islami 419305. =uring 1930s three 'uslim countries! Bakistan! Iran and (udan decided to renovate their economies and financial sector on Islamic lines. -o attract +etrodollars@ de+osits from the 'iddle ,ast and 'uslims clientele in local markets some /estern financial market +layers like 6itibank! ".0 "'CO! A(.6 and others launched their own Islamic windows or subsidiaries. -he Islamic banking and finance system is e7+anded by seeking innovation and diversity of +roducts! clientele and markets. It has been develo+ing different areas like (ukuk! -akaful! hedging funds! 'utual :unds! +rivate e)uity and assets management! wealth management! real estate! cor+orate finance! li)uidity management! treasury! derivatives! swa+s! future and forward market! Islamic (tock ,7change and =ow >ones Islamic Inde7. -he main hub of Islamic banking and finance activities are basically three +arts of the world! 'iddle ,ast! (outh "sia and (outheast "sia. -he 'iddle ,ast is 'uslim dominated area and is a motherland of Islamic banking and finance. Islamic banks receive strong su++ort from
7

rich individuals! governments and other state institutions in the 'iddle ,ast. 'ost of regulatory and other su++orting bodies of the Islamic banking and finance industry would be find there. -he <ulf (tates have +lanned to merge their monetary and central banking systems by $010. "s a result will +ro;ect im+acts on the Islamic banking and finance industry in the 'iddle-,ast and worldwide. In (outh "sia! Bakistan has recently revived Islamic banking under the duel banking system. (imilarly! due to increasing +ublic and market demands .angladesh has been trying to ado+t more rigorous Islamic banking +olicies. "lso! in the near future India and "fghanistan may follow Islamic banking o+erations. -o attract Islamic business and finance from the 'iddle ,ast countries and all over the world! three (outheast "sian countries! Indonesia! 'alaysia and (inga+ore are encouraging the most com+rehensive and advanced version of Islamic banking and finance in their region. -he (udan <overnment has taken some +ractical moves to endorse the Islamic banking and finance +ractice in the region. Islamic banking is the fastest growing segment in the banking systemM its market share of assets has risen from $ +er cent in the late 19*0s to 1# +er cent u+ to the mid- 1990s 4Nousef! 199 5. 'oreover! it is +redicted that that Islamic banks 4I(.s5 would share between 40-#0 +er cent of the Islamic world@s savings within the ne7t ten years! e7cluding savings in traditional banks@ Islamic avenues in %( and ,uro+e 4I=.! $00$5. Aence! Islamic banking and finance is also introduced in the %("! %nited 9ingdom and ,uro+ean countries. -hese countries are agreed to make changes in their banking and ta7 laws such that Islamic .anking and finance +ractice in their market smoothly. -he large number of ethically-based business organi&ations and individuals worldwide are dealing with Islamic financial institutions.

2.2 Is"amic ,an/in# in 01 Islamic banking and financial organi&ations have a slight achievement in creating a +ath to enter into the %9 financial market. 0onetheless! the situations have been transformed significantly over the last few years. -he %9@s :inancial (ervices "uthority 4:("5 has a +lan to build u+ Dondon as the heart of Islamic finance and investments from the <ulf and even other 'uslim countries. -he :(" confiscated double stam+ duty +rovision on Islamic mortgage contracts since 0ovember $00 . -hrough the :inance act of $001! $004 and $00 !
8

re)uired changes were brought to the %9 -a7 Daw! thereby eradicating obstacles to +ractice murabahah and I;arah mortgages and to reduce musharakah. -he %9@s -reasury and the :(" have some more regulatory and ta7 changes in the channel to introduce (ukuk in the %9 local market 4"min! $00*5. 'ore than $ million +eo+le have been living in the %9. "s a conse)uence! the 'iddle ,astern Islamic banks chose to e7+loit the %9 market as an entry and bottom to o+erate into the ,uro+ean :inancial 'arkets in which 'uslim clients or consumers also +lay an im+ortant role for the economic growth. On the other hand! regulations in the %9 attem+t to avoid risk and uncertainties! as they are reluctant to allow an Islamic bank on the basis of risk sharing and murabaha in the financial market. :(" authori&es numerous a++liance of Islamic banking such as Islamic hedge :und! Islamic insurance firm4-akaful5! (ukuk issues4Islamic bonds5 etc! as it@s ultimate target is to generate finance for Islamic bank in the global financial market. -he +recise si&e of this market is not identified! e7ce+t several estimates guess it a++ro7imately O$#0bn. :(" re+orted an estimate on the annual growth rate which has been a++ro7imately 10-1#P in the region and some observers imagine it to continue over several years. -he %9 is well s+ot to obtain benefit of this tendency! because it has been a key financial centre for centuries! and has always been +re+ared to introduce fle7ibly changes and new ideas. %9 has a yawning li)uid market and eventually! the Dondon e7changes are among the most fre)uently a++lied for recording financial mechanism internationally. .esides! the %9 :inancial (ervices industry has a demonstrated list of develo+ing and delivering new +roducts and the ideal ;urisdiction has been taken by the ,nglish law for various Islamic transactions. Oil +rices have risen shar+ly! thereby resulting in huge li)uidity sur+luses in the <ulf region and local financial market are not able to continue with the demand for financial assets. " number of firms such as 6ity grou+! =eutsche .ank and A(.6! have set u+ business lines e7+ressed as Islamic K/indows@ to congregate demand. In the %9Hs financial markets! a++ro7imately $# of these Kwindows@ are dynamic and +roviding a variety of +roducts and services such as -reasury! (ukuk structuring! asset management and +rivate banking. 4:("! $0035. On the basis of retail side! the e7+ansion of Islamic financial services was sluggish in the %9 from 1990 to $000. In $004! the first retail Islamic bank had been authori&ed to the Islamic .ank of .ritain 4I..5. It is obvious that both wholesale and retail markets are the +ros+ective for the growth of Islamic finance in the %9. "ccording to a re+ort +ublished by the -I',( e7+ressed that Ithe %9 now has five fully (haria-com+liant banks and another 1* financial institutions have set u+ s+ecial branches or
9

firms. -hey include the Qatar Islamic .ank 4QI.5! with its Dondon-based ,uro+ean :inance Aouse in .erkeley ()uare! and the Islamic .ank of .ritain! which has head)uarters in .irminghamJ 4/ade! $0095. Dikewise! a re+ort suggested by an International :inancial (ervices Dondon 4I:(5 that at +resent! .ritain@s Islamic banking sector is relatively bigger than Bakistan@s Islamic banking sector. "ccording to 6roft 4$00*5! Islamic mortgages are likely to accelerate on average of 4* +er cent annually to arrive at %(2$.3 billion by the year of $009. It is very significant for Islamic financial organi&ations to +resent (hariah obedient! +ioneering! economical +roducts and services to their 'uslim clients or customers in order to gain their moral and material su++ort. 49han and .hatti! $0035. Aead of 'arketing of I.. (teven "mos saidM IOur core business will always be 'uslims but the numbers of non-'uslims are really +icking u+. "s a result! it will offer advantage to customers! encourage com+etition! im+rovement and large )uantity in %9 markets! thus boosting the %9 financial market 4:("! $0035. "ctive Islamic .anks and Islamic windows in %nited 9ingdom 1 $ 1 4 # * 3 9 10 11 1$ 11 14 1# 1 1* 13 19 $1 $$ $1 "lbaraka International Dtd! Dondon "lbaraka Investment 6o. Dtd! Dondon "l Ca;hi Investment 6or+oration! Dondon "l (afa Investment :und .ank (e+ah! Iran Islamic .ank of .ritain =allah "l .araka 4%95 Dtd.! Dondon -akaful 4%95 Dtd! Dondon .arclays 6a+ital A(.6 "manah :inance ".6I. Islamic "sset 'anagement! "rab .anking 6or+ ".6 International .ank! Dondon ,uro+e "rab .ank Blc! Dondon Ciyadh .ank ! Dondon 6itibank International Blc! Dondon 6edel International! Dondon =awnay =ay <lobal Investment Dtd <lobal Islamic :inance! A(.6 Investment .ank Blc <ulf International .ank .sc! .ahrain Dloyds -(. Blc .ank -he Aalal 'utual Investment 6om+any Blc I.> International! Dondon 4(ubsidiary of Industrial .ank of >a+an5
10

$4 $#

>. "ron Q 6o. 4<oldman (achs International :inance5 Dtd.! Dondon Islamic Investment .anking %nit 4II.%5! %nited .ank of 9uwait! Dondon

*ab"e 2.1 %ist o& Is"amic ,an/s and ,an/s that o&&er Is"amic -indo-s 4Institute of Islamic banking and Insurance! $0095 -he +o+ulation of 'uslim is over $ million according to! the home secretary! >ac)ui (mith 4<uardian! $0035. It is believed to the second largest faith community after 6hristianity. (he also )uoted that there are nearly 10!000 'uslim millionaires in .ritain and an overall community contribution of O11bn a year to the economy. -he ma;ority of 'uslims in %9 belong to Bakistan 441P5! .angladesh 41*P5! India 49P5! /hite .ritish 44P5! 'iddle ,ast 414P5! ,uro+ean 44P5! "sia 41P5 and "frica 411P5. 'uslim +o+ulated regions are in Dondon! Duton and (lough! .irmingham! Deicester! 'anchester! Dancashire! Deeds! .radford! <lasgow! 6ardiff! .ristol! .ath etc

)i#ure 2.1 2'uardian3 2004 and *imes on"ine3 20045

2. 6revious re"ated studies7 <errard and 6unningham! 4199*5 conducted their study in (inga+ore to analyse the awareness and attitude of 'uslims in contrast to non-'uslims about the culture of Islamic bank and Islamic :inance. "lso to study the differences between 'uslims and non-'uslims
11

in the ranking of the various bank selection criteria. -hey choose two sub-grou+s in the sam+leM 'uslims and non-'uslims according to their +o+ulation. -hey received $$$ res+onses from the res+ondent. -hey were sur+rised to know the general lack of awareness by 'uslims of the meaning of Ciba and (haria@h. Dikely in the conte7t of Islamic financial terms! no one could e7+lain the meaning of 'urabaha! and only one res+ondent accurately described I;ara! 'odaraba and 'usharaka. -his result! concerning the very +oor awareness of the culture of Islamic banking! may be seen as illuminating to any bank in (inga+ore which is contem+lating setting u+ an Islamic banking o+eration. :or! any Islamic bank would need to carry out informative advertising to e7+lain the culture of Islamic banking. -hey need to rely on various 'uslim grou+s to +rovide e7+lanations of terms used in Islamic banking and finance. 'etawa and "lmossawi 419935 carried out their study to analyse the different com+onents such as customer awareness of key Islamic bank +roducts and services! their usage and their satisfaction. -he study utili&es a )uestionnaire methodology designed to survey 100 customers that fairly re+resent the customers of the two .ahrain banks. -he results of the study showed that the ma;ority of Islamic bank customers are well educated. -he findings of the study show that customer awareness and usage rates are )uite high 439P5. "lso the Islamic bank customers were found to be most satisfied with +roducts and services. Aowever! the lowest satisfaction score was associated with the Islamic financing schemes. (imilarly! the bank selection decisions by bank customers are +redominantly religious-based decisions. "nother research study did by 0aser! >amal and "l-9hatib! 419995 to find customers utili&e customer satisfaction and the degree of awareness of activities and facilities offered by an Islamic bank. " sam+le of different Islamic banks and Islamic banking windows across >ordan were selected. " total of 100 )uestionnaires were randomly distributed to those visiting an Islamic bankRs branches during the last two weeks of 1993. -here were a sam+le of $0 )uestionnaires came into being. -he findings of the research indicated that ma;ority of res+ondents were satisfied with most as+ects of the Islamic bankRs +roducts and services. -hus! Islamic banks have the advantage of high customer confidence. 'oreover! over *0 +ercent of customers were agreed or strongly agreed that religious reasons were im+ortant. (ufian 4$00*5 analyse the 'alaysian Islamic banks efficiency against foreign Islamic banks by using =ata ,m+loyment "nalysis 4=,"5. -hrough this method 4=,"5 he suggested that
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'alaysian Islamic banks efficiency declined in year $00$ to recover slightly in years $001 and $004. :urther argued that although marginally the domestic Islamic banks were more efficient com+ared to the foreign Islamic banks. Cecently! 9han and .hatti 4$0035 +resented in IIslamic banking on the way to <lobalisationJ suggested that the Islamic banking and finance industry has been making breakthrough im+rovements to become a truly viable and com+etitive alternative to conventional systems at the global level. Islamic banking and finance institutions have ac)uired booming grounds in the 'iddle ,ast! (outh ,ast and (outh ,ast "sia. -hese growing Islamic hubs have been acting as a launching +ad to +romote Islamic banking in /estern business and financial markets. :urther they e7+lained that Islamic banking may be able to win over the ma;ority of customers from the 'uslim world that constitutes almost $4 +er cent of the world@s +o+ulation and other ethical grou+s across the globe. In another +a+er by 9han and .hatti 4$0035 e7+lore various Islamic instrument and com+ared it with that of conventional banking. "ccording to their view Islamic e)uity funds and wealth management are the fastest growing segments of Islamic banking and finance. -hey also suggested that Increasing numbers of /estern financial institutions have been engaging in Islamic banking to bring innovation and diversity into their o+erations and to attract +etrodollar investments and a 'uslim clientele worldwide. 2.$ 'enera" idea o& Is"amic ,an/in# -he main goals of an Islamic .anking and :inancial system are to im+lement the value system of the QurRan and the (unnah in the realm of the 'uslim socioeconomic system! +rohibited business activities involve in gambling! li)uor! +ork etc! bank should +ay Lakah and to avoid the elements of interest 4riba5! uncertainty 4<harar5 and 'aysir as e7+lained in the following section 4,brahim and >oo! $0015. Islamic banking is an e)uity-based system having characteristics of &ero-based interest! share economy! e)uity +artici+ation! ;oint ventures! mutual funds! leasing! innovation and certain and rate of return 49han and .hatti! $0035. Islamic banking conce+ts of +rofit and loss sharing 4BD(5 and interest free intermediation changes the conce+t of interest based intermediation. It is o++osed to conventional +rinci+le where the funding is on the basis of
13

borrowers@ creditworthiness and strong collateral. "ccording to "hmed and ,l-<ha&ali 419945 the Islamic banking encourages market-based mechanism in which given investment o+tions are evaluate in order to conveying marked im+rovements to the allocation and distribution resources. :orbidden of giving and receiving interest on +ayments and the charge of Lakah +ut down the sco+e for ca+italists to maintain funds for +rofiteering and might critically handica+ the desirable and natural flow of funds into the market. Lakah is a ta7 +aid by the 'uslims at the rate of $.# +ercent on 'uslims@ wealth that is not used by business and investment throughout the Islamic calendar year. -hough! ca+italists are com+letely free to select the right time for investment and the most efficient investment o++ortunities. 'uslims +aid Lakah due to s+iritual refinement and to achieve the religious and social res+onsibilities towards the +oor. In addition using e7isting wealth and resources! Islamic banking +roduces more wealth! goods and services. 9han and .hatti 4$0035 cited 6ha+ra 4193#5 and Lar)a 419315 that the su++ly of goods and services continuously increases through innovation and com+etitive entre+reneurshi+ resulting decline in +rices of goods and services. 'oreover! the return on ca+ital de+ends on its real +roductivity and outcomes! credit creation and monetary growth +olicies have less inflationary im+act on the economy. 2.+ *he concept o& Riba -he banking system that functions on the teachings of the Islamic faith is interest-free banking system 4Obiyo! $0035. Interest free banking is the fundamental feature of Islamic banking. (imilarly! e)uitable distribution of income and wealth and greater e)uity involvement in the economy are also its ob;ectives. ICibaJ 4interest5 is an "rabic word meaning e7+ansion or growth. In view of Islamic law! riba is the +ayment gave by the borrower to the lender along with the +rinci+al amount. -here is no +lace of riba in Islam. -he restriction concerning the +rohibition of IribaJ is clearly motioned in the Aoly Quran. Dikewise! various other religious faiths are also against the interest in modern business and commerce. Islam discourages 'uslims in businesses that engage interest des+ite of the +aid interest rates. .esides this Islam also clearly distinguish between usury and interest and between loans for consum+tion and for +roduction. "ccording to some scholars Iriba refers to usury
14

+racticed by +etty money lenders and not to interest charged by modern banks and that no riba is involved when interest is im+osed on +roductive loansJ but these arguments are unclear and doubtful. .ut the 'uslim scholars are agreed that there is no difference between riba and interest. 'ainly religions throughout the world are against the interest on any form of loan. Interest is absolutely +rohibited in Islam. -his criticism is clearly obvious from religious literature. -he Aoly Quran 4'uslims Aoly .ook5! in verse $*3 of surah "l-.a)arah! statesM IO ye who believeS :ear "llah and give u+ what remains of your demand of riba! if ye are indeed believersJ and vs. $M $*9 says. IIf you do it not! take notice of war from "llah and Ais 'essenger but if ye turn back! ye shall have your ca+ital sums. =eal not un;ustly and you shall not be dealt with un;ustly.J Interest also brings in;ustice into the society and Islam is against all forms of ine)uality and abuse and im+lements an economic system based at securing! e7tensive socio-economic ;ustice. -he term I%sury!J used in the Aoly .ible 49ing >ames Eersion5 mean interest is also forbidden by <od as can be found in =eut. $1 verse 19 8 I-hou shall not lend u+on usury to thy brotherF usury of money! usury of victuals! usury of anything that is lent u+on usury.J (imilarly >udaism had also +rohibited interest. In the Old -estament it is stated thatM IIf ye lend money to any of my +eo+le with you who is +oor! you shall not be to him as a creditorF neither shall you re)uire interest from himJ. 2.+ Is"amic and Conventiona" ,an/in# -he traditional or conventional banking system is based on interest as o++osed to Islamic banking system. "ccording to Islamic law! Islamic banking is based on various +rinci+les. "mong them the fundamental feature is the +rohibition of interest. Islamic finance has the conce+t of e)uitable +rofit and risk-sharing between the +rovider of ca+ital and the entre+reneur since Islamic law is re;ecting the conce+t of interest and +ermit an uncertain rate of return based on +rofit. Islamic banking systems have been set u+ in many 'uslim recently.

15

-he ma;or distinction between Islamic banks and the traditional banks is that Islamic banks follow the +rinci+le of +rofit and loss sharing 4BD(5 the latter is based on the +rinci+le of interest when doing their business as intermediaries 4"riff! 19335. In addition! the association between borrower! lender and intermediary are rooted in financial trust and +artnershi+ under the word of Islamic BD(. -he significance of the interest-free financing in Islamic .anking develo+s an innovative environment between e7+erts in which the substitute of interest is antici+ated. =ar 4$0015 +resented four ty+es of finance working as alternatives of interest which are investment-based! sale-based! rent-based and service-based. In Iran! the develo+ment of banking system from an interest based to a non-interest based banking system went through three different +eriods. :irst was the nationalisation of the banking system that brings the o+erations of the banking system according to Islamic law and some necessary measures were taken by the 6entral .ank to remove interest from banking o+erations. (imultaneously the scholars arranged develo+ed the first draft of a law to bring banking systems functions according to (hariah. Dater to assume and establish an evidently conce+tualised model of Islamic banking! legislation was introduced. -he Barliament +assed the law on interest-free banking that +rovided a time frame limit of one year to the banks for changing their de+osits according to Islamic +rinci+les. (imilarly a three year time were given to the banks to transfer the asset side of their o+erations or loans according to Islamic +rinci+les. -he law also showed the categories of contracts that must com+rise the basis for the asset and liability sides of banking. Earious modes of financing for the asset side and different ty+es of de+osits for the liability side have been offered to assist the needs of economic activities. In the same way the banking system was thought as an essential +art of the Islamic government and a tool for restructuring the economy. -he laws associated to modern Islamic banking are only as old as the first Islamic banking which was formed in 19*# 4Ce&a! $0035. :urther he argues that the laws related to the Islamic banking are not mature! searching for it form and need to develo+. 'any research work has been conducted but mostly discussed the religious features or on the historical research regarding traditional financial mechanisms used during early Islam +eriod. =ifferent as+ects like o+erational as+ects of Islamic banking are not e7+lained +ro+erly because they function within the conventional legal environments. "s a result! the Islamic banking faces legal risk. -here is no considerable difference between the Islamic and the conventional banking because the legal risk +rofiles of both transactions are same.
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2.8 *he concept o& sharin# 6ro&it and %oss Islamic scholars consider BD( instruments 4'udarabah and 'usharakah5 as a central stake of the Islamic banking model 49han and .hatti! $0035. :rom the literature it is evident that in mid-1990s the use of the BD( system has fallen by an average of 11 +ercent in the Islamic banking industry. -he im+lementation of BD( instruments has always been limited due to o+erational difficulties and business ethics constraints. 'ost of the +ro;ects submitted to Islamic banks by the clients for BD( are bad! risky and with over-o+timistic +rofit forecasts. -here is no standard +rocedure! frameworks! e7+ertise and tools to measure the ca+ability of BD( investment +ro+osals. -he monitoring cost of BD( +ro;ects is unbearable. "dditionally! the inefficient ta7 system! high rate of illiteracy! low accounting standards and the +ractice of kee+ing a double set of accounts on the +art of the ma;ority of business +eo+le have +roved to be formidable obstacles to the +ractical im+lementation of the BD( system in 'uslim countries 4<hafoor! 1999F 9han! $001F 9han and .hatti! $00 5. .ashir 419995 observed that Islamic banks cannot reflect the returns on Islamic financial +roducts on a BD( basis due to the absence of de+ositors@ insurance and effective regulations in the Islamic banking sector. :urther argues that any real attem+t by Islamic banks to assume the BD( system would +rom+t their de+ositors to withdraw their funds! +reci+itating a credit crunch in the entire Islamic banking industry. Aence! there is no way to follow conventional +olicies that totally guarantee customers@ de+osits and fi7ed returns on them. 2.9 Shari:a Supervisory ,oard 2SS,5 Over the last three decades! Islamic banks! which we will refer to as IIslamic financial institutionsJ 4I:Is5! were slowly introduced in the 'iddle ,ast countries as a new +layer in the financial markets against conventional banks. Islamic banking refers to the conduct of banking o+erations based on Islamic +rinci+les. Islam forbids the charging of interests! but encourages the earning of +rofits. .anks are not +ermitted to charge for the mere use of money. Burely s+eculative transactions are not allowed in Islamic banking. .anks are also not allowed to finance any enter+rise involved in +ork! +ornogra+hy! finance service 4conventional5! arms and munitions! cinema! tobacco! gambling! and alcoholic li)uor. "lso Islamic law encourages +eo+le to use their money and not to kee+ it inactive so banks cannot mobili&e funds in the traditional way they manage it in return of receiving a share of the
17

+rofits. I:Is are also radically different from their conventional counter+arts in ma;or as+ects such as foundation! management! and +roducts. On the management side! I:Is o+erate under a different structure of cor+orate governance than the one used in conventional banking. I:Is are obliged to a++oint a board of Islamic scholars called I(hari@a (u+ervisory .oardJ 4((.5. Islamic banking is governed by the (hari@a 4Islamic law! also referred as Islamic >uris+rudence5. Islamic (hari@a laws +rovide rules to encom+ass the allocation of resources! management! +roduction! consum+tion! ca+ital market activity and the distribution of income and wealth 4.ahrain 'onetary "gency! $00 5. -his board is a++ointed by the general assembly of shareholders and recommended by the .oard of =irectors 4.o=5. -he ((. is not only autonomous from the .o=! but it is also endorsed to take +art in the .o= meetings to discuss the religious views of their ;udgements 4"bu <hudda and "bdul (attar! $001! +. ! ""OI:I! $004G$00#! +. 1#5. ,ven though there are no restrictions on the number of the ((. members! +erha+s the ideally the number could vary from three to five members. -he ((. ob;ectiveness can be concise in guiding the I:Is! in the making of +rinci+als and regulations with res+ect to (hari@aF in sorting their financial transactions from legal +ers+ective and in forming their contracts for future transactions according to the Islamic (hari@a 4=aoud! 199 5. .o=H conventional banks authority is entirely different from ((. authority which is derived from different resources. Celigious! legal and systemic resources drive the authority in ((.. ((. e7hibit the bank in +ublic 4i.e. conferences and seminars5 and defines any religious sus+icions that the stakeholders might have with res+ect to any transaction or transactions@. .esides that! the ((. also +rovides advice not only to the .o= but to the higher management about religious +roblems! and +erforms internal auditing fre)uently on the I:I documents to make sure their com+liance with (hari@a. In the ((. nomination! the culture +lays a considerable role. "s in Islam the inter+taion of holy book Quran is different by four ma;or sects! which are Aanafi! Aanbali! 'aliki and (hafi@i. -he members of ((. should be selected from the most dominant sect or sects in one +articular country. "nd therefore reveal their own meaning and im+lementation of Quran onto the transactions of I:Is. Det say that the understanding and im+lementation of I:IHs in 'alaysia will not be same as it will be in %nited "rab ,mirates.
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-he +resence of the ((. is vital for +roving the reliability and sincerity of I:Is 4I:(.! $00#! +. 105. .esides being acting as investor to +rotect their rights and ensure com+lete trans+arency between the two +arties and the management ((. also works as su+ervisor on behalf e)uity holders 49arim! 1990! +. 14F Aassan! $001! +. 9F "bdulla! $001! +. $15. -o ensure the right enforcement of (hari@a rulings the ((. actively im+ly internal and e7ternal auditing +rocesses. (o its very im+ortant role that ((. +lays in creating and kee+ing trust in I:IHs and their stakeholders! disseminating timely and sufficient information 4financial and non-financial5 which will address their o+erations and +erformance 4""OI:I! $00 a! b! +. 5.

2.; *he concept o& Centra" ,an/ -he conce+t of central bank is very com+licated in Islamic .anking. 'ostly certain issues related arise between the relationshi+s of commercial banks with the central banks 4(iddi)ui! $0035. Ais first suggested issue is that commercial banks get interest from the central banks on the reserves ke+t with them 4central bank5. (imilarly! central banks are lenders act as a last resort to the banking sector but the lending entails an interest +enalty for running out of reserves. Islamic banking +rohibits interest on their reserves that they +ut with the central bank so cannot get advantage from the li)uidity service offered by the central bank. Aence Islamic banks lose earnings and +rofitability by not being able to receive a return on their de+osits with the central bank. "t the same time the banks e7+ose themselves to higher +riced money market funds or running short on li)uidity in critical times by not being able to +ay interest for li)uidity reserves ac)uired from the central bank. I)bal and 'olyneu7! 4$00#5 argued that this +roblem can be solved if the central bank introduce an Islamic de+osit service that +ays a rate of +rofit to commercial banks on their de+osits and the commercial banks similarly develo+ an Islamic loans instrument based on +rofit and loss. (imilarly commercial banks should +ool funds to assist li)uidity constrained banks 46ha+ra! 193#5.

19

(addi)ui 4$0035 highlighted another +roblem associated with commercial and central banks are the issue of o+en market o+erations through sales and +urchases of government interest bearing securities. =ue to lake of Islamic structured government bonds countries in 'iddle ,ast and Bakistan have legitimated their banks to work in a hybrid environment based on traditional interest based savings and investment instruments and Islamic windows so as to limiting given factor. =ue to interest charge! Islamic banks cannot borrow from money markets or from the central bank that@s why they carry on higher non-earning li)uidity reserves and therefore loose +rofitability. 6entral bank@s regulatory standards for managing the risks of Islamic banks are another issue o++osed to traditional banks. "lready 6entral bank has many +rudential to monitor the risk e7+osure of financial sector that relate to ca+ital! assets! management! earnings and li)uidity 46"',D5. -he +rimary mode of financing of Islamic banks is BD( which has much higher risks and should have higher ca+ital ade)uacy ratios 4,rrico and :arahbaksh! 19935. /hilst! Islamic banking does not assured the +rinci+al of various financing contracts as a result of such ca+ital obligation would to give greater solvency and defend the +rinci+al liabilities of de+ositors and investors. -he business environment in which Islamic banking function is another common factor contributed to Islamic bank@s risk e7+osure. 6ountries of south and west "sia and 'iddle ,ast are noticeable by underdevelo+ed financial markets having +olitical insecurity and weak +ro+erty rights and legal system. -ake e7am+le of Bakistan where due to weak legal structure it is evident from the fact that the (u+reme 6ourt ruling on +rohibition of interest has been challenged and )uashed and has still wait for solution from the (hariat 4Islamic5 6ourt. 2.4 Sources o& )unds "ll the Islamic finance o+erates under the +rinci+les of the (hariah or Islamic Daw taken the Aoly QurRan and from the (unnah 4e7am+le5 of Bro+het 'uhammad 4Beace .e %+on Aim5 and it is old as the religion of Islam itself 4I..! $0095. "ccording to Islamic finance +hiloso+hy! Imoney itself has no intrinsic valueJ. -he faith of 'uslim is that he cannot lend money to or receive money from someone and e7+ect some benefit like interest 4riba5 which is not allowed. Islam forbids making money from money. It is believed money must be used
20

in a +roductive way and wealth can only be made through lawful trade and investment in assets. -here always involved risk in any trading activity and any gains relating to the trading are shared between the +erson +roviding the ca+ital and the +erson +roviding the e7+ertise. I.. 4$0095 argue that they manage all their o+erations in com+liance with Islamic law! that we invest our funds ethically and that we do not mi7 them with interest bearing funds. " committee of schlors +eo+le known as I(hariah .oardJ analyse the o+eration of banks in the light of Quran! (unnah. (imilarly I;ma@a 4consensus5 is also a source of guidance that involves the inter+retation and analysis of newly arising issues by eminent )ualified scholars of :i)h who will arrive at a consensus or ruling about the issue in )uestion. "nother source is Qiyas 4analogy5! the +rocess of analogical reasoning from a known in;unction to a new in;unction. In the +rocess! the ruling of the Qur@an and (unnah may be e7tended to a new +roblem +rovided that the +recedent and the new +roblem share the same o+erative or effective cause. -he last source is I;tihad! which is! the effort of a )ualified Islamic ;urist to inter+ret or reinter+ret sources of Islamic law in cases where no clear directives e7ist. -he main conce+t of all Islamic banks are same 4interest free banking5! the main difference mostly come in the a++lication they +rovide. =ifferent demogra+hic factors such as laws! environment! bank ob;ectives! the need to interact with other interest-based banks 4II.I! $00*5 are res+onsible for such differences. 6urrent! saving and investment accounts are the most common forms of accounts +rovide by every Islamic bank and Islamic windows. 2.4.1 Current Account -he Islamic banks facilitate the customer with current accounts based on trust between customer the bank. -he banks +rovide a safe custody of their funds and allow the users to use their funds while available in the bank. -he customer can take out a +art or the entire money from their accounts and the bank is res+onsible to fulfil their re)uirement 4:uad! 199 5. In this! the +rofits generated by the bank from the de+osit of the clients will go to the bank. "t the same time banks +rovide the facilities of che)ue books! debit card and the other services linked with current account. 2.4.2 Savin#s Accounts

21

-he conce+t of saving account in Islamic banks is that they do not earn any fi7ed return 4'arryn! $0015 like traditional banks does. In such ty+e! the bank return a +ercentage of +rofit earns by customer funds to the customer. Dike current account! it also o+erates on the bases of trust. -he +ercentage +rofit +rovide by the bank is allowed in such case because it is not a condition for lending by the de+ositors to the bank nor it is +redetermined. -he de+ositor can take out its fund at any time. "lso cash card 4debit card5 and savings books are +rovided to account holder. 2.4. Investments accounts Islamic banks offer investment account on the +rinci+al of 'udarabah 4an Islamic contract5! for those customers who want to involved their funds in investment. "ccording to :aud 4199 5 Ithe de+osits are term de+osits which they cannot withdraw before maturityJ. 'an 4$001! +.435 argues that in such ty+e of investment generally customer 4de+ositor5 is like ca+ital +rovider and the bank acts an entre+reneur. :urther he argue it is different from saving account because it involve a higher fi7ed minimum amount! it duration is long and the de+ositor may lose a+art or all of the funds in default situation. -here is also a s+ecial investment accounts which is offered to wealthy investors and institutions. It also o+erates on the +rinci+le of 'udarabah. %sually! the +rofit distribution and modes of investment are settled between the de+ositor and bank. 2.10 Is"amic )inancia" 6roducts -he Islamic financial instruments worked on the +rinci+les of avoiding interest 4riba5! not have higher uncertainty 4gharar5 and gambling like features 4'aysir5 4(addi)ui! $0035. -he e7clusion of interest facilitates Islamic banks as well as traditional banks having windows for Islamic +roducts cannot have fi7ed interest debt instruments. -he Islamic financial system encourages e)uity +artici+ation and risk sharing methods on the +art of banks and debtors 4investors5. (ome of the commonly used by Islamic .anking contracts according to (hariah that assists +roducts for savings! trade and investment which are also offered by traditional banks. 'ost of them are consumer financing! trade related financing and investment ty+e of modes of financing. -hese commodities take the sha+e of cost +lus sales 4'urabaha5! credit sales 4bay
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KKbithaman a;il@@5! leasing 4I;arah5! +artnershi+s 4'odaraba and 'usharakah5 and some forward contracts 4(alam and Istisna5. (imilarly! Qard-e-Aasna 4benevolent loan5 which is a &ero interest loans offered to +oor farmers and needy students. 2.10.1 !urabaha 2trade -ith mar/ up or cost p"us sa"e5 'urabaha a ty+e of (hariah com+liant contract is the most e7tensively financing mode of Islamic .anks 4(addi)ui! $0035. -his kind of instrument involved financing of consumer durable! real estate and for +urchasing raw materials! machinery or e)ui+ment. 'oreover! it is also suggested for short-term trade financing such as the financing of letters of credit. In other words 'urabaha is similar to the consumer loans! lines of credit and working ca+ital facilities +rovided by conventional banks. -he 'urabaha contract is signed between the bank and the +urchaser but it usually involved three +arties involvedM the seller of the good to the bank! the buyer 4bank@s debtor5 who could be an ordinaryF consumer! trader and the bank. -he role of the bank is like an intermediary KKtrader@@ and facilitator between the buyer and the seller. -he contract sale of 'urabaha between the bank and the customer 4debtor5 is de+endent on the contract signed initially between the same two +arties. In the +rocess of the 'urabaha sale transaction the bank buys the desired goods for customer from the seller resale to the customer at a +rice which contains the cost of the +urchase +lus a +re-agreed +rofit! hence it is a cost +lus sale contract. 'ost im+ortant is that 'urabaha contracts have fle7ible re+ayment +eriods! com+etitive +ricing! including minimum limits on 'urabaha finance and variable tenors of loan financing for such loans. 'ost of the financial transactions of Islamic banks deal mark u+ or cost +lus sale contract. One o+inion is that this mark u+ sale contract to be an interest based contract as it in fact charges interest but calls it +re-agreed +rofit. In given case it is e7-ante +rofit and not reali&ed +rofit as was initially +redetermined under Islamic law. Islamic scholars argue that while Islam allows trading and its related +rofits and loss and does not su++ort the conce+t of fi7ed return loan contracts. 9han and .hatti 4$0035 argued that the +ractice of 'urabaha financing grossly violates (hariah +rinci+les. Islamic banks insure 'urabaha goods against the risks of damage!
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destruction and theft! and im+ose all such costs on their clients 4.ashir! 1999F /arde! $0005. :urther Islamic banks em+loy interest rates to fi7 returns and assign higher returns on 'urabaha contracts for longer time ;ust like conventional banks. "lso introduce the rule of +ay now! +ay less. (imilarly! they charge clients in case of delay +ayments. "lso illegal recovery methods are use to recover loss from clients who violate their +romises to buy 'urabaha goods. -hus! Islamic banks earn almost risk-free returns on their 'urabaha investments 4Aomoud! 1994F <hafoor! 19995. 2.10.2 ,ay <<bi=thaman aji":: 2credit sa"es5 -he conce+t of 'urabaha is not very much efficient because it is im+lemented on the s+ot through immediate +ayments by the customer. It means that the bank loan is instantaneously +aid off and the bank is merely acting the role of an agent trader who only +rovides the facility of delivery of goods from seller to buyer and charging a +rofit mark u+ over cost for its middleman services. 0ormally the role +layed by the banks toward +aying loans is in the form of instalments or in other words the bank is e7tending credit. -he same +attern is followed by Islamic banking in which the more common and usual mode of +ayment for goods! machinery or e)ui+ment is deferred +ayments through instalments. -his delayed in +ayments led to +ay higher +rice than actual cost +rice 4ac)uired by the bank5 can be inter+reted to mean that Islamic finance of deferred +ayments is very much like traditional loan instalments charged at an interest where the interest is the cost +lus com+onent 4i.e. +rofit5 of the 'urabaha contract. 0ot so! say Islamic ;urists who allow for increase in +rice due to deferment 4%smani! 19935. 2.10. !ushara/a -he form contract in which the client or customer does not take hundred +ercent finance from bank but add some of his own e)uity ca+ital then such a contract is known as 'usharaka. -he similar 'urabaha like contract will be signed between the bank and the customer. -hough the customer or debtor will be e7+osed now to the risk of ca+ital loss on the ca+ital committed by him while if the debtor had no risk when hundred +er cent of the ca+ital was financed by the Islamic bank. (uch ty+e of contact bound both bank and customer in a +rofit and loss sharing agreement according to the +rinci+les of risk and reward sharing. -he +rofits sharing
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mechanism is +redefined where as the losses are based on e)uity +artici+ation. 'usharaka financing is commonly used by banks for financing trade! im+orts and to issue letters of credit! agriculture and industry. 2.10.$ !odaraba 'odaraba is also similar to +revious modesF the main difference is that there is no e)uity +artnershi+ but only +rofit and loss sharing in this ty+e of contract. Its com+arable case in conventional business is in the form of limited +artnershi+. 'odaraba is a contract between the bank and the customer in which the bank lends the entire ca+ital to the investorGcustomer 4debtor5 and the financial losses of the debtor entre+reneur are belong wholly to the bank. -he customer held liable for the losses in case of mismanagement or neglect. On the balance sheet it is +resented on both the asset and the liability side. On the liability side it is an unrestricted 'odaraba in which the de+ositors agree that the bank is free to choose the investments that it will make with their de+osit money and agree to share the +rofits earned by the bank. On the asset side it is a restricted 'odaraba contract because the bank agrees to finance a +articular 4restricted5 investment need of the customer and to share a +ercentage of the +ro;ect@s associated +rofits. In modern finance! the 'odaraba contract is e)uivalent to a +artici+ating +referred stock with no contractually +romised interest 4,brahim! 19995. -he 'odaraba contracts are +rofitsharing agreements. .acha 4199#5 analy&ed the 'oderaba facility as a hybrid contract in conventional financial terms. It recombines the characteristics of both e)uity and Islamically allowed credit and debt contracts. -he entire ca+ital re)uirements are +rovided by a bank 4modarib5 for investment in a +ro;ect while e7+ertise! management and labours are +rovided by the customer or investor 4Cabbul-mal5. On +re-agreed basis! the +rofits are shared by both +arties from the +ro;ect! but in the case of loss! the total loss is bear by the bank 46hong and Dui! $0035. In such agreements! as regards to debt investors the 4Cabbul-mal5 has a ;unior +osition but has a +referred +osition over an e)uity investor 4musharik5. -he com+osition of an Islamic bank is conventionally based on two hy+othetical modelsF 1.4.4.1 -he Itwo-tier 'oderabaJ model 1.4.4.$ -he Itwo-windowsJ model 4I)bal and 'irakhor! $00*5.
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2.10.$.1 *he >t-o=tier !oderaba? mode" -he two-tier 'oderaba model relies on the idea of +rofit-sharing. It integrates the +roblems and assets sides of banks! balance sheets based on the +rinci+le of Itwo-tier 'oderabaJ. On the basis of 'oderaba 4(iddi)i 1930! 193$F 6ha+ra 193#5 this model re)uires that both resources mobilisation and consum+tion. -he first tier of 'oderaba bond is between the investor or saver and the bank 4mudarib5. -he saver act as the funds +rovider and the banks invest the money on their behalf. -he investors share not only in the +rofits but also in the losses that are earned by the bank@s business related to the investors@ investments. In this ty+e of bond the +rofit-sharing investment de+osits are not liabilities of the bank but they are a form of limited term-non-voting e)uity 4I)bal and 'irakhor! $00*5. In it! funds are +laced with the bank in an investment account and there are no guarantees on either the +rinci+al or the return 4,lhiraika! $00$5. In addition to the investment de+osits! the banks also acce+t demand de+osits which are the liabilities of the bank as they are re+ayable on demand at +arF therefore they yield no returns to the bank. :urther! the second tier of 'oderaba agreement is between the bank and the entre+reneurs 4looking for funds5. "ccording to a certain +redetermined +ercentage as +er the contract the entre+reneurs agree to share the +rofits with the bank or in other words! an Islamic financial institution can act a vital role as an intermediary between investors and entre+reneurs. Aence uni)ue feature of thee Itwo-tierJ model is that the assets and liabilities of the banks are integrated. 0ow if the bank@s assets decline due to some shock then due to the +rofit sharing nature 4'oderaba5 of the de+osit contracts! the liabilities of the bank also decline corres+ondinglyF therefore! +reserving the net-value of the bank. -herefore! the crisis of asset-liability dis+arity does not occur which reduces the need for active assetGliability management and in turn! adds to the solidity of individual banks against economic shocks. :urther! as a whole! it will also +rovide stability to the financial system by avoiding a domino effect 4"li! $004F I)bal and 'irakhor! $00*5. 'oreover! stability achievements and avoid bank runs can be attained linking the returns on liabilities to the return 4<ango+adhyay and (ingh! $0005 which was also shown by 9han 4193*5 for Islamic banks. "hmed 4$00$5 observed that sharing +rofit with the de+ositors not only brings more solidity to the bank but it also acts as a corrective device that +unishes inefficiencies on +art of the bank and he obtained this result by com+aring the conce+t of sharing +rofit with de+ositors to the lower rates of return relative to other financial institutions in the economy. %nder the
26

Islamic +rofit-sharing model! the de+ositors see that the overall rate of return in the financial system has declined when there is a recession in the economy and as a result of which the +robability of withdrawals and bank runs will be undersi&ed. Aence! it can be inter+reted that the use of 'oderaba contracts will have +enali&ing effect on the banks as un+rofessional conduct and incom+etence are +unished by de+ositors. 2.10.$.2 *he >t-o=-indo-s? mode" 2I@ba" and !ira/hor3 20095. -he Itwo-windowJ model also features demand and investment accounts but takes a diverse view from the first model on reserve re)uirements. 'ainly! funds de+osited as demand de+osits re)uire 100P reserve whereas investment accounts re)uire no reserve re)uirements 49han! 193 5. Aence! both the Itwo-tier 'oderabaJ and Itwo-windowsJ model of Islamic banking demonstrate that the losses incurred are treated as a result of investment activities by the banks so it reflects as reduction in the value of the de+ositor@s wealth but in both models the chance of losses reduces through a diversification of bank@s investment +ortfolios and cautious assortment. 'oderaba contracts are well again balanced in the vicinity of risk management as the +ayment is reduced in the +eriods of economic recessionF the entre+reneur has to make to the Islamic bank. /hile in the interest-based system lenders may re;ect further credit overreacting to the shocking news when the entre+reneur faces momentary hitches in debt-servicing for instance owing to a short-term adverse demand shock. "s a fact that interest +ayments are due to irres+ective of the +roductivity of the +hysical investment and any debt-servicing +roblems on +art of the borrowers may modify its fortunes. In fact (tiglit& 419335 argues that interest rate is not like a conventional +rice like +rice of credit which ad;usts to clear the market and it is assure to +ay amount in the future. 6onventional banks@ lending is carried out on the basis of the credit value of the borrowers which is influenced by interest rates. .anks may credit ration its borrowers if! :irstly! before +roviding loans! the banks cannot differentiate between borrowers with different credit risks! "nd secondly! the credit contracts were sub;ect to restricted liability 4the borrowers bear no res+onsibility for making the +ayments if +ro;ect returns were less than the debt obligation5 4<avin and Aausmann! 19935.

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0ow adverse selection may be caused if interest rate increases which would leave a more risky +ool of borrowers in the market for funds. (o then only the risky borrowers with higher returns would be ready to take u+ the banks contract again causing ethical risk 4(tiglit& and "ndrew /eiss! 19315. (o increasing the interest rate adds to the +ro+ortion of the risky borrowers in the develo+ment and reduces the overall +rofitability of conventional bank. /hile in Islamic 'oderaba model of banking! lenders generally receive all the information relating to the +erformance of the client@s +roduction fre)uently in order to know about income so that the current information as well as the +ayment from the borrower to the lender is more or fewer on an on-going basis and it is good in order to avoid tem+orary shocks so that functioning of Islamic banks is not distressed. 'oderaba contract under Islamic banking is +rimarily footed on the influence of "llen 419315 in his e7traordinary study on the IBrevention of defaultJ. Ae showed that in order to avoid evasion! in order for lenders to be confident about receiving +ayments! de+osit on loans will be re)uired. Aowever! it may be +ossible to create +rofitable contracts which avoid default if the rule of only lending to those borrowers who have not defaulted is ado+ted by lenders hence it allows +eo+le to borrow without security so in this case the lenderRs +rofit ma7imi&ing contract is a share contract with a lower bound on out+ut and it almost com+arable to 'oderaba contracts. "llen 419315 has argued that if borrower defaults so then the total cost of +ayments from a share contract may be reduced for low levels of out+ut! and then ca+ital is rented out in successive +eriods to collateral with an interest 4riba5. -hus! share contracts take out as much as +ossible from every borrower without +reci+itating default which a++ears to be like a Itwo-tier 'oderabaJ contract. "lso! "llen 419315 showed that a varied debt e)uity loan is most favourable with the debt-e)uity ratio increasing with the wealth of the borrower in the event of a borrower owning a small amount of collateral and which a++ears like the Itwo-windowJ 'oderaba. -hus! we conclude that 'oderaba contracts can be resourceful contracts which can reduces defaults in a banking system where borrowers and lenders are involved. "dditionally! a study by ,brahim 419995 concluded that securiti&ation of the 'oderaba facility avoids the disagreement of .ai@al-dayn bi al-dayn 4sale of one set of debt security with another5. Aence Islamic banks could have turn away the recent %.(. sub+rime credit crisis which involved the investment banks securiti&ing the credits into bonds that were
28

+urchased from the lenders and then they were sold forward to investors through collaterali&ed debt obligations 46=Os5. :urthermore! Aa)ue and 'irakhor 4193 5 modelled the a++lication of agency theory to 'oderaba contracts by firstly +ainted that the owner of the financial ca+ital is the +rinci+al and the entre+reneur is the agent which showed that managerial effort +lays a vital role in strategy of the contract. ,7+licit ma++ing is created under the standard incentive-com+atible interest based 4ribawi5 contract between the +ayment and in+ut of ca+ital! wherein the manager is o+en-minded to chose the individual most favourable level of effort in each state grou+ on the s+ecified level of investment. On the other hand! e7+licit ma++ing is created under a 'oderaba contract between the remuneration and the +erformance or +roduct of the +ro;ect which will give banks undeviating control on the behaviour of the agent-entre+reneur 4I)bal and 'irakhor! $00*5. "dditionally! Bresley and (essions@ 419945 model! showed that the use of 'oderaba contracts show the way to su+erior level of ca+ital investment I-e increase in average investment while incom+etently huge fluctuations around this level are reduced! as 'oderaba contracts have the ability to act as an efficient e7+osure device as it may +ermit the well-organi&ed revelation of any informational benefit which the manager may have over the owners of ca+ital 4investors5. "s a++ro7imate movement of ca+ital which is one of the main causes of instability in e7change rate! is disheartened under an Islamic financial system that is decrease in movement of short-term ca+ital for s+eculative +ur+oses will minimi&e the demand and deliver shocks in the currency market and eventually lead to more constancy in the e7change rate. Aence the fle7ibility will be smaller then that of conventional economics which is because of short-term ca+ital in an Islamic contract that is sensitive to rate of return. "s a fact that as Islamic financing is cou+led to real transactions so it cannot be li)uidated as soon as the rate of return changes. "n im+ortant +oint is that variability in the e7change rate will be reduced in the absence of +rofitable interest bearing de+t and it is because as Islamic banking system interest rate 4riba5 does not +ersevere and debt cannot be e7changed in markets which reduces the mobility of ca+ital and making the e7change rate less unstable 4"hmed! $0015. It can also be argued that Islamic banks +erformance on 'oderaba contracts creates a lesser amount or relatively no ins+iration for market asset +rice bubbles to surface. (o both the Islamic bank and entre+reneurs have chance in the +roductivity of savings and none of them
29

have definite returns. Aence we can say that sharing of losses would make sure better financial market@s constancy and diminish the financial and social costs of banking crisis. :inally! the 'oderaba model would also smart down the costs involved in initial structures and institutions so as to deal with the negative effects of financial liberali&ation! e7cessive volatility! and information +roblems related with international financial markets. Brinci+ally! +ro;ect funding and foreign direct savings will be encouraged by eliminating +erce+tions of risk free investment and the +rofit-loss sharing mechanism which are considered as the most suitable forms of ca+ital flows into develo+ing countries 4,lhiraika! $00$5. 2.10.+ Sa"am 2sa"es contract5 It is future date commodity in which +rice is +aid in advanced in cash to the seller who abides to deliver a commodity of determined s+ecification on a definite due date 4(addi)ui! $0035. -he deferred is the commodity sold and described 4on liability5 and the immediate is the +rice. =uring the +rocess of (alam! the bankM +ays the +rice in the contract to the seller so that to have a )uick use of funds to cover the financial needs. -he seller is res+onsible through the contract to deliver the commodity on the s+ecific due date. -he bank has many o+tions to choose at delivery timeF for e7am+le! the bank receives the commodity on due date and sells it either for cash or on credit! or it can authori&e the seller to sell the commodity on its behalf against fees or without fees! or it can direct the seller to deliver the commodity to a third +arty 4the buyer5 according to a +revious +romise of +urchase! where the +romise is that the buyer will +urchase from the bank. -he commodity is sold through a sale contract between the bank and the buyer when the delivery has been arranged by any of the above stated o+tions. -he bank agrees to sell the commodity for cash or a deferred +rice higher than the (alam +urchase +rice +aid by the bank to the seller in such contracts. "ccording to the agreement the buyer also agrees to +urchase and to +ay the +rice. -he (alam sale can be used to meet the ca+ital re)uirements as well as cost of o+erations of farmers! industrialists! contractors or traders as well as craftsmen and small +roducers. (hariah s+ecifies that the terms and conditions of bai salam contracts! such as +rice! )uantity and )uality of goods! should be clearly determined without involving any features of interest! gharar 4s+eculation5 or dubious sale 4I)bal! 19935. 'aking the (alam contract by the banks with a seller is beneficial because generally a (alam +urchase by the bank is chea+er than a cash +urchase. "s a result the bank is secured against +rice fluctuations! barring those
30

e7treme circumstances of a +rice deflation or a market crash when +ost (alam +rices could immerse lower than currently contracted (alam sale +rices (addi)ui! $0035. 2.10.8 Ijara 2"easin# contract5 I;ara is commonly designed for sale of vehicles! e)ui+ment or +ro+erty for conducting business. -he conce+t of leasing in traditional banking is that it allows the customer 4buyer5 to lease goods at fi7ed interest rates while Islamic banking leasing facility has two sub contracts. Initially! the bank signs a +urchasing contract with the seller for the commodity that the buyer wishes to lease. -he bank +ays the seller and then gets the commodity delivered to the buyer from the seller. Dater! the bank signs a lease contract with the buyer in which commodity is leased to the customer allowing him the ownershi+ or sim+ly the use of the asset after +ayment of lease instalments and residual charges. -his mode of finance is commonly used for transactions in real estate! cars! com+uters! machinery and e)ui+ment. 'oreover the leasing en;oys strong su++ort from (hariah scholars and bears a close resemblance to conventional leasing 4I)bal! 1993F /arde! $0005. 2.10.9 Aard=e=Basna 2benevo"ent "oan or interest &ree "oan5 Islamic banks also offer a limited scale of loan facilities to +oorer sections of society such as needy students or small rural farmers. -hese kinds of loans would have negative 0BEs for the banks 4(addi)ui! $0035. -his kind of loan structure is e7cluded in traditional banking system. "ny benevolence is only manifested through charities and grants or scholarshi+s! but not through non-returnable &ero interest loans. 2.10.; *a/a&u" :rom many years Islamic insurance +roducts e7isted. In 1930s with the contribution of =ar "l-'all "l-Islami! one of the biggest Islamic financial institutions in the world such +roducts came into e7istence in /estern ,uro+e. -he business environments welcome it and -akafol +roducts were well received by the ethnic 'uslim community living in /estern ,uro+ean countries. -he early ty+es of -akafol +roducts were unit-linked savings +lans where the benefits of the +olicy were notionally linked to the value of the underlying assets in the internal funds of the -akafol 6om+any. -hose +roducts were! in general! com+lying with
31

Islamic shariah +rinci+les regarding the ty+e of investment and risk. -he main +rinci+le on which -akaful +roduct design are riba-free investments! no dece+tion! no +rofit to the -akaful 6om+any from favour able mortality e7+erience and worked on solidarity +rinci+les rather than +robabilities 4(hakir! $0035. In the light of above rules! the -akaful +olicyholdersR funds were invested in short term assets without any fi7ed interest or guarantee of ca+ital and the mortality risk was shared on a solidarity basis so that any loss or +rofit due to mortality was shared between the +olicyholders. Aowever! the -akaful savings +roducts only offered a small death cover! which limited their demand to +otential customers. (imilarly to satisfy the insurance needs of 'uslim community a wide range of +roducts such as term assurance! mortgage +rotection or old age annuities are introduce but the +rocedure of launching new -akaful +roducts has been very slow. -here are around more than 40 -akaful o+erator@s worldwide mainly giving general business 4II.I! $0035. -he total assets and contributions of these o+erators are around 21 billion and 2#00 million res+ectively which are very low as com+ared to the 'uslims +o+ulation. "ccording to 6ar+enter .owring Dondon which o+erates under the 'arsh 'c Dennon <rou+ suggest that Ithe world largest reinsurance broker! insurance +enetration +articularly for the life sector in +remium terms in 'uslims countries is less than 1P of <=BJ. 6learly -akaful has immense +otential to be develo+ed its share market si&e. 2.10.4 Su/u/ (ukuk is a kind of Islamic .ond offered by Islamic banking. In reality it is an asset-backed trust certificate. In sim+le words (ukuk is a certificate +roofing ownershi+ of an asset or its usufruct. -he structure of (ukuk de+ends on the formation of a (+ecial Bur+ose Eehicle 4(BE5. (BE would +roduce (ukuk certificates that signify an asset ownershi+! claim to a debt or to rental incomes or even accrual of returns from different (ukuk 4a hybrid (ukuk5. -he return from (ukuk generated from a sale! rental or a combination of both. It will be based on 'udaraba! 'usharaka! 'urabaha! (alam! Istisna! I;ara or hybrid of these. In conventional system a contractual debt obligation in which the issuer is contractually res+onsible to +ay interest and +rinci+al to the bondholders on certain dates. On the other hand in (ukuk structure! the (ukuk owners have an undivided valuable ownershi+ in the main assets. "s a result the (ukuk owners are allowed to share both revenues generated by the (ukuk assets and +roceeds of the reali&ation of the (ukuk assets.
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-here are some similarities between conventional bond and (ukuk such as marketability! rateability! enhanceability and versatility. (everal ste+s are involved while issuing (ukuk such as +re+aring a detailed feasibility study! creating a general framework and organisational structure to su++ort the issuance +rocess! develo+ing suitable (hariah structure to achieve the set ob;ectives in com+liance with (hariah. It also re)uired legal documentation from both issuer@s and arranger@s +ers+ective and assigning the (BE to re+resent the investors and +lacing the (ukuk into circulation. (hariah "dvisors .oard role is very significant in (ukuk because they are the advisors who suggest (ukuk structure and +resent a (hariah structure to achieve economic ob;ectives. -hrough +arliamentary legislation %9 is going to create a new framework that becomes hel+ful to (ukuk issuance. -reasury minister! ,d .alls! has been )uoted in mediaM I/e are looking to +lace domestic (ukuk on the same footing as conventional +roductsJ. -his is a very encouraging ste+ by the %9 but there is a need that industry +ractitioners with e7+erience in (ukuk issues must be involved while develo+ing such a framework. It seems to a++ear that future of Islamic finance is very feasible in the %9 and ,uro+e. 2.11 6rob"ems and cha""en#es &or Is"amic ban/in# 2ban/s5 In com+arison to conventional banking Islamic .anking is still highly nascent. "s it is com+aratively very new! it has been facing many +roblems and challenges. -he constant +roblem of sur+lus li)uidity is always su++osed as a biggest +roblem. "s they bear about 40 +ercent more li)uidity than their traditional rivals because there is a serious deficiency of long-term (hariah-com+liant investment tools and avenues 4Aakim! $00$5. -hey commit 9# +ercent of their funds to short-term i;arah! murababah and musharakah instruments 4Islamic :inance 0ews! $00 a5. :our ma;or Islamic banks established the Di)uidity 'anagement 6entre 4D'65 in $00$! which has been busy in making a secondary li)uid market for Islamic bonds! government securities! e)uities! mutual funds ,tc. where as the other institutions for e7am+le .ank of 'alaysia! the Islamic 6hamber of 6ommerce and Industry 4I66I5! the International Islamic :inancial 'arket 4II:'5 and the =ubai International :inance 6entre 4=I:65 have been searching +ermanent answers to the li)uidity +roblem.

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"ccounting standards and +ractices that Islamic banks +ractice and a++ly are many and varied. " few of these banks a++ly International "ccounting (tandards 4I"(5! others stick to standards a++lied by "ccounting "uditing Organi&ation for Islamic :inancial Institutions 4""OI:I5! and some take on accounting standards common in their local markets. -he heterogeneity in accounting +ractice and disclosure in Islamic banks left every one in confusion including researchers and financial managers. In reality! the Islamic .anks should sim+ly give relevant and authentic information to the stakeholders about their res+onsibilities towards the financial! social! environmental and religious areas 4(ultan! $00 5. Aowever it is significant to mention that ""OI:I and Islamic :inancial (ervices .oard 4I:(.5 have been working over the years to invent universal accounting and auditing +ractices which are best for Islamic banks. (o far ""OI:I has develo+ed more than 1 accounting standards for the guidance! and ado+ted by 110 member institutions! re+resenting in 10 countries worldwide. -here is a considerable lack of knowledgeable (hariah e7+erts in the Islamic banking industry. Only some small (hariah e7+erts are serving on several (hariah boards of Islamic banks globally. On (hariah com+liance a consultant names 'a;id =awood! who based in Dondon has notified that (hariah e7+erts earn as much as %(233!#00 +er year +er bank 4'atthews! $00#5. In some case it raise u+ to %(2#00!000 for advice on large ca+ital market transactions 4-ett! $00 5. In small Islamic banks (hariah scholars have little in-de+th into the com+lication of +resent-day financial markets. -o have strong (hariah scholars Islamic banks should make a strong base of research and training to develo+ teems of (hariah scholars. -hose should be of high moral and +rofessional integrity. -hey should also set u+ a central (hariah board and an e7ternal audit committee to +rovide an accurately self-governing ins+ection of the Islamicity of their o+erations. Cisk management strategies and cor+orate governance are other big hurdles that Islamic banks are facing. "s been relatively new they are e7+osed to all sorts of risks for e7am+le those risks which are related to interest rates! li)uidity and non-+ayment. (ukuk issues lead to risks! relating interest rates! foreign e7change! credit and (hariah com+liance 4Aobson! $00 5. -hey cannot use traditional risk management techni)ues and tools because they are based on interest! gambling and s+eculation! as they are strictly barred by (hariah. "t this +oint only good governance can significantly hel+ to moderni&e the organi&ational structure of Islamic
34

banks on a more efficient and inde+endent basis. In addressing the issues which are related to risk management! ca+ital ade)uacy and cor+orate governance! .ank 0egara 'alaysia! International Islamic Cating "gency 4IIC"5! I:(. and other su++orting bodies have been a++roaching very fast for the develo+ment of +rudential regulations and systems. Cealistically the Cesearch! =evelo+ment and Innovation are very slow and unsatisfactory. -he reason behind this is the si&es if Islamic .anks are small and cannot afford to develo+ their own or ;oint C and = facilities. >ust only big Islamic banks are engaged in some kind of serious C and = actions. .ecause of this! there has been a huge flight of native oil wealth from the <ulf countries to /estern financial markets. (heikha Dubna "l Qasimi! 'inister of ,conomy! %",! +ointed out that at +resent big +ercentage which is about 30 +er cent of the %(21.3 trillion of +rivate wealth of the <ulf countries is invested abroad. -he reason she mentioned was because there are not enough Islamic-friendly investment o+tions in the region 4%", Intereact! $00 5. It should be taken very seriously by the Islamic banks the challenges of coming u+ with a full range of legitimately distinct! inventive and com+etitive +roducts. /ith their +oor record in C and =! Islamic banks rely heavily on traditional banking tools and systems to sort out their everyday +roblems and o+erations. It is not a secret that they are using the Dondon Inter-bank Offered Cate 4DI.OC5 market interest rates! discounting tables and time value of money techni)ues to fi7 BD( ratios and returns on their murabaha and other investments 4Aomoud! 1994F ,l-"shker! 199#F ,l-=iwany! $00 5. Aaron and "hmad 4$0005! amongst others! have +rovided +ragmatic evidence that Islamic banks use traditional +rofitability theories in sha+ing returns on their +roducts. 0ot only that but! (ukuks are released on the basis of DI.OC. ,7am+le! the yield on Qatar <lobal (ukuks is calculated on the basis of DI.OC on dollar funds +lus 0.4 +er cent +er year. -here is increasing +ressure on Islamic banks to develo+ +urely Islamic and +ioneering +roducts and to sto+ imitating the traditional +ractice. Islamic banking is still very com+osite and un-standardi&ed for e7am+le legal and regulatory frameworks! systems! +roducts! and terminologies are matter of great concern. I:(.! international rating agencies and other ma;or +layers have been working hard to enlarge identical regulations and systems of Islamic banking and to advance its credibility! trans+arency and disclosure. -he ma;ority of Islamic banks functions within traditional environments. -hey now en;oy good su++ort from traditional banking and regulatory systems. Other 'uslim countries may follow suit of .ahrain and 'alaysia who have e7celled at establishing entirely inde+endent nationwide
35

legal! regulatory and financial frameworks for Islamic banking o+erations. " number of su++orting bodies! including the =ubai :inancial (ervices "uthority! I:(. and 'alaysia@s (ecurities! have been working with traditional banking authorities to determine regulatory issues linked to Islamic finance +ractice. -hese develo+ments should take Islamic banking towards greater financial and (hariah disci+lines! su+eriority and incor+oration with international financial markets. Dastly! Islamic banking +ersonnel are largely drawn from conventional banking because there has been a delicate shortage of human ca+ital resources in the Islamic banking industry. ,ither they are +ro+erly trained or maybe not loyal to the learning or +ractising (hariah entertains banking. -hey are +aying attention only in removing interest from Islamic banking o+erations without realising the true +ur+ose behind this e7ercise. 'a;or Islamic banking training institutions such as the Institute of Islamic .anking and Insurance! Islamic :inance -raining! and the International 6entre for ,ducation in Islamic :inance 4I06,I:5 arrange re+eated and numerous training sessions! conferences! collo)uiums and worksho+s! but this is not hel+ing to develo+ Islamic banking +ersonnel with financial-cum-(hariah know-how. It is good time that the Islamic banks should made substantial investments in human resources develo+ment and training and research faculties. Internally groomed human resources can only add real time value and solutions to the current issues and challenges which currently the Islamic banking system is facing. 2.12 ,an/in# Sector crises and ro"e o& Is"amic ,an/s -he world is swiftly heading towards inter-nationalisation! so the attentiveness of +ower is surrounded by few com+anies which are intercontinental. 'ore over! that gives birth to lack of e)uality among societies and divided them in to se+arate classes. -he socio-economic conce+t of Islam is relatively different from others that believe on e7tir+ate of interest and all other dis+arate elements from the economic globe. 'oreover! the Islamic financial system ca+able of elements for lending! borrowing and investment functions on a risk-sharing basis. (o it entertain market forces to set u+ the out+ut of ca+ital other then fi7ing it in higher in im+ortance as an KKinterest rate@@ to damage the free market system and su++ort tentative use and advertisement of investment.

36

.usiness in "sia +lagued with bankru+tcies whose incomes declined lower than that of its fi7ed interest debt res+onsibilities in the +eriod of 1990s 4,brahim! $0005. -he e7+ected condition took +lace in 1930s in some Datin "merica countries when they became defaulted on its debt and the huge debts! left the banking system nearly irresolvable 4-heberge! 19995. Cecently large .ritish and %.( .ank such as Dehman .rothers! 0orthern Cock! .ear (tearns and recently have been declared bankru+t as they massively defaulted on their mortgage +ayments while oscillations in interest and mortgage rates +layed a decisive role in bringing about the financial crisis and homeowners! cor+orations +roblems and in +articular has create %.(. sub+rime mortgage crisis. .orrowing for banking is mostly from financial institutions! businesses! individuals! and governments with e7cess funds 4savings5. -hen banks use those de+osits and borrowed funds 4liabilities of the bank5 to make loans or to +urchase securities 4assets of the bank5. :or borrowers! lenders! and banks interest rates +rovide the +rice signals. /hen the value of their liabilities e7ceeds with res+ect to the value of their assets! banks are bankru+t. -he value of a bank@s assets may turn down owing to the inca+acity or unwillingness of the borrowers to service their debtGloans 4credit risk of default5. 6redit risk can be minimi&ed in a number of ways! for e7am+le! by scrutini&ing loan a++licants! e7+anding the loan +ortfolios! striking severe +enalties or fines! or asking for guarantee on loans in order for lenders to be sure of receiving +ayment 4"llen! 19315. =efault is foremost +roblems which cannot entirely be getting rid of. -his is because if severe +enalties are forced! it may +ut off +eo+le from taking loans and there may be no s+ur to take risks 4"llen! 19315. "lso! asking for guarantee as a way of avoiding default become visible to be e7ce+tionally e7tensive! however! it is e7+ensive to create and monitor! and its value is naturally sub;ect to variations 4"llen! 19315. :urthermore! credit risk also a++lies to on and off-balance sheet e7+osures! such as receiving! guarantees and investments in securities and derivatives. .ankers are fully aware that lending is a volatile business! and thus! they set a+art of reserve for likely losses. -y+ically 1 to $ +ercent of total loans and leases 4.enton ,. <u+! 19995. .ut! when debtors default! the e)uity of the bank falls in +roblems and if the loan losses sur+ass the bank@s com+ulsory and voluntary reserves as well as its e)uity +adF the bank is on the edge of a bankru+tcy. /hen a banking system largely e7+eriences loan losses in sur+lus of its ca+ital 4negative e)uity5! a com+lete crisis a++ears. "s this well-known default +uts the banking system under brutal strain! the central bank is re)uired to mediate
37

and rescue the banks either by lowering interest rates or raising them to +rotect the e7change rate. -his can ultimately guide to a currency crisis or enormous ca+ital esca+e 4<hosh $001F "llen and <ale! 19995. .anks may even +ractice vast ca+ital leaks tem+t by a raise in shortterm interest rates or loss of confidence! resulting in a dro+ in de+osits and eventually +ushing banks to li)uidate long-term assets to raise li)uidity or cut lending une7+ectedly 4"gTnor! $0005. Aigh real interest rates are e7+ected to deteriorate the skill of the bank customers to service their loans! and this may guide to an increase in non-+erforming loans 4"gTnor! $0005. "ll banks within a country are uncovered to interest rate risk for the cause that they o+erate with un-matched balance sheets 4.ookM Cisks in .anking5. Aere! banks combine in their balance sheets short-term liabilities with long-term assets resulting in maturity variances 4(ole $00*5. Aence! an interest rate risk occurs when there is a +ossibility that a bank will end u+ +aying more interest to their de+ositors than it has been able to earn itself. It arises when most of the bank lending is on fi7ed interest rate whereas the de+osit contract s+ecifies a variable interest rate that changes with +eriod of time and market situation 4"li! $0045. Interest rates also affect the rise and fall of inflation. Dower interest rates give more borrowing authority in the hands of consumers. "nd economy grows! when consumers s+end more! naturally given birth to inflation. If the central bank decides that the economy is growing too fast so that demand will greatly out+ace su++ly! then it can boost interest rates! slowing the amount of cash entering the economy. Aowever! if there is a large increase in short-term interest rates! it can also create severe banking sector +roblems. "dditionally! various other factors hel+s the increase in short-term interest rates! such as shift towards a more tensed monetary +olicy! an rise in world interest rates! the removal of interest rate controls owing to financial liberali&ation 4<albis! 19915! or the need to defend the currency ad;acent to a a++ro7imate attack 49aminsky and Ceinhart! 199 5. 'oreover! the absence of risk-sharing in the traditional financial system chaos the market as it makes it +ossible for the financiers 4in this case banks5 to lend markedly or over-lend and also to mobili&e funds ra+idly from one +lace to another at the least change in the economic setting 46ha+ra! $0045. -hus! a high degree of volatility gets inserted into interest rates and asset +rices. -his creates ambiguity in the investment market! which in turn doesn@t a++reciate configuration of ca+ital and results in misallocation of resources 4.I(! "nnual
38

Ce+ort! 193$5. (ubse)uently! there is a shar+ rise in highly influenced short-term debt! which makes the banking system susce+tible to internal and e7ternal shocks and thus! vulnerable to financial crises. -he Kreal estate connection@ to bank failures is a common +henomenon. :or real estate +ro;ects mortgages are a common source of finance. Ceal estate mortgage worth@s rise and fall with interest rates. Interest rates! in turn! are affected by government monetary +olicy. -herefore! in the real estate markets! an e7+ansion of credit will reduce the interest rate at which investors can borrow and this will eventually bid u+ the +rices they are willing to +ay. -he bubble may eventually burst and asset +rices colla+se if there is further e7+ansion in the volume of credit cou+led with uncertainty about the future +ath of credit e7+ansion. /hen this volcano eru+ts! the banks come under severe strain and the government will be forced to ste+ in and rescue the banks or may be forced to li)uidate. -his +henomenon can also eventually direct to a currency crisis where the government may be forced to choose between raise them to defending the currency or lowering interest rates to save the banking system. ,ven if the interest rates are raised there may still be ca+ital flight! as +ointed out earlier 4"llen and <ale! 19995. Cecently crises of sub+rime mortgages the +hases is witnessed that Islamic banks! es+ecially in 'alaysia! succeeded in withstanding the %.(. sub+rime mortgage crisis where all others failed. It is argued that while ca+ital controls may have +layed a role! other analysts believe its liability structure and its general reliance on non-debt-creating flows made 'alaysian Islamic .anks less susce+tible to crisis. %nder the Islamic monetary system! money creation takes +lace more on the basis of e)uity generation and less on the basis of debt creation. Islamic economists believe that such a system will be more stable than one in which money is created by e7tending loans and e7+anding credit 4(iddi)i! $0045. -he removal of interest and all its derivatives 4i.e. lending on interest! money market and s+eculation5 will lead Islamic banks to finance investment +ro;ects through BD( 4Brofit-Doss (haring5 basis. 2.1 Summary -he /estern system of +roduction and develo+ment is based on three thingsF economic freedom and self-interest! achievement of ma7imum +ossible +rofit and dominance of market forces 4'annan! 19345. :urthermore! 'annan 419345 argue on this mode of develo+ment as
39

Idevelo+ment as if +eo+le were not matterJ. "lso it is not wide-ranging and many negative outcomes like shortages of demand! weakness of individual interest to achieve +ublic needs! and the discre+ancy between +rivate and social costs and benefits is linked. It seems to a++ear that such kind of develo+ment is usually associated with negative macroeconomic and environmental outcomes such as stagnation! inflation! e7ternal deficits! and environmental degradation. -he main ob;ective of such system is only in increase of ca+ital accumulation so as to get ma7imi&ation of +rofit without +aying any attention to the religious and s+iritual dimensions that tending to social and environmental damages. Islamic develo+ment theory is based on s+reading of develo+ment benefits between massive rural develo+ment and e)uitable distribution of income. It contains social! financial! and s+iritual dimensions. -he general idea and conce+ts related to Islamic bank were discussed in the light of literature. 'oreover! the difference between Islamic and conventional banking and an overview of different +roduct offered by Islamic banks were e7amined.

40

Chapter !ethodo"o#y .0 Introduction Introducing the aim and ob;ectives of the study in cha+ter 1! and reviewing literature

relevant to research )uestions in cha+ter $! 1 and 4 the researcher! in given cha+ter will discusses the as+ect of research methodology that the researcher used to address the research )uestions mentioned in 6ha+ter 1. -he choice of methodology is discussed in detail along with the research methods and strategies that are used in the study. .1 !ethodo"o#y 6erspective In methodology! the theory of how research should be undertaken! including the theoretical and +hiloso+hical assum+tions u+on which research based and the im+lications of these for the method or methods ado+ted 4(unders et. al! $00*5. .2 Research phi"osophy -o attain the research aims and ob;ective it is im+ortant to ado+t both efficient and a++ro+riate methods 4to develo+ knowledge5.-he develo+ment of knowledge and the nature of that knowledge is build through research +hiloso+hy. "ccording to (under et.al 4$00*5 the researcher ado+ts certain essential assum+tions about the way in which he views the world in research +hiloso+hy. 'oreover these assum+tions su++ort the research strategy chooses by a researcher and methods he chooses as +art of that strategy. -he research methodology should be based on scientific +rinci+les to accom+lished research and against which claims for knowledge are evaluated 4:rankfort-0achmias and 0achmias! 199 5. =e+ending on certain conditions different social science researches assume different ty+es such as e7+eriments! surveys! histories and case study having both +ros and cons 4Nin! 19945. :urther he suggests that the condition and situation is a ty+e of research )uestion! and investigator has control over actual behavioural events and the focus is on contem+orary +henomena instead to historical. Aussey and Aussey 4199*5 +ro+ose the methodology an a++roach to the com+lete +rocess of a research study that used different data collection tools to collect and analysed
41

data. Aaving many methodological a++roaches to research! the most suitable to undertaken research will be ado+ted. -he way of thinking or +oint of view of +eo+le may vary for same thing! situation or scenario. In views of researcher@s! it is very im+ortant to look the world as having +eo+le or +rocesses or effectiveness or guiding +rinci+les or actions or language communications or rules and belief systems or motives and constraints but it cannot be all of these 4>ankowic&! $00#5. "ccording to (aunders et al. 4$00*5 all the decisive events faced by the researcher to acce+t or re;ect while collecting data de+ends on researchers ontological +osition. :urther he considers ontology to the things that are very im+ortant and can have their influence on the methodology and data collection techni)ues. Limond 4$0015 describe different as+ect of ontology. -he first is ob;ectivism which de+icts the stance that social entities e7ist in reality e7ternal to social actors concerned with their e7istence. -he second view is sub;ectivist view reveals that social +henomena are formed from the observations and subse)uent actions of social actors. It is a constant +rocess in which these social +henomena are in a constant state of revision through the +rocess of social interaction. -he researcher will launch given research by ado+ting an ob;ectivist a++roach along with a +ositivist +osition. (imilarly another research +hiloso+hy is e+istemology that deals the researcher@s +ersonal theory of knowing. It suggests what to count as knowledge! evidence and +roof and what does not. 'oreover! the researcher will em+loy the best methods to achieve the re)uired knowledge 4evidence5. It is obvious that e+istemology is related to the researcher +ersonal theory of understanding that has im+act on the ado+ted methodology and techni)ues. " researcher could take his own! +rivate ontological +osition if the researcher only concerned about to understand something +rivately but to create a sense of the knowledge it is im+ortant that researcher follow certain rules so +eo+le can agree or disagree >ankowic& 4$00#5. -he truth e7ists se+arately of the +eo+le who search for it and can be establish through the logical deduction or through the set of data as a result in incontestable facts. (imilarly +ersonal beliefs! hunches! feeling intuitions! and emotions do not count as evidence 4(aunders et al.! $00*5. "ccording to >ankowic& 4$00#5! +ositivism is among two a++roaches to +ublic knowledge formation that contains different beliefs about how a researcher can make sense to others. Dikely (under et.al 4$00*5 suggests that +ositivists advocate working with an evident
42

social reality. 'oreover! the im+ortance is on well structured methodology to assist re+lication and the result will be law similarly in natural sciences. "s the main +ur+ose of given research +ro;ect is to analy&e Islamic .anking and its feasibility in %9.-he researcher will study the causal relationshi+ between variables and will therefore the research will be +ositivist or )uantitative in design and data will be +rocessed and analysed deductively. . Research approaches7 . .1 Ceductive and Inductive !ethod -he deductive a++roach usually em+hasi&es on scientific +rinci+les. "ccording to (unders et. al 4$00*5 it moves from theory to data! It involves the im+ortance to e7+lain causal relationshi+s between variables! gathering of )uantitative data! the a++lication of controls to ensure validity of data! the o+erational conce+ts to ensure clarity of definition! a highly +rearranged a++roach! researcher inde+endence of what is being researched and the re)uirement to select sam+les of sufficient si&e in order to generali&e conclusions. :urthermore he argues that on the other hand the inductive a++roach stress on getting an understanding of the meanings humans attach to events. It includes a close understanding of the research conte7t! the collection of )ualitative data! the more fle7ible structure to allow changes of research em+hasis as the research +rogresses! a reali&ation that the researcher is +art of the research +rocess and less concern with the need to generali&e. In view of (aunders et al 4$00*5 deductive research can be finished in a short +eriod of time. .ut there is a need to setting u+ the study +rior to data collection and analysis while inductive research can be more +rolonged. (imilarly! the risk involved to the research to ado+t deductive a++roach is less as com+ared to inductive research. "lso inductive a++roach has greater risk that no valuable data +atterns and theory may a++ear. "s the main +ur+ose of given research +ro;ect is to analy&e Islamic .anking and its feasibility in %9.-he researcher will study the causal relationshi+ between variables and will
43

therefore the research will be +ositivist or )uantitative in design and data will be +rocessed and analysed deductively. . .2 Aua"itative or Auantitative *echni@ue "ccording to (under et al 4$00*5 the two ma;or research a++roaches are )uantitative and )ualitative. It is very im+ortant to use the right a++roach in order to ma7imi&e the +otential of the research e7ercise. Nin 41991! +. *5 stated thatFJQuantitative and )ualitative data are both considered +otentially im+ortant and relevantJ. :urther suggesting that )ualitative research a soft social science interested in mushy +rocess and dealing with inade)uate evidence. On the other hand consider )uantitative research is hardnosed! data driven! outcome oriented and truly scientific. (imilarly 6ormack 4$0005 argues that )ualitative research mainly em+hasis on words that may be in written form or s+eech whilst )uantitative is based mostly on numbers and s+astics. -he )uantitative data is considered to all such data that can be a +roduct of all research strategies. -he rage varies from sim+le counts to more com+le7 data such as test scores! +rices etc. -he data collected is analy&ed and inter+reted to make it understandable. (under et al 4$00*5 suggest that )uantitative analysis techni)ues are hel+ful in such situation. It involves in creating sim+le tables or diagrams that elaborate the fre)uency of occurrence through evolving statistical relationshi+s connecting variables to com+le7 statistical modeling 4(aunders et al.! $00*5. -he )uantitative techni)ue develo+s from the idea of +ositivism tends to e7+lain conce+ts and research results in calculable and sufficient )uantitative term dealing with numbers and anything that is measurable 4Aussey and Aussey! 199*5. 'oreover! it has structured )uestions where the res+onse o+tions have been +rearranged and a large number of res+ondents or sam+les are concerned 4(aunders et al.! $00*5. Common Ci&&erences bet-een Auantitative and Aua"itative Research Strate#ies Auantitative =ata e7+ressed in numbers =eductive 6ontrolled research situations Aua"itative =ata e7+ressed in words Inductive 0aturally occurring and conte7tual
44

Isolation variables

of

o+erationally

defined Aolistic view of +henomena

(eeks ob;ectively ,m+hasis on +rediction and e7+lanation Cesearcher directs! mani+ulates! controls (tatistical analysis 4(ourceM Cudestam and 0ewton! $00*5 .$ Research strate#ies7

Interested in sub;ectively ,m+hasis on descri+tion! e7+loration Cesearchers +artici+ates and collaborates -e7t analysis

"ccording to (under et al. 4$00*5 research strategy will be a general +lan of how researcher will go about answering the research )uestion. Cesearch strategies are systematic and orderly a++roach use to collect and analyse data so as to relevant information 4>ankowic&! $00#5. -here are different strategies usually used in business and management +ro;ect work. -he selection of strategy de+end on the nature and sco+e of the study! the sources of data being used! the +ur+ose in gathering data! the amount of control a researcher is e)ui++ed to use in attaining these data and the assum+tions he makes when analy&ing that data. =ifferent strategies such as e7+licatory! case-study! survey! grounded theory ethnogra+hy! cross sectional and longitudinal studies and e7+erimental method are +ro+osed by different writers such as >ankowic& 4$00#5 (aunders et. al 4$00*5 Likmund 4$0015. "s the research is associated to deductive a++roach the researcher will em+loy survey as a strategy to achieve ob;ectives of the study. .$.1 Survey " systematic a++roach towards getting! mani+ulating and analysing the data to e7tract information is known as research method 4Likmund! $0015. -here are many methods which are used in business and management +ro;ect work. -he selection of method de+ends u+on the nature and sco+e of the to+ic! the sources of data being used! the +ur+ose in gathering data! the amount of control a researcher is +re+ared to e7ert in obtaining these data and the assum+tions he makes when analy&ing that data 4Likmund! $0015. 'any methods for
45

researcher are available such as e7+licatory method! case-study method! survey method and e7+erimental method 4(aunders et. al! $00*F >ankowic&! $00#F Likmund! $0015. (urvey is a method of +roducing +rimary data and is used as a research techni)ue in which information is gathered from a sam+le of +eo+le using a )uestionnaire 4>ankowic&! $00#F Likmund $0015. In view of (aunders et al. 4$00*5 surveys are generally associated with deductive a++roach and are a common strategy in business and management research. >ankowic& 4$00#5 further says that in surveys! you direct your )uestions at relatively larger grou+s of +eo+le who re+resent some larger +o+ulation such that to e7+lore issues largely in the +resent. -he +resent study involves collection of data through )uestionnaire so as to address the research )uestions highlighted above. Aence the researcher will use survey as a method of research. .+ Cata Co""ection !ethod .+.1 Auestionnaire In business and management research! )uestionnaire is used in the +resence of survey strategy because in survey using )uestionnaire the res+ondent is asked to res+ond to the same set of )uestions. It hel+s the researcher to collect data in an efficient manner from a large sam+le +rior to )uantitative analysis 4Likmund 4$0015. Cobson 4$00$5 says that )uestionnaires work best with standardi&ed )uestions such that the researcher is confident that it will be understandable the same way by all res+ondents thus is for descri+tive or e7+lanatory research. (aunders et al. 4$00*5 categories )uestionnaire variables into three ty+es namely o+inion! behavior and attribute. O+inion variables +resent how res+ondents feel about something or believe is correct or wrong 4(aunders et al.! $00*5. 9ee+ing this in view the underline research is more associated to o+inion based variables. /hen the res+ondent has time he agrees to fill the self administrated )uestionnaire so there is greater +robability that res+ondents will take time to think regarding re+lies >ankowic& 4$00#5. .ut the collected res+onses are highly standardised so )uestionnaires are more ob;ective focus. -his is also su++orted by (aunders et al. 4$00*5 that )uestionnaires are very standardi&ed and the )uestions are )uite +lanned that can hel+ in collecting valuable data
46

from the res+ondents. It seems to a++ear that the )uestions and instructions in )uestionnaire should be clear and sim+le because if )uestions or instructions are e7+ressed difficult then there are more chances wrong inter+retations that lead to wrong result and will affect the outcome of the data analysis negatively. Other characteristics are that it is easy to analy&e! data entry and tabulation for nearly all surveys can be easily done with many com+uter software +ackages. 'ost of the +eo+le have e7+erienced about )uestionnaires 4>ankowic&! $00#5. -he main defect in written )uestionnaires is the +ossibility of slow and low res+onse rates. -he low res+onse effects the statistical analysis +rocess that can raise )uestions about the reliability of the results generated from that analysis 4>ankowic&! $0015. -he researcher will overcome from this +roblem by introducing sam+ling techni)ues which can hel+ in achieving high res+onse rates during data collection stage. -he main ob;ective of the research +ro;ect is to analy&e Islamic .anking and its feasibility in %9 which is more close to the o+inion variables! so in this way the o+inion of the customers of the about Islamic banking can be known. -he researcher has taken )uantitative a++roach so )uestionnaire will be a++ro+riate for this +ur+ose. .8 Samp"in# and 6opu"ation (aunders et al. 4$00*5 define +o+ulation as an entire set of cases or grou+ members and sam+le is a +ortion or +art of that grou+. I(am+ling involves any +rocedure that uses a small number of items or a +ortion of +o+ulation to make a conclusion regarding the whole +o+ulationJ 4Likmund! $0015. It is im+ossible for a researcher to survey the whole +o+ulation because some constraints such as time +revent him from surveying the whole +o+ulation that@s why heGshe select a +ortion of it as a sam+le 4>ankowic&! $00#5. In fact now Islamic .ank and their windows in conventional banks are o+erating across the country! so it will be im+ossible to analy&e the whole +o+ulation. -herefore! the researcher will use sam+ling techni)ue to re+resent the whole +o+ulation. 'uslim community +o+ulated areas in %9 will be the +o+ulation in this research study as their feedback will be used to analy&e the Islamic .anking and its feasibility in %9. "ccording to Likmund 4$0015! there are two techni)ues of sam+lingF +robability sam+ling and non +robability. -he +robability sam+les de+end u+on the availability and accessibility of sam+ling frame which is a list of all the individual members of +o+ulation. "s accessibility to
47

obtaining the list of all the customer having Islamic account and finance is im+ossible due to =ata Brotection "ct of the %9 and certain ethical issues! therefore! the researcher will use non +robability 4convenience5 sam+ling wherein the researcher will a++roach those customers which will be most easily available to the researcher. (imilarly! another issues related to sam+ling is to selecting an a++ro+riate sam+le si&e 4Likmund! $0015. " sam+le of 1*0 customers including students following or like to follow Islamic .anking in .irmingham! 'anchester! Dondon! 6ardiff and -refforest areas will be selected using convenience sam+ling .9 Cata Ana"ysis =uring researches 4)uantitative5 data is in raw form. -o make it meaningful! this data needs to be +rocessed 4(aunders et al.! $00*5. :urther! the writers suggest that )uantitative analysis techni)ues such as gra+hs! charts! tables and statistics should be used to e7+lore and e7+lain trends in the collected data. =ifferent software@s are used to analyse )uantitative data such as (B(( 4(tatistical Backage for the (ocial (ciences5! ,7cel! Eisio etc. -he one which is taken for the underlying research is (B(( stand for (tatistical Backage for the (ocial (ciences. (B(( is sim+le to use! easily available and used com+rehensive statistical com+uter +ackage. Eariety of data analysis and +resentation functions such as statistical analyses and gra+hical +resentation of data can be +erformed through (B(( and ,7cel. -he researcher will +roduce different kind of gra+hs during data analysis. -he outcome of each )uestion in a )uestionnaire will be +resented through gra+h. (B(( and ,7cel software will be used for all this. It will be a hel+ful +rocedure to analy&e Islamic .anking and its feasibility in %9.

Research 6hi"osophy 26ositivisim5 2Rea"ism5 2Interpretivism5

48

Research Approaches 2Ceductive5 2Inductive5

Research Strate#ies 2.Dperiments5 2Surveys5 2Case study5 2'rounded theory5 2.thno#raphy5 2Action research5

Bori(ons Cata*ime Co""ection methods 2Cross Sectiona"5 2%on#itudina"5 2Samp"in#5 2Secondary data5 2Observation5 2Intervie-s5 2Auestionnaire5

Chapter $ Ana"ysis $.0 Introduction -he data is collected from the res+ondents through )uestionnaires. -o make it meaningful and informative! the gather data is +ut into tables and charts. -he cha+ter will evaluate the various trends and changes received from the results of )uestionnaires. $.1 Ana"ysis
49

-o make it easy the researcher has divided the )uestionnaire into different sections. It will also be hel+ful to the research during analysis. $.1.1 Respondent pro&i"e3 ,an/in# service @ua"ity and ,an/ se"ection criteria -he )uestionnaire is distribute among the 'uslims while the ma;ority of res+ondent 4##P5 of the )uestionnaire belongs to an age grou+ between $ and 40! most of them are male 43 P5! well educated having income level between 11!000 and $#!000 and mostly 4#1P5 %9 'uslim citi&ens. "ll of the res+ondents having bank account 4conventional banks or Islamic banks5. (ignificant 444P5 figure of number holding one account at a time but there were a ma;or +ortion 419P5 of +eo+le used two banks at a time. -hey have 4 *P5 both ty+e of account current and saving accounts while ;ust 13P have only current and 1#P have only saving account. 'ost of the +eo+le visit their banks once in a month 441P5 and once in a week 441P5 and very few 4#P5 of them goes regularly and 11P goes after more than a month. It was also reveal that about *$P of the +eo+le were satisfied from their bank ;ust $3P were not satisfied from their banks. -o find out the satisfaction level about different service )uality offered by their banks! different +arameters were set by the researcher ranged from the very low to very high. 'a;ority of the +eo+le selected the +arameter of average and high )uality regarding various banking service such as 4*P of the +eo+le ranked averaged level and ;ust 11P were highly satisfied from various banking o+erations. (econdly! the res+ondent +ut their bank foreign e7changes services 4*P by averaged and $*P in high )uality. 0e7t the res+ondent declared that the level of de+osits service offered by their banks is average 44*P5 and at the same time some consider high )uality 411P5 of de+osit services. -he forth )uestion was regarding working loan ca+ital. 4 P of the user showed their level of satisfaction is averaged while 11P believe that their banks offered high )uality of working loan ca+ital. -he fifth )uestion was regarding investments loans ca+ital facilities. "lmost #1P of the +eo+le re+lied that their banks offered them average 4#1P5 )uality of investments service. "t the same time some of the customers were highly satisfied 4$9P5 from their banks regarding given service. (imilarly another )uestion was about financial consulting services +rovided by customers@ banks. -he result was same like +reviously. 0early most of the +eo+le considered their banks gave them average )uality services 4#1P5 of financial consultancy services. "lso some of the res+ondent declared that their banks offered them high )uality 4$#P5 of financial consultancy services. -he last )uestion asked from the res+ondent was about information services
50

+rovided by their banks when they re)uired. (ome of the user believed that their banks offered them this facility of an average )uality 4115 while most of them +eo+le said that they received high )uality of services 4#4P5 in such case. -he given analysis de+icts that most of banks +rovide their customers good )uality banking services even some of them are of high )uality while a small +ortion of res+ondent were not ha++y from their banks facilities which they reveal by grading them very low or low )uality. -o find out the elements necessary for a +ros+er relationshi+ between client and their banks! )uestions regarding services delivered by the bank! bank si&e and re+utation! im+ortance of its location and friendless of banking staff were asked. * P of the res+ondents deem that it is very im+ortant to deliver good services to client. Dikewise # P suggest that bank si&e and re+utation is very im+ortant. " )uestion concerning bank si&e! most of the res+ondents 4 1P5 believe that it is very im+ortant while ;ust 9P said it less im+ortant. In the last asking them about bank staff behavior! most of the res+ondents believe that it is very im+ortant 431P5 that the staff should be friendly. In brief good service delivery! si&e and re+utation of the bank! its location and friendliness of banking staff are most im+ortant constrains while o+erating in a com+etitive environment. A#e 220=2+5 $9P 'ender 2!a"e5 3 P %eve" o& .ducation ,e"o- 'CS. $#P %eve" o& Income 2"ess then 10/5 19P Current residentia" 201 citi(en5 status #1P -able 4.1 4Ces+ondent +rofile5 ,an/ account Gumber account di&&erent ban/s Account type 2Fes5 93P o& 2One5 in 44P 2Go5 $P 2t-o5 19P 2Savin#5 1#P 2Once in a -ee/5 41P 2Go5 228=$05 ##P 2)ema"e5 14P 'CS. 1$P 211/=2+/5 4$P 2Resident Eisa5 1*P 2$1=8+5 1 P 'raduate $#P 228/=$0/5 1 P 2Student5 1$P Over 8+ 0il 6ost#raduate 13P 2$1/=80/5 1P -

2three5 1*P ,oth *P 2Once in a month5 41P -

2Current5 13P ,an/ visit 2Re#u"ar5 #P Satis&action &rom 2Fes5

2!ore than a month5 11P 51

ban/ *$P $3P -able 4.$ 4Information regarding res+ondent bank5 Services Operations Ce#ree )orei#n eDchan#e Ce#ree deposits Aua"ity Eery "o9P o& $0P o& 11P

Avera#e 4*P 49P 4*P

Bi#h Aua"ity 11P $*P 11P

Eery Bi#h Aua"ity 11P 4P 9P

Ce#ree o& 11P 4 P 1#P 3P -or/in# capita" "oan Ce#ree 1$P #1P $9P P investment "oan services )inancia" 1$P #1P $#P 1$P consu"tin# services In&ormation #P 11P #4P 11P provided by ban/ -able 4.1 4Information regarding res+ondents banking service )uality5 Eery important important !oderate"y important Service de"ivery *P to c"ient ,an/ si(e and # P reputation ,an/ "ocation 1P 19P 19P 1$P 14P 1 P 1 P 3P %ess important 0P 9P 11P 0P

)riend"iness o& 31P 9P ban/in# sta&& -able 4. 4.anking selection criteria5

$.1.2 Respondent invo"vement -ith Is"amic ban/in#Hpersona" opinion -his section was to look the res+ondent +artici+ation in Islamic banking. -his was done by asking them different )uestions. -he first )uestion was to know that do the +eo+le know
52

about Islamic banking in %9. -he result clearly shows that most of the +eo+le 431P5 in %9 are aware that Islamic banks and Islamic windows are working actively in %9. " minor number were not sure 41P5 and only 14P said that they do not know that Islamic banks and Islamic window currently o+erating in %9. (econdly it was asked from the res+ondent that ever they used Islamic banking. 0early # P of the +eo+le re+lied that they never used Islamic banking while there was also a handsome amount 44$P5 of +eo+le that used Islamic banking and a small +art 4$P5 of the sam+le answered that they did not know about it. " )uestion in which it was asked from res+ondent about the current banking situation in relation with Islamic banking! most of them answered that they are not sure 44*P5 regarding it while 1$P answered no and $1P re+lied yes that Islamic banking has the +otential to overcome from such a situation. -he ne7t )uestion in this section was checking the level of customer satisfaction of Islamic banks. It was obvious that many of the res+ondents 44$P5 declared that they have average satisfaction level! 4$9P5 were not sure and 14P were not satisfied. -hese was another )uestion to highlight that introduction of Islamic banking was due to interest offered by conventional banking which is +rohibit in Islam! 14P were absolutely agree! 4#P were ;ust agree! *P were not agree while $9P were not sure about this conce+t. Dikely! asking the reason of choosing Islamic banking! the large number of res+ondents 4#1P5 re+ly was in favour of religion. Other $0P said no idea while small number 41#P5 considers it that they follow Islamic banking both religiously and economically! 1P chose ;ust economically and 9P select other reasons. In the last when it was asking from the res+ondent about similarities of +roduct between Islamic banking and conventional banking. 41P of the +eo+le were not sure! 1#P declared it untrue while a small +ortion 44P absolutely agree and 13P agree5 of +eo+le were in the su++ort that the +roduct offered by both banks are nearly similar. It is concluded that most of the res+ondent have information about %9 Islamic banking but large number of res+ondent do not use it. 'ost of the res+ondents are not sure that Islamic banking has +otential to overcome from +resent banking crises. -he +eo+le who use Islamic banking are satisfied from their banks. -hey also suggest that the conce+t Islamic banking is introduce because interest is +rohibit in Islam and they follow Islamic banking due +rohibition of interest on religion basis. (imilarly many +eo+le were unsure about similarities of +roduct among Islamic and conventional banking while a large +art of +eo+le believe that there is no similarities between their +roducts. In&ormation about 2Fes5 2Go5 2Got sure5 53

Is"amic ,an/in# in 31 01 0sa#e o& Is"amic 4$P

14P # P 1$P

1P $P 4*P -

ban/in# 6otentia" in Is"amic $1P ban/in# to overcome present situation %eve" o& Is"amic 2Eery satis&ied5 ban/in# satis&action 1#P

2Avera#e5 4$P 2A#ree5 4#P

2Got Satis&ied5 14P 2Got sure5 14P

2Got sure5 $9P 2Got a#ree5 *P

Introduction Is"amic 2Abso"ute"y a#ree5 ban/s because o& 14P o& prohibition

interest Simi"arities bet-een 4P products o& I, and C, Se"ectin# Is"amic 2Strict"y re"i#ious5 #1P

13P

41P

1#P

2,oth re"i#ious 2.conomic5 and economic5 1#P 1P

2Go idea5 $0P

2Other reasons5 9P

product because o& interest prohibition -able .4

$.1. Attitude to-ards princip"es o& Is"amic ban/in# -he section contained )uestion regarding users attitude towards Islamic banking +rinci+les on which it o+erate. -he first was to ask about mutual coo+eration between the bank and it clients. 'ost of the +eo+le +rovided 4 4P5 consider it very necessary! $*P announced it unim+ortant while remaining 9P were unsure. In a )uestion to ask about sharing the +rofit and loss instead of fi7ed interest from lender of the bank! 4*P of the res+ondents were not sure about it while at the same time 1#P su++ort the conce+t while remaining 13P that they do not want 4BD(5 with the bank. Dikewise *4P of them agree that they will not demand for any financial gain from the banks if they are not following +rofit and loss sharing 4BD(5 model! only 1$P re+lied they will demand while 14P were not sure. On a )uestion relating to investment +oint of view! greater number of res+ondent 43 P5 believes that they want to share the risk with the bank! 1P re+ly InoJ whereas 11P were not sure. 6orres+ondingly! asking that will they +refer to +ay fi7ed amount of interest on borrow money even making a
54

little +rofit or loss! the ma;ority 4*9P5 re+ly were against and believe that they would not +refer to +ay a fi7ed amount in return! 4P su++ort it and 1*P were against it. On a )uestion relating to o+ening new branches! most of the +eo+le 4 #P5 suggest that o+ening new branches will increase the number of customers to use Islamic banking! 1 P said InoJ and only 19P were not sure. -he given section illustrate that attitude of most of the res+ondent like mutual coo+eration between the bank and client! many of them were not sure about their comfortable level after getting money from bank. (imilarly they do not want any financial gain if they are not following BD( conce+t and also they want to share their risk with banks in case of investment received from the bank. (imilarly the res+ondent said that introducing new Islamic banks branches will encourage more +eo+le to used Islamic banking. 6rincip"es Attitude Fes 4P 1#P

Go $*P 13P 1$P 1P *9P

Got sure 9P 4*P 14P 11P 1*P

!utua" Cooperation bet-een c"ient and ban/ 6re&erred to -or/ on the princip"e o& 6%S

Co not -ant any &inancia" #ain i& have not *4P share business ris/ -ith ban/ Want ris/ sharin# on borro-in# investment 3 P money -ith ban/ Wi"" pre&er to pay &iDed amount to ban/ on 4P borro-in# money even to ma/e pro&it or "oss Ge- branch encoura#e Is"amic ban/in# -able .# #P

1 P

19P

$.1.$ %eve" o& a-areness amon# !us"im about di&&erent Is"amic ban/in# contracts Islamic banking offer different +roducts and contracts. .elow is the table shows a summary of various +roducts offered by Islamic banks and Islamic windows offered in %9. -he awareness usage of Islamic current account among res+ondent is 11 P while ma;ority 4# P5 of the +eo+le believe that they will not use it and 11P among the res+ondent were unaware. (imilarly asking about Islamic de+osit account! most of the +eo+le 4# P5 were aware about it
55

but don@t want to use it! 11P of users were aware about Islamic de+osit account and using it while $4P of the +eo+le have no idea and were not aware. In case of other Islamic contracts such as 'urabaha! 'usharaka! 'udaraba! I;ara! travelers che)ues! money orders! overdrafts! automated self services! services of letter of credit! guaranties! -awaful and (ukuk offered by Islamic banks and Islamic windows! ma;ority 4 0s-*0s +ercent5 of the res+ondent were unaware that Islamic banks given these facilities and did not know too about all these Islamic banking terms. Only a few 11P-19P of the user were aware and were using and ;ust 1*P$$P of the res+ondent were aware but would not use it.

Is"amic 6roducts

ban/in# %eve" o& a-areness I am not a-are I am -are that I am -are that Is"amic ban/ o&&er Is"amic ban/ o&&er it and I -ou"d use it it and I -ou"d not use it # P 41P $$P 13P $$P 13P $1P 13P $$P 13P $$P
56

Is"amic ban/ o&&er it

Current Account Ceposit

11P

11P 11P 11P 19P 11P 11P 11P 11P 11P 11P 11P

account $4P #P 1P *P 9P P *$P *1P se"& $P 4P

2savin# account5 !urabaha !ushara/a !udaraba Ijara *rave"ers che@ues !oney orders Overdra&t Automated

service Service o& %etter o&

credit 'uaranties *a/a&u" Su/u/ -able 4.

*1P *0P 3P

11P 11P 1#P

13P 1*P 1*P

Chapter + )indin#3 Conc"usion and Recommendations +.0 Introduction "fter introducing analysing data in 6ha+ter 4! the researcher! in this cha+ter! draws findings and recommendations based on the analysis of data. +.1 )indin#s o& the Study -he characteristicsG+rofile of the res+ondent! their attitude toward general usage of banking is already discussed in the "nalysis cha+ter. "t the same time to e7amine the res+ondent involvement in Islamic banking was measured and it came to know that the ma;ority 431P5 of the +eo+le know the e7istence of Islamic banking in %9 but the matter of concern is that a large +ortion 4# P5 of the sam+le were not using Islamic banking. " studied did by <errard and 6unningham 4199*5 also suggested the +oor involvement of 'uslims community in (inga+ore. 6orres+ondently on asking that Islamic banking has +otential to overcome the banking crises! 1$P of the res+ondent believed that it is not +ossible and 4*P were not sure. -his is o++osed to the literature in cha+ter $ where Islamic economist such as (iddi)ue 4$0045 and other suggests that against conventional banking in IIslamic monetary system! money creation takes +lace more on the basis of e)uity generation and less on the basis of debt creationJ. (imilarly most of the 'uslims 441P5 did not differentiate the Islamic banking +roduct from conventional banking +roducts by choosing Inot sureJ o+tion. -he 'uslims were agreeing on the +oint that Islamic banking is introduced due to interest +rohibition in
57

Islam. It also seems into the )uestionnaire analysis that the 'uslims are following Islamic banking due to religious factor 4#1P5. 'etawa and "lmossawi 419935 and 0aseer! >amal and "l-9hitab 419995 also find in their studies that the 'uslim mostly follow Islamic banking due to their religion. -he Islamic banking is +ractically im+lemented but its +ractices are limited. <eneral +ublic 4common 'uslims5 are not getting advantages from it. :rom the analysis 4 4P5 +eo+le are in favour of mutual coo+eration among the bank and client. .ut at the same time large +art 413P5 of de+ositor did not want any deduction in their de+osit while only 1#P were agreed to follow this conce+t. -his shows that res+onse of res+ondent was based on +ure financial +rinci+les where they do not want any risk. One reason may be the +oor involvement of de+ositor from the banks. -he banks do not involve their de+ositors while starting a +ro;ect. -his conce+t 4BD(5 can get success if the de+ositor will take into confidence. (econdly from lender +ers+ective the main reasons of failure are strict rules of Islamic banking. 'a;ority 43 P5 of the +eo+le a++reciate the conce+t of BD( as in Islamic banking is a++reciable but the criteria of Islamic loan a++roval are too hard that it becomes very difficult for common +eo+le to borrow money and invest while conventional banking has easy and sim+le +rocedures for different loans and o+erations. In this way increase their number of clients and business and make them loyal. (imilarly! Islamic banking wastes many of its resources while analysing and dealing with borrower +ro;ect. -hough today Islamic banking is in +ractice but it has no difference with conventional banking. It is argued that Islamic banking is not very much beneficiary to an ordinary 'uslims as com+ared to conventional banking. -he findings of <errard and 6unningham 419995 also suggest that ma;ority of the 'uslims will withdraw or transfer their money from one Islamic banks to another in case of any loss ha++en while from borrower +oint of view most of the borrower argued that they +referred to share the risk of investment with the bank. It seems to a++ear a general lack of awareness about Islamic banking. 6ommon 'uslims ;ust heard the name of Islamic banking but in reality they have no idea or did not know its conce+t. -he same situation +revails regarding the +roducts offered by Islamic banking. 'uslims general +erce+tion towards Islamic banking and finance was not satisfactory. In most of the cases more than 0P of the +eo+le were found to be unaware about different Islamic banking +roducts. Dikely many +eo+le could not differentiate Islamic banking
58

+ractices from conventional baking +ractices. Islamic banks have to ado+t +romotional strategies like conventional banks do. (ince it is suggested Islamic banking need a strong +romotion cam+aign throughout the %9 in order to target this area and to benefit the community 4'uslims5 as a whole. (imilarly results were indicated by <errard and 6unningham 4199*5 when investigating the degree of awareness of the Islamic banking system in (inga+ore where 'uslims are also in minority. -hey suggested that there was a general lack of awareness of the culture of Islamic banking in Islamic and non- Islamic communities. (imilarly a research held in >ordan by 0aseer! >amal and "l-9hitab 419995 disclosed that Ia large +art of res+ondents were aware of the s+ecific features of Islamic banking but they were not using those featuresJ. :urther they suggest that it is not necessary that the 'uslims who are residing in Islamic states will +ossibly invest in every ty+e of Islamic banking service. .oard meetings are im+ortant element towards cor+orate governance framework within com+anies. "lso Islamic banks and Islamic banking windows offer Islamic banking as a tool to retain its customer! so as to avoid their customers and clients from diverting. In other words Islamic banking e7ists conce+tually but not +ractically. -he awareness strategies of conventional banking are far better as com+ared to Islamic banking that@s why they are more successful. It seems to a++ear that Islamic banks should make their o+erations easy as much as +ossible and try to launch such +rogrammes that make awareness among the common 'uslims. Aence! Islamic banking is ;ust a way to follow the religious as+ect of 'uslim community. It seems to a++ear from the finding the conce+ts of Islamic banking among the 'uslims in the %9 are not clear. -hey have lots of contradictions regarding Islamic banking model and conventional banking model. -he 'uslims are divided among various sects 4(unnis! (hias etc5! so there is a need to +resent a general conce+t of Islamic banking with the hel+ of (heria (u+ervisory .oard 4((.5 that is easy and understandable to general 'uslims +eo+le. "nother reason of +oor Islamic banking awareness is that 'uslims in %9 are in minority. It@s a common +henomena that ma;ority overcome minority. "lso most of the 'uslim generation grow u+ here 4in %95. -heir thinking and ideas are diluted along with %9 culture. It@s very difficult to build u+ an alternative banking system in such society while it easy to develo+ an
59

Islamic banking where 'uslims are in ma;ority or in 'uslim country. -his also su++orted by <errard and 6unningham 4199*5 who conducted their study about Islamic banking in (inga+ore. -he researches taken +lace by <errard and 6unningham 4199*5 in (inga+ore! by 0aseer! >amal and "l-9hitab 419995 in >ordan and 'etawa and "lmossawi 419935 in .ahrain analyse the awareness of Islamic banking among the 'uslim communities. 'uslims are in minority in (inga+ore but are in ma;ority in >ordan and .ahrain because both Islamic countries. -he attitude and awareness in these 'uslims countries was greater as com+ared to (inga+ore where 'uslims are in minority.

+.2 Conc"usion -he analysis suggested that most of the res+ondent were of young age males. -hey had a very good educational level along with good earning level and were %9 citi&ens. "ll of them had bank accounts both current and saving account in more than one bank! visiting their banks once in a week or month. -hey were enough satisfied from their holding banking services and )ualities. 'a;ority of the res+ondent are currently using Islamic banking or had used. -he res+ondent are +retty much aware about Islamic banking e7istence in %9 but there level of satisfaction was not that much high and was ;ust fine. 'uslims attitude towards Islamic banking were of the o+inion that solely religious reasons motivate +eo+le to de+osit money with Islamic banks. 'ost of the +eo+le have no sense to make differentiate between Islamic and conventional banking +roducts. It is also observed that most of 'uslims agree that by o+ening more branches will encourage more +eo+le to use the services of an Islamic bank and will become facilitate from Islamic bank services. -hus there need more awareness regarding the culture of Islamic banking and meaning of fundamental terms used Islamic banking and finance. Dikely the borrower of Islamic bank want to share his investment risk with the given Islamic bank but at the same time the de+ositor who de+osit their funds in Islamic banking do not want any financial gain on their money if they are not sharing any business risk. -his shows that most of the de+ositors will be ha++y to get certain return from their banks without sharing any business risk. :rom the study in the conte7t of Islamic
60

financial terms many of the +artici+ants did not e7+lain the conce+t of 'urabaha! I;ara! 'odaraba! 'usharaka etc correctly. -his indicated the very +oor awareness of the culture of Islamic banking in %9. In )uestions regarding bank selection criteria! large number of the res+ondent recommended that service delivery of the banks! si&e and re+utation! location and +arking facilities and friendliness of bank staff are some of the characteristics +ut in mind while choosing their bank. -here is a severe need to launch an informative advertising to describe the culture of Islamic banking. "lso 'uslim activist grou+s should bring awareness among the community by launching and organising various +rogrammes that boost Islamic banking and finance in %9.

+. Recommendations -here are a number of ma;or im+lications for local banks which arise from the results of this study. In the light of the +resent research! the researcher has made certain recommendations. -he success of every organisation de+ends on service )ualities they offered to their customers. Aence! Islamic banks re)uired to introduce and im+lement +ossible service )uality +rograms. 6onversely! failure to do may result serious difficulties in holding their e7isting customers and attracting new ones. -herefore! Islamic banks should observe the +ractices offered by their successful counter+art 4conventional banks5 in order to im+rove the )uality of their services. -he Islamic banks also need highly )ualified management team dedicated toward the success of the Islamic banks. -hey must launch different skilful and training +rograms that may act as a useful instrument for im+roving +rofessionalism and managerial com+etences among Islamic bank staff. It is obvious from the findings and analysis that most of the Islamic bank customers belong to young and have a high income. 9ee+ing in view! the
61

Islamic banks should formulating and launching suitable saving and financing schemes that target the customers in those income and age grou+s. One of the ma;or +roblem concerning was found lack of awareness and usage of most +roducts and services investigated in the study. (ince there is a vital need of +re+aring and em+loying effective advertising and +romotional strategies to boost the +ercentage of usage of +resent and new Islamic banking +roducts and services. Increase the number of Islamic banking branches will also boost Islamic banking and at the same time will increase the number customer. -he customers will find Islamic banking in their local area and in this way will available to all the common 'uslims instead of ;ust limited to few big cities. Islamic banks should hire renowned scholars of the 'uslim world that build u+ Islamic banking conce+ts and +roducts on the basis of Islamic (hariah 4Daw5! so as +eo+le have s+eculation about +ractical Islamic banking. -his will bring clarifications to Islamic banking conce+t. (imilarly Islamic banks should build u+ a strong network such that they integrated several of their o+eration with each other. -hey need to im+rove their service delivery o+erations! should introduce friendliness staff so as to satisfy their customer and make them loyal. (imilarly the benefits of Islamic banking are now en;oying a few +eo+le. -he common 'uslim has getting no advantage at the moment. -here is a sever need to introduce such a reforms to bring close that large +art of the general 'uslims. -he conce+t of get loan is too com+licated in Islamic banking and is very strict as com+ared to conventional banking. -o restore investor and borrower confidence Islamic banks should make their +rocedures and +rocesses easy and sim+le.
62

 -he %9 government must make certain amendments in banking "ct such that Islamic banking o+erates with full fledge throughout the country. "lso the model and rules of Islamic banking are not constant. =ifferent Islamic banks follow different model. Aence! there is an inconsistency among Islamic banking +rocedures. "ll the Islamic banks should develo+ their common acce+table Islamic banking model.

Re&erences "bdulmalik! ". 4$00 5! IIslamic finance 8 rising to the challenge of +henomenal growthJ! "rab .anker! 1 >une. "bu <hudda and "bdul (attar 4$0015! I-he foundation! ob;ectives and +ractices of (hari@a su+ervisory boardJ! +a+er +resented at ""OI:I 1st "nnual 6onference of ((.s 4in "rabic5. "l-"rabi! '.". 419 5! I6ontem+orary banking transactions and Islam@s views thereonJ!

Islamic Ceview 4Dondon5! 'ay! ++. 10-1 . "lam! '. 4$00 5! IIslamic financeM going strongJ! Oman ,conomic Ceview! Eol. $1! >une. "l-Cefai! '.". 4$00 5! I%nicorn Investment .ank enters BakistanJ! media release! %nicorn Investment .ank! .ahrain! available atM www.unicorninvestmentbank.comG "l-(adr! '... 419*45! "l-bank al-la rabawi fil-Islam 4Interest-:ree .ank in Islam5! >ami al0a)i! 9uwait.
63

"lvi! I. 4$00 5! I-he state of the Islamic ca+ital marketJ! +a+er +resented at the II:' /orksho+ "rekat! L. 4$00 5! IIslamic :inance :orumJ! Islamic :inance 0ews! Eol. 1 0o. 1! +. 19. "riff! '. 419335! Islamic .anking! "sian-Bacific ,conomic Diterature! Eol. $ 0o. $! ++. 434. ""OI:I 4$00 a5! ,7+osure =raft of (tatement of <overnance Brinci+les for Islamic :inancial Institutions! ""OI:I! .ahrain! ++. 1-1 . "bdulla! ". 4$0015! I-he relation between (hari@a su+ervisory board and central banksJ! +a+er +resented at ""OI:I 1st "nnual 6onference of ((.s 4in "rabic5. "hmed! L. 419945! IIslamic bankingM state of the artJ! Islamic ,conomic (tudies! Eol. $ 0o. 1! ++. 1-14. .ahrain 'onetary "gency 4199*5! Quarterly (tatistical .ulletin! Eol. $1 0o. 1. .ashir! '. 419995! ICisk and +rofitability measures in Islamic banksM the case study of two (udanese banksJ! Islamic ,conomic (tudies! Eol. 0o. $! ++. 1-$ .

6ader! (.". 4$00*5! I-he glass has yet to become fullJ! Islamic :inance 0ews! Eol. 4 0o. $0! ++. 13-19. 6ha+ra! '.%. 4193#5! -owards a >ust 'onetary (ystem! -he Islamic :oundation! Deicester. 6roft! >. 4$00*5! KK%9 banks are catching u+@@! <ulfnews! $ >anuary! +. 9! available atM www.gulfnews.com 6ha+ra! '.%. 4$0005! KK/hy has Islam +rohibited interestU rationale behind the +rohibition of interest@@! Ceview of Islamic ,conomics! Eol. 9! ++. #-$0.
64

6houdhury! ".' and Aussain! '. ' 4$00#5 I" +aradigm of Islamic money and bankingJ International >ournal of (ocial ,conomics Eol. 1$ 0o. 1 ++. $01-$1* =aoud! A. 4199 5! I(hari@a 6ontrol in Islamic .anksJ! International Institute of Islamic -houghts! Aerndon! E". =ar! A. and Bresley! >.C. 4$0005! KKDack of +rofit loss sharing in Islamic bankingM management and control imbalances@@! International >ournal of Islamic :inancial (ervices! Eol. $ 0o. $. =ar! A. 4$0015! IAandbook of International .ankingJ! ,dward ,lgar! 6ha+ter 3. =;o;osugito! C. 4$0035 I'itigating legal risk in Islamic banking o+erationsJ Aumanomics Eol. $4 0o. $!!++. 110-1$1 =usuki! /. " 4$0035 I.anking for the +oorM the role of Islamic banking in microfinance initiativesJ Aumanomics Eol. $4 0o. 1! ++. 49,brahim! ( .' and >oo! 9.- 4$0015 IIslamic banking in .runei =arussalamJ International >ournal of (ocial ,conomics! Eol. $3 0o. 4! ++. 114-11*. ,l-"shker! ". 4199#5! Brofit Inde7 as a (ubstitute of DI.OC in Islamic .anking O+erations! Islamic Cesearch and -raining Institute! >eddah ,l-=iwany! -. 4$00 5! IIslam todayM is Islamic banking IslamicUJ! available atM www. interactiveislam.com ,l-<ha&ali! ".A. 419945! Brofit Eersus .ank Interest in ,conomic "nalysis and Islamic Daw! Islamic Cesearch and -raining Institute! >eddah. ,rrico! D. and :arahbaksh! '. 419935! KKIslamic bankingM issues in +rudential regulations and su+ervision@@! working +a+er no. 93G10! International 'onetary :und!/ashington! =6.

65

:rankfort-0achmias! 6.! 0achmias! =. 4199 5 Cesearch 'ethods in the (ocial (ciences! "rnold! Dondon! <errard! B. and 6unningham! >... 4199*5! HHIslamic bankingM a study in (inga+oreRR! International >ournal of .ank 'arketing! Eol. 1# 0o. ! ++.$04-1 . <hafoor! ".D.'.". 419995! Islamic .anking and :inanceM "nother "++roach! "++tec Bublications! -oronto. <hannadian! :.: and <oswami! < 4$0045J=evelo+ing economy bankingM the case of Islamic banksJ International >ournal of (ocial ,conomics Eol. 11 0o. 3! ++. *40-*#$ <ulf 0ews 4$00 5! I-akafulM a market with great +otentialJ! <ulf 0ews! 1 (e+tember. <raham! C. 4$00 5! I(hariah com+liance is a riddle 8 but true riddles always contain the answerJ! Islamic :inance 0ews! Eol. 4 0o. 11! +. 1$. Aarisman 4$00 5! IIndonesia Islamic banking share seen u+ 8 6entral .ankJ! media release! .ank Aaron! (. and "hmad! 0. 4$0005! I-he effect of conventional interest rate and rate of +rofit on funds de+osited with Islamic banking system in 'alaysiaJ! International >ournal of Islamic (ervices! Eol. 1 0o. 4! ++. 1-9. Aaron! ( and "&mi! /.0 4$0035 I=eterminants of Islamic and conventional de+osits in the 'alaysian banking systemJ 'anagerial :inance Eol. 14 0o. 9 ++. 13- 41 Aassan! A. 4$0015! I-he relation between (hari@a su+ervisory board and e7ternal auditorsJ! +a+er +resented at ""OI:I 1st "nnual 6onference of ((.s 4in "rabic5. Aobson! (. 4$00 5! IBro;ect financing 8 risks underlying sukuk structuresJ! Islamic :inance 0ews! Eol. 1 0o. 44! +. 1#. Aomoud! (.A. 419945! IBrogress of Islamic banking the as+iration and realitiesJ! Islamic ,conomic (tudies! Eol. $ 0o. 1! ++. *1-30
66

Aussey! > and Aussey! C 4199*5 .usiness CesearchM " +ractical guide for undergraduate students! Aamshire!DondonM'acmillan Bress Dtd. Ibrahim! ". ,. . 4$00 5 -he KKmissing links@@ between Islamic develo+ment ob;ectives and the current +ractice of Islamic banking 8 the e7+erience of the (udanese Islamic banks 4(I.s5 Aumanomics Eol. $$ 0o. $! ++. ##I)bal! '. 419935! IIslamic bankingJ! in 9ahf! '. 4,d.5! Dessons in Islamic ,conomics! Islamic Cesearch and -raining Institute! >eddah! ++. 491-#$4. Islamic =evelo+ment .ank 4I=.5. 4$00$5! "nnual Ce+ort! I=.! >eddah. Islamic :inancial (ervice .oard 4I:(.5 4$00#5! I<uiding +rinci+les on cor+orate governance for institutions offering only Islamic financial servicesJ! ,7+osure =raft 0o. 1! 'alaysia! +. 10. International Aerald -ribune 4$00*5! I'alaysia rela7es foreign ownershi+ rules for Islamic banksJ! available atM www.iht.com Indonesia! available atM www.;og;acity.com Institute of Islamic .anking and Insurance Dondon 4II.ID! $0095 M http://www.islamicbanking.com/aom/takaful/i shaki!.php

Islamic .ank of .ritain 4$0095 available atM htt+MGGwww.islamic-bank.com Islamic :inance -raining 4$00*5! I'anaging Islamic fundsJ! available atM www.islamicfinancetraining.com >ankowic&! ". = 4$00#5! .usiness research +ro;ects! 4th ,d. Dondon -homson Dearning. 9aminsky! <.D. and Ceinhart! 6.'. 419935! HH:inancial crises in "sia and Datin "mericaM then and nowRR! "merican ,conomic Ceview! Eol. 33 0o. $! ++. 444-3.
67

9arim! C.".". 419905! I-he inde+endence of religious and e7ternal auditorsM the case of Islamic banksJ! "ccounting! "uditing Q "ccountability >ournal! Eol. 1 0o. 1! ++. 14-44. 9halee; -imes 4$00*5! I(ukuks key to meeting 21.#tr infrastructure needs of ',! "siaJ! 9halee; -imes. 9han! '.'. and .hatti! '.I. 4$00 5! I/hy interest-free banking and finance movement failed in BakistanJ! Aumanomics! Eol. $$ 0o. 1! ++. 14#- 1. 9han! '. ' and .hatti! I. ' 4$0035 IIslamic banking and financeM on its way to globali&ationJ 'anagerial :inance Eol. 14 0o. ++. *03-*$# 9han! '. ' and .hatti! I. '. 4$0035 I=evelo+ment in Islamic bankingM a financial riskallocation a++roachJ -he >ournal of Cisk :inance Eol. 9 0o. 1! ++. 40-#1 'etawa! (.". and "lmossawi! '. 419935! KK.anking behaviour of Islamic bank customersM +ers+ectives and im+lications@@! International >ournal of .ank 'arketing! Eol. 1 0o. *! ++. $99-111. 'atthews! O. 4$00#5! IAow the west came to run Islamic banksJ! 0ewsweek International ,dition! 11 October. 'aududi! (.".". 419 15! Interest! Islamic Bublications! Dahore. 'okhtar! "! "bdullah! 0. and "lhabshi! '.( 4$0035 I,fficiency and com+etition of Islamic banking in 'alaysiaJ Aumanomics Eol. $4 0o. 1! ++. $3-43 0a)vi! (.0.A. 4193$5! ,thics and ,conomicsM "n Islamic (ynthesis! -he Islamic :oundation! Deicester. 0aser! 9.! >amal! ". and "l-9hatib! 9. 419995! KKIslamic bankingM a study of customer satisfaction and +references in >ordan@@! International >ournal of .ank 'arketing! Eol. 1* 0o. 1! ++. 11#-#0.

68

0athan! (. and Cibiere! C 4$00*5 I:rom knowledge to wisdomM the case of cor+orate governance in Islamic banking EI0,M -he ;ournal of information and knowledge management systems Eol. 1* 0o. 4! $00* ++. 4*1-431 Qureshi! ". 4194 5! Islam and the -heory of Interest! (haikh 'uhammad "shraf Bublishers! Dahore. Caimi! D and 'obola;i! A! I 4$0035 IIm+erative of economic integration among 'uslim countriesJ Aumanomics Eol. $4 0o. $! ++. 110-144 Cana! :.A. 4$00 5! I<rowing business +ros+ect of Islamic bankingJ! -he =aily (tar! $3 "ugust. (aunders! '.! Dewis! B.! -hornhill! ". 4$00*5! Cesearch 'ethods for .usiness (tudents! Brentice Aall. (iddi)i! '.0. 419 *5! .anking /ithout Interest! Islamic Bublications! Dahore 4in %rduF revised ,nglish version! -he Islamic :oundation! Deicester! 19315. (iddi)i! '.0. 4$0005! KK,volution of Islamic banking and insurance as system rooted in ethics@@! Broceedings of the -akaful :orum 4"+ril5! 0ew Nork! 0N. (iddi)ui! " 4$0035 I:inancial contracts! risk and +erformance of Islamic bankingJ 'anagerial :inance Eol. 14 0o. 10! ++. 30- 94 (ufian! :. 4$00*5 I-he efficiency of Islamic banking industry in 'alaysiaJ Aumanomics Eol. $1 0o. 1! ++. 1*4-19$ (ukuk! II:'! available atM www.iifm.net (ukuk 4$0035! available atM http://sukuk.n"t/n"ws/a!ticl"s/3/#n o$"!$i"w of %ukuk.html (ultan! (."...'. 4$00 5! I"n overview of accounting stardards for Islamic financial institutionsJ! Islamic :inance 0ews! Eol. 1 0os 10G11! ++. 10-11.
69

-ett! <. 4$00 5! I.anks seek Islamic scholars versed in financeJ! :inancial -imes! 19 'ay. %", Intereact 4$00 5! I30 +er cent of +rivate wealth in <66 invested outside the regionJ! htt+MGGuaeinteract.com %&air! '. 419##5! "n Outline of Interestless .anking! Caihan Bublications! 9arachi. /arde! I. 4$0005! Islamic :inance in the <lobal ,conomy! ,dinburgh %niversity Bress! ,dinburgh. Nin! C. 9. 419945 6ase study Cesearch =esign and 'ethods. "++lied (ocial Cesearch 'ethod (eries 41rd ,d.5! 0ewbury Bark 6.".M (age Bublishing.

Nousef! -. 4199 5! KKIslamic banking and financial develo+ment and growth@@! :orum! Eol. 1 0o. 1.V

Lar)a! '.". 419315! I(tability in an interest-free Islamic economyM a noteJ! Bakistan >ournal of "++lied ,conomics! Eol. $! /inter! ++. 131-3. Likmund! <. /. 4$0015! .usiness Cesearch 'ethods! -homson Dearning. "++endi7 :igures +resenting res+ondent +rofile! .anking service )uality and .ank selection criteria

70

Age

16%

0% 29% (20-25) (26-40) (41-65) Over 65

55%

:igure 4.$ a

Gender

14%

(Male) (Female)

86%

:igure 4.$ b

71

Level of Education

25% 38% Below GCSE GCSE Grad a!e 12% "o#!$rad a!e

25%

:igure 4.$ c Level of Income

3% 16% 39% (le## !%e& 10') (11'-25') (26'-40') (41'-60') 42%

:igure 4.$ d

72

Current residential status

32% ()* +,!,-e&) 51% (.e#,de&! /,#a) (S! de&!)

1(%

:igure 4.$ e Bank Account

2%

(0e#) (1o)

98%

:igure 4.$ a

73

Number of account in different banks

1(%

44%

(O&e) (!wo) (!%ree)

39%

:igure 4.$ b

Account type

18%

(C rre&!) 15% 6(% (Sav,&$) Bo!%

:igure 4.$c

74

Bank visit

11%

5%

(.e$ lar) 41% 43% (O&+e ,& a wee') (O&+e ,& a mo&!%) (More !%a& a mo&!%)

:igure 4.$ d Satisfaction level

28%

(0e#) (1o) (2%

:igure 4.$ e

75

Operations

11%

9%

/er2 low 3vera$e 33% 4(% 4,$% 5 al,!2 /er2 4,$% 5 al,!2

:igure 4.1 a egree of !oreign e"c#ange

4% 2(%

20% /er2 low 3vera$e 4,$% 5 al,!2 /er2 4,$% 5 al,!2 49%

:igure 4.1 b

76

egree of deposits

9%

11% /er2 low

33% 4(%

3vera$e 4,$% 5 al,!2 /er2 4,$% 5 al,!2

:igure 4.1 c egree of $orking capital loan

8%

11% /er2 low

35% 46%

3vera$e 4,$% 5 al,!2 /er2 4,$% 5 al,!2

:igure 4.1 d

77

egree investment loan services

6%

12% /er2 low 3vera$e 4,$% 5 al,!2 /er2 4,$% 5 al,!2 53%

29%

:igure 4.1 e !inancial consulting services

12%

12% /er2 low

25%

3vera$e 4,$% 5 al,!2 /er2 4,$% 5 al,!2 51%

:igure 4.1 f

78

Information provided by bank

11%

5%

33%

/er2 low 3vera$e 4,$% 5 al,!2 /er2 4,$% 5 al,!2

54%

:igure 4.1 g Service delivery to client

14%

0% /er2 ,m6or!a&! 7m6or!a&!

19% Modera!el2 ,m6or!a&! 6(% 8e## ,m6or!a&!

:igure 4.4 a

79

Bank si%e and reputation

9% /er2 ,m6or!a&! 16% 7m6or!a&! 56% 19% Modera!el2 ,m6or!a&! 8e## ,m6or!a&!

:igure 4.4 b Bank si%e

11% /er2 ,m6or!a&! 16% 7m6or!a&! Modera!el2 ,m6or!a&! 8e## ,m6or!a&!

12%

61%

:igure 4.4 c

80

!riendliness of banking staff

8% 0% 9% /er2 ,m6or!a&! 7m6or!a&! Modera!el2 ,m6or!a&! 8e## ,m6or!a&! 83%

:igure 4.4 d :igures showing res+ondent involvement with Islamic bankingG+ersonal o+inion Information about Islamic Banking in &'

14%

3%

(0e#) (1o) (1o! # re)

83%

:igure 4.# a

81

&sage of Islamic banking

2%

42%

(0e#) (1o) (1o! # re)

56%

:igure 4.# b (otential in Islamic banking to overcome present situation

21% (0e#) (1o) (1o! # re) 32%

4(%

:igure 4.# c

82

Level of Islamic banking satisfaction

15% 29% (/er2 #a!,#9,ed) (3vera$e) (1o! Sa!,#9,ed) (1o! # re) 14% 42%

:igure 4.# d Introduction Islamic banks because of pro#ibition of interest

(%

14% (3:#ol !el2 a$ree)

34%

(3$ree) (1o! # re) (1o! a$ree) 45%

:igure 4.# e

83

Similarities bet$een products of IB and CB

4% 18% 35% (3:#ol !el2 a$ree) (3$ree) (1o! # re) (1o! a$ree)

43%

:igure 4.# f Selecting Islamic product because of interest pro#ibition

(S!r,+!l2 rel,$,o #) (Bo!% rel,$,o # a&d e+o&om,+) (E+o&om,+) 53% 3% 15% (1o ,dea) (O!%er rea#o&#)

9% 20%

:igure 4.# g :igure revealing res+ondent attitude towards +rinci+les of Islamic banking

84

)utual Cooperation bet$een client and bank

9%

2(%

0e# 1o 1o! # re 64%

:igure 4. a (referred to $ork on t#e principle of (LS

15%

4(%

0e# 1o 1o! # re 38%

:igure 4. b

85

o not $ant any financial gain if #ave not s#are business risk $it# bank

14%

12%

0e# 1o 1o! # re (4%

:igure 4. c *ant risk s#aring on borro$ing investment money $it# bank

11% 3% 0e# 1o 1o! # re

86%

:igure 4. d

86

*ill prefer to pay fi"ed amount to bank on borro$ing money even to make profit or loss

1(%

4%

0e# 1o 1o! # re

(9%

:igure 4. e Ne$ branc# encourage Islamic banking

19%

0e# 16% 65% 1o 1o! # re

:igure 4. f :igures +resenting the level of awareness among 'uslim about different Islamic banking contracts

87

Current Account

13%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

56%

31%

:igure 4.* a eposit Account +Saving Account,

24%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

44%

33%

:igure 4.* b

88

)uraba#a

22%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! 65% 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

13%

:igure 4.* c )odaraba

18%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! 63% 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

19%

:igure 4.* d

89

I-ara

18%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! 69% 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

13%

:igure 4.* e .ravelers c#e/ues

23%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! 66% 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

11%

:igure 4.* f

90

)oney orders

18%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! (2% 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

13%

:igure 4.* g Overdraft

22%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! (1% 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

11%

:igure 4.* h

91

Automated self service

18%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! 62% 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

13%

:igure 4.* i Service of Letter of credit

22%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! 64% 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

11%

:igure 4.* ;

92

Guaranties

18%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! (3% 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

13%

:igure 4.* k .a$aful

1(%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! (0% 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

13%

:igure 4.* l

93

Sukuk

1(%

7 am &o! aware 7#lam,+ :a&' o99er ,! 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld #e ,! 68% 7 am ware !%a! 7#lam,+ :a&' o99er ,! a&d 7 wo ld &o! #e ,!

15%

:igure 4.* m

94