Dissertation Research Proposal Help on Islamic Banking
Study of Islamic banking in relation to the current crisis in non Islamic banking and whether Islamic banking can be a viable and safe option of the risk involved in traditional banking format.
TABLE OF CONTENTS
ISLAMIC ECONOMICS – ISLAMIC BANKING AND FINANCE
How It Functions
Profit and Risk Sharing
AIMS AND OBJECTIVES
SAMPLE INTERVIEW QUESTIONNAIRE
RESEARCH TIME PLAN
For almost four decades, Sharia-based banking and financial institutions claim to be a just and morally-valued alternative for the conventional system (Djojosugito, 2008). The most essential features of this type of economic system are that it is interest-free and it works on the basis of equal responsibility in the safety and risk, thus equally sharing the profit and loss, unlike the traditional banking system that is founded on interest and which never shares the risk (Ismal, 2010). Islamic banking is evolving as a new alternative for countries that are facing challenges due to current economic crisis (Shashinpoor, 2009). On the other hand, traditional banking, adopts interest in banking that is the main difference between these two forms of banking (Vogel & Hayes, 1998). In this context this research aims at verifying the role of Islamic banking in relation to current crisis in non Islamic banking. (Here you can get dissertation thesis help or research proposal help of any topic)
ISLAMIC ECONOMICS – ISLAMIC BANKING AND FINANCE
The Industry of Islamic banking and finance is witnessing an unprecedented growth (Djojosugito, 2008). ‘Since its inception, the number of Islamic financial institutions worldwide has risen from one in 1975 to over 300 today in more than 75 countries’ (Qorchi, 2005). In 2007, there were about 270 Islamic banks worldwide with a market capitalization in excess of US$13 billion. The assets of Islamic banks worldwide estimated then at more than US$265 billion and financial investments above US$400 billion. Islamic bank deposits were estimated at over US$202 billion with an average growth of between 10-20%. Furthermore, Islamic bonds were estimated at around US$30 billion, while Islamic equity funds were estimated at more than US$3.3 billion with a growth of more than 25 percent over seven years and the global Takaful premium was estimated at around US$2 billion (Rahman, 2007 ).
Islamic Economics (Al-iqthisad-ul- Islami) is a system or idea controlled by Shari’a laws in behavior, institution and policies related to economic life. The basic concept of Islamic economy is prohibition of riba (usury), gambling and hoardings that is just opposite to the non Islamic banking. This concept of banking saves Islamic form of banking from critical conditions like economic slowdown.
The Islamic economic system has a centuries-old history. “From the very early stage in Islamic History, Muslims were able to establish a financial system without interest for mobilizing resources.
“However, as the centre of the economic gravity shifted over the centuries to the Western world, Western financial institutions (including banks) became dominant and the Islamic tradition remained dormant (Iqbal & Llewellyn 2001). Egypt was the pioneer in experimenting Islamic bank in the modern period. Set up in l963, this worked in the form of a savings bank based on profit-sharing, and lasted until l967 (Ready l98l), by which time there were nine such banks in the country. Without charging or paying interest, these banks mostly engaged, directly or in partnership with others, in trade and industry and shared the profits with their depositors (Siddiqi l988).
Presently, some countries like Iran, Pakistan and Sudan are attempting complete elimination of the role of interest from their financial systems, and many countries, including non-Muslim ones, are facilitating emergence of more and more Islamic banking and financial institutions. Nowadays, it is considered as a strong tool to address the challenges of current economic crisis. There is a widespread nod from all quarters to welcome the re-emergence of Islamic banking and different types of Islamic financial institutions and products (Iqbal & Llewellyn 2001).
According to scholars, main reasons behind the transformation of Islamic economics into a distinguished and popular discipline, are increasing materialism, changing attitudes towards poverty and other effects of the development of capitalism, which is aptly summarized as the transition from the biblical ‘love of money is the root of all evil’ to Bernard Shaw’s ‘lack of money is the root of all evil’.
How It Functions
Any financial system performs four key roles.
(a) It provides financial intermediation services, channeling funds from ultimate savers to ultimate borrowers, facilitating movement of resources between agents.
(b) It provides other financial services like payments services, insurance, fund management and so on.
(c) It creates a wide range of assets and liabilities, each of which has different characteristics with respect to, for instance, liquidity, maturity, the type of return generated, and risk-sharing.
(d) It creates incentives for an efficient allocation of resources within an economy, and the allocation of scarce financial and real resources between competing ends. The differences between conventional and Islamic banks arise in how these roles are performed (Iqbal & Llewellyn 2001). Only these differences are responsible for the performance of these two forms of banking during crisis.
Profit and Risk Sharing
The methods adopted by Islamic banks and financial systems regarding profit and risk sharing need to be assessed here. There is a clear divergence in practice from the initial theoretical formation of modern Islamic banks that focused on profit-sharing finance towards fixed-return modes such as murabahah and leasing. Profit and risk sharing is not followed in non Islamic banking that pose a challenge to this form banking during economic crisis. Scholars enumerated several reasons for the unpopularity of profit/loss contracts, like ‘moral hazard, adverse selection, high information requirements and higher transactions coast’ (Iqbal & Llewellyn 2002). The evaluation will be held through an analytical study of data of certain cases of a particular period dealt by three different Islamic banks in UAE. Now you can get 24X7 dissertation writing services help from of experts.
Islamic Banking is credible and safer in comparison to non Islamic banking to handle the current economic crisis.
AIMS AND OBJECTIVES
The main objective of the research is to study Islamic Banking in relation to current crisis in non Islamic banking. It will also discuss the practicability of Islamic banking in day to day functioning system. The study also aims
- To investigate whether various charges levied or incentives provided by Islamic financial institutions are suitable to address current economic crisis and Islamic banking can be a suitable alternative for the shortcoming of the non-Islamic/traditional banking format.
- To evaluate whether the criteria of Islamic banks to provide credit and loans comply with Islamic ideals justice.
- To evaluate whether the entire functioning of the system comply with the rationale of Islamic economics or Fiqh al Mu’amalat as described in classical texts.
Islamic banks claim to be working on the rationale of Islamic Sharia that prohibits interest and demands sharing of risk (Khan & Bhatti, 2008). Islamic banking is identified as a different framework from Non Islamic banking. It is needed to analyze and evaluate Islamic banking in relation to the current crisis in Non-Banking financial system. For this, it is vital to assess actual practicality of this ‘interest-free’ and ‘profit and risk sharing’ idealism, to see whether the idealism is practical on ground. The compliance of idealism or theory with practice will be studied through analyzing deposit and loan records of three various banks in UAE. Ten such cases of 2005 will be considered from each bank. The deposit/loan proportion of the cases will be 50:50.
The study will address the following questions by assignment help experts.
- Whether Islamic banking is a safe and viable alternative to traditional interest based banking model especially in the scenario of current crisis in baking sector?
- How far the Islamic banks show responsibility in addressing issues posed by present economic crisis?
- Are the credits in Islamic banking easily available in comparison to non Islamic banking?
- How far Islamic banks consider the risk factors and the possibilities of potential gain or loss before taking decisions on loans and investments?
- How the profit or loss is shared by the borrower and lender in actual sense?
Literature on various aspects of Islamic banking and finance is aplenty. Other than presenting well-thought-out ideas, the early writers tried to think in this regard (Qureshi l946, Ahmad l952). Uzair (l955), Al-Arabi (l966) and Irshad (l964) were the pioneers of those invoked the principle of mudaraba based on Shariah though at various levels. However Siddiqi (l968) was the first to provide a fairly detailed outline of Islamic banking. Chapra also based his Islamic banking model on the mudaraba principle. He argued on the role of artificial purchasing power through credit creation (Chapra l982). The credit in drawing a detailed and elaborate framework of Islamic banking in a modern setting goes to Mohsin (l982), whose idea blend the characteristics of commercial, merchant, and development banks in a new way. His model was designed in view of a capitalist environment, with suggestions that riba-free banks could coexist with interest-based banks.
Main principles pertaining to Islamic economic activities are monotheism (tawhid), human vicegerency (khilafat), justice (‘adl), cooperation (ta’awun), and maslahat (benefit) (Siddiqi, 1981, 1996, Sharif, 1986). The Nasir Social Bank, established in Egypt in l97l, was declared an interest-free commercial bank, although its charter made no reference to Islam or Shariah (Islamic law). In 1974, the Organization of Islamic Countries (OIC) established the Islamic Development Bank (IDB), primarily as an inter-governmental bank for providing funds for development projects in member countries. The IDB provides fee- based financial services and profit-sharing financial assistance to member countries. Seventies saw emergence many Islamic banks like the Dubai Islamic Bank (l975), the Faisal Islamic Bank of Sudan (l977), the Faisal Islamic Bank of Egypt (l977), and the Bahrain Islamic Bank (l979). The Asia-Pacific region also saw emergence of Islamic banks like the Philippine Amanah Bank (PAB), founded in l973 by Presidential Decree, and Bank Islam Malaysia Berhad (BIMB), set up in 1983. The first attempt of the system in the west was in 1978 when the Islamic Banking System (presently Islamic Finance House) was established in Luxembourg.
The mechanisms for saving and borrowing works in the conventional banks on the basis of rate of interest on both the assets and the liabilities side, Islamic banks have developed various mechanisms, like Mudarabah, Musharakah, murabahah, muzara’ah, bay’al-salam, etc, in order to mobilize savings and pass it to entrepreneurs without involving interest. They have also developed contracts like takaful, musharakah and others in view of other financial services such as payments of services, insurance, fund management, etc. (Iqbal & Llewellyn 2001, Siddiqi, 1981) Dusuki (2008) proposed that the price of finance needs to include an allowance for the risks involved. Similarly, the rates of return to the suppliers of finance should also reflect the risks taken’. While the conventional banks deal this through the rate of interest, Islamic banks have carved out alternative mechanisms for rewarding the capital and pricing the risk. It is also a factor that decides the performance of these two forms of financial system during crisis. They have ‘both fixed and variable return modes to price the capital and add risk premia according to the degree of risk involved’. AlArabic (1966) argued that the provisions for financing in Islamic system are based on (a) profit sharing, or (b) on fixed return (mark-up). However, the uniqueness of Islamic financing is that the debt associated with the latter ‘results from real commodity sale/purchase operations, rather than the exchange of money for interest-bearing debt, and such debt is not marketable except at its nominal value’ (Iqbal & Llewellyn 2001, Mirakhor, 1997).
Gerrard & Cunningham (1997) proposed that in conventional system, debt contracts create a defined obligation to repay irrespective of the performance of the borrower. So, it can be identified from this statement that due to this philosophy of non Islamic banking, this form of banking affected during economic crisis. It does not share neither a potential extreme upside gain nor an equally downside loss. Ismal (2010) stated, the primary cause of crises in conventional system is inadequate market discipline resulting from debt-based borrowing and lending. He proposed, “instead of making the depositors and the bankers share in the risks of business, it assures the depositors of the repayment of their deposits or loans with interest. This makes the depositors take little interest in the soundness of the financial institution. It also makes the banks rely on the crutches of the collateral to extend financing for practically any purpose, including speculation”.
Islamic banking can prove as a strong instrument in handling the situation of current crisis in the economic environment in comparison to its counterpart traditional banking. Chapra (1990) proposed Islamic banking handles the project performance, on the other hand, project performance is not considered importantly in conventional form of banking that is another reason of its failure during economic crisis. This form of risk and profit sharing banking can be promoted effectively to replace the traditional form on the basis of its ethical as well as economic benefits. Dusuki (2008) argued that Islamic banking is considered as a justified and ethical practice of financing that if used effectively can handle economic crisis.
Basic concept of Islamic banking is far different from Non Islamic banking that protects the Islamic banking from economic crisis in comparison to Non Islamic banking. Hasan (2008) argued that in Islamic banking investment account holder is treated equally like shareholder, on the other hand, in Non Islamic banking; depositors are paid before the shareholders. So, due to this difference, project performance handling becomes a difficult issue for Non Islamic banking. AlArabi (1966) proposed that Islamic banking avoids derivative trading. Contrary to this, derivative trading is assumed essential in Non Islamic banking. It is another factor that influences Non Islamic banking during crisis.
According to a recent IMF study, Islamic banking can result in efficient resource allocation, and it faces fewer solvency and liquidity risks than their conventional counterparts (Iqbal and Mirakhor l987). This statement reflects that future of Islamic banking is bright in the western countries. It can be inferred from this observation that Islamic banking by widening its market from niche to mass can reap out the benefits at global level. It can save the major banks to undergo into bankruptcy like situation during economic conditions if they transform their conventional format into Islamic banking.
World Bank has initiated a study on risk analysis contributing to the debate on the application of risk analysis for regulators and supervisors of Islamic banks (Greuning & Iqbal, 2008). The volume published following the fourth international Conference on Islamic Economics and Banking held in UK in 2000 with the theme of ‘Islamic Finance: Challenges and opportunities in the 21st century’ is another attempt in this regard (Iqbal & Llewellyn, 2002). Professor Badr-El-Din Ibrahim has argued just how valuable Islamic financing can be in supporting small businesses, from his experience of Sudan (Ibrahim, 2003). These last three books and similar other studies will form the conceptual framework of the proposed study.
Research methodology is a vital part of any research proposal. This research will be a descriptive research design. There are mainly two forms of research type that are qualitative and quantitative (Creswell, 2003). Qualitative research aims at describing the content in detail and this is recommended in the early stages of the research (Goddard & Melville, 2004). Quantitative research methodology aims at classifying the features of the collected qualitative information, calculates and finally constructs a statistical basis to explain what has been observed. Therefore, the data is in the form of numbers and statics (Fowler, 2002).
Considering the current research proposal, I intend to use qualitative research methodology for my research. As a part of this, I will personally collect data and related papers of 30 selected cases from three banks to relate Islamic banking with the current crisis in relation to Non Islamic banking. Next to this, I will go for structured as well as semi structured interviews with the customers and officials of the bank. In addition, a personal verification of actual conditions of the bank-financed/costumer-invested projects will be performed (Goddard & Melville, 2004).
Next, for the purpose of developing a strong theoretical basis for the research, I will review the background research, in relation to the developed aims and objectives. This will provide a clear understanding of Islamic banking concepts in relation to the crisis in non Islamic banking. It will also give a concise picture of issues related to risk sharing and profit sharing idealism. Next, I would refer books, journals, articles and web sources to collect relevant information for comparing Islamic banking in relation to crisis in non Islamic banking. Therefore, this research will gather data from all the available sources as mentioned and will use qualitative research methodology to address the research problem.
SAMPLE INTERVIEW QUESTIONNAIRE
The following question from part of interview questionnaire which will be used to gine feedback
1.Male / Female
2.Are you: Under 20 / 20-29 / 30-39 / 40-49 / 50-59 / 60 or Over
3.Are you: Arabic / white / Asian / Black / South East Asian / Other
4.What is the impact of global financial crisis on your bank?
5.What is the current position of Islamic banks in UAE?
6.How the bank is able to sustain the current global financial crisis?
7.What are the various steps your bank has taken up for overcoming the current scenario in consideration to interest rates?
8.What steps have been taken in consideration to risk sharing in this current economic scenario?
9.What steps have been taken in consideration to profit sharing in this current scenario?
10.What are the various important factors considered in this criterion (Profit and risk sharing)?
11.What factors influence bank assessments?
12.Which party bears the losses in the event of negative results (risks)?
13.What are the main areas of activities monitored in this situation?
14.How monitoring is done and what and how could the expected results be?
15.How Islamic banking is useful in current economic crisis?
RESEARCH TIME PLAN
S No Task Required time
1 Collection of Secondary Data 01/05/10
2 Clarifying theoretical and conceptual framework through extensive reading of secondary data 05/05/10
3 Introduction 15/05/10
4 Preparation of primary data collection methods and Interview questionnaire 19/05/10
5 Collection of Data from Three Islamic Banks in Dubai 23/05/10
6 Drafting and Analysing collected primary data 29/05/10
7 Detailed Interviews with customers involved in 30 selected cases, as well as observation of initiated projects 07/06/10
Interviewing concerned Bank officials 07/07/10
Analysing and evaluating both the types primary data collected – records of the bank and interview materials 15/07/10
8 Preparing first draft 28/07/10
9 Analysing reviews and re-organisation of the first draft 10/08/10
10 Preparation of final draft of Dissertation 20/08/10
11 Submit Dissertation 30/08/10
Islamic banking is witnessing a significant growth and large-scale investments. Interest-free transactions and readiness to share risk are the main rationale behind this system. Now it is an important aspect how Islamic banking fair against the traditional interest based banking model and whether Islamic banking is a viable banking model. Also it is very important to make an evaluative analysis of the Islamic financial institutions in order to check the practicality of the interest-free and risk-sharing idealism in actual day-to-day functioning of the system. This is one of the main areas where more studies are needed, and where a dearth of literature is apparent. The proposed study is expected to fill some gaps in this regard.
 Ahmad, Sheikh Mahmud, Economics of Islam, Lahore, l952
 AlArabi, Mohammad Abdullah, 1966. ‘Contemporary banking transactions and Islam’s views thereon’, Islamic Review, London, May 1966: l0l6 And realities, IIUM Journal of Economics and Management 15, no. 2 (2007): 123-141
 Chapra, M. Umer, ‘Money and banking in an Islamic economy’ in M Ariff (ed.), Monetary and Fiscal Economics of Islam, International Centre for Research in Islamic Economics, Jeddah, l982.
 Chapra, M. Umer, 1982. ‘Money and banking in an Islamic economy’ in M Ariff (ed.), above.
 Chapra, M. Umer,. ‘Towards a just monetory system’, JKAU: Islamic Eco, Vol 2, pp. 109-115, 1990.
 Creswell, John W. Research design: qualitative, quantitative, and mixed method approaches, 2nd edn, SAGE, UK, 2003
 Djojosugito, Reza, Mitigating legal risk in Islamic banking operations, Humanomics,
Vol. 24, No. 2, pp. 110-121, 2008
 Dusuki, Asyraf, Wajdi, Understanding the objectives of Islamic banking: a survey of stakeholders’ perspectives, International Journal of Islamic and Middle Eastern Finance and Management, Vol. 1, No. 2, pp. 132-148, 2008
 Fowler, Floyd. J, Survey research methods, 3rd ed, SAGE, USA, 2002.
Gerrard, Philip & Cunningham, J. Barton, Islamic banking: a study in Singapore, International Journal of Bank Marketing, Vol 15, No 6, pp. 204–216, 1997
Greuning, Hennie Van & Iqbal, Zamir, Risk Analysis for Islamic Banks, The World Bank, Washington, 2008
Goddard, Wayne & Melville, Stuart, Research Methodology: An Introduction, 2nd ed, Juta and Company Limited, USA, 2004.
Hasan, Zubair, Credit creation and control: an unresolved issue in Islamic banking, International Journal of Islamic and Middle Eastern Finance and Management Vol. 1, No. , pp. 69-81, 2008
Ibrahim, Badr-el-din A. Poverty alleviation via Islamic banking finance to micro-enterprises (MEs) in Sudan: Some lessons for poor countries, University of Bermen, Sudan, 2003
Ismal, Rifki, Strengthening and improving the liquidity management in Islamic banking, Humanomics, Vol. 26 No. 1, pp. 18-35, 2010
[16 Iqbal, Munawar & Llewellyn, ed, Islamic Banking and Finance: New Perspectives on Profit-sharing and Risk, Edward Elgar Publishing Limited, UK, 2002
Iqbal, Zubair & Mirakhor, Abbas, Islamic Banking, International Monetary Fund Occasional Paper 49, Washington D.C. l987
Irshad, S.A., 1964. InterestFree Banking, Orient Press of Pakistan, Karachi.
Khan, M. Masoor & Bhatti, M. Ishaq, Development in Islamic banking: a financial risk-allocation approach, The Journal of Risk Finance Vol. 9, No. 1, pp. 40-51, 2008
Mohsin, M., ‘Profile of ribafree banking’, in M. Ariff (ed.), above. Naqvi, S.N.H., 198l. Ethics and Economics: An Islamic Synthesis, The Islamic Foundation, Leicester, 1982
‘Interest rate and intertemporal allocative efficiency in an Islamic economy’, in M. Ariff (ed.), above, 1982
Qorchi, Muhammad El, Islamic Finance Gears Up, Finance & Development, Vol 42, No 4, 2005
Qureshi, Anwar Iqbal, Islam and the Theory of Interest, Lahore, 1946
Rahman, Abdul Rahim Abdul, Islamic banking and finance: between ideals
Sharif, M. Raihan. The concept of economic development in Islam. Dhaka, Bangladesh: Islamic Economics Research Bureau, 1986. Series title: IERB monograph series; no. 1. 1986
Shashinpoor, Nasrin, The link between Islamic banking and microfinancing, International Journal of Social Economics, Vol 36, No 10, pp. 996-1007, 2009
Siddiqi, M.N., 1982. ‘Islamic Approaches to Money, Banking and Monetary Policy: A Review’, in M. Ariff (ed.), Uzair, Mohammad, 1955. An Outline of `Interestless Banking’, Raihan Publications, Karachi.
Vogel, Frank E. & Hayes, Samuel L, Islamic la and finance: religion, risk, and return, Kluwer Law International, The Hague, 1998