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Implementing Sharia`h in Islamic Banking

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In this paper we are interested in observing Islamic banks that have been operating for decades attracting customers who are seeking for implementing Islamic Sharia'h in their financial matters.

Miles& Snow typology is one of the extremely well known strategic orientation methods in the strategic management, and we are exploring whether we can implementing this typology on Islamic Banks it under one of its types. Moreover Islamic banks industry are growing rapidly in the region, and we are trying to understand the reasons behind that growth; is it because of the finest quality services provided or the specific Islamic services or because customers do not have any other choices "captured" because no one ales are providing these Islamic services.

Another aspect the project is observing is, make Islamic banks deliver a high quality services to accept their customer satisfaction, protected it stand in the banking industry by winning their customer loyalty to continue ahead with the rise of other competitors and new rivals of traditional banks who started to establish an Islamic banking system services in some branches in the region.

The fast growing retail business portfolios of Islamic banks in the Islamic world are proving tough competition toward the retail case of conventional banks. Conversely, Islamic banking is based on teachings from the Holy Quran, which was visible through reference to the prevention of Riba, which is sometimes, defined the same as excessive interest. On the other hand, Muslim scholars have accepted the term to mean any fixed or guaranteed interest payment on trial advances or deposits. Furthermore, as an example UAE currently have 48 banks of more than 360 branches. In addition, twenty-eight of them is foreign owned. Conversely, the central bank deposits capital levels in addition to places controls on credit in favor of these institutions. Furthermore, banks are categories in four types, which are commercial banks, merchant or investment banks, Islamic banks as well as industrial banks. Additionally, five banks hold almost two third of the deposits in addition to total assets of the commercial banking. Consequently, they together like a premier 70.57% of the total deposits through local banks. Nevertheless, Islamic Banks were defined as they are those companies who utilize the Islamic Sharia Law and so as to their operations would be conducted agreement depend on the Islamic Sharia Law.

The information on Islamic Banking & Finance is available on various forms, e.g., PhD dissertations (……………), books written by leading academics and practitioners (……………), published research in the form of reports (……………) and journal articles (……………). Because of Riba, Islamic banks have had to develop financial products which are not in conflict with the Sharia'h. The task has been achieved by creating a number of significant financial products (……………).

The main thrust of Islamic financial contracts is on profit and loss sharing, which can be deemed as equity (Musharakah) and mixed (modified Mudharabah and Ijara) facilities (……………). However, the risks of these vehicles are inherently higher than conventional ones as espoused by (……………). One definition of an Islamic Bank is a bank that, by its own range, opts to comply with two sets of law: the law of the Land (Jurisdiction); and the Islamic Law (Shari'ah). This is why Islamic bankers have two types of legal counsel: traditional "lawyers" and "Shari'ah Councils" (……………).

"Islam is deeply concerned with the problem of economic development, but treats this as an important part of a wider problem, that of total human development. The primary function of Islam is to guide human development on correct lines and in the right direction. It deals with all aspects of economic growth but always in the structure of total human development and never in a form divorced from this perspective" (……………). The Shari'ah specifies, inter Alia, rules that apply to the allocation of resources, property rights, production and consumption, and the distribution of income and wealth (……………).

Islamic banking advances the next set of beliefs: interest as a reward for saving does not have any status as a moral foundation; abstinence from spending of current income does not deserve a financial reward; and to benefit from resources is to transform the money into investments, conditioned to take risks and bringing the knowledge of other factors of production together (……………).

(……………) lays down four elements of a contract for a property (mal): they are lawfulness, existence, deliverability and accurate determination. (……………) Explains that profits on Murabahah facilities are generally higher than conventional loans because Islamic instruments are structured to share the risk of the property or enterprise. Hence, the "profits" and "interest-charge" implied are similar in the outcome, although not by design (……………). (……………) Is of the view that Riba, Gharar and Maysir manifested in the conventional system can wreak havoc in an economy as advanced as the USA, as depicted by the massive failures of US savings and loans institutions of the 1980s. Islamic banking aims to promote economic growth through risk-sharing instruments whose payoffs fluctuate with economic output and do not structurally undermine the economy in the sort of extravagant fixed-interest debt does in a poor economic conditions such as a recession (……………).

The potential of Islamic fixed income securities backed by an Ijara facility is discussed by (……………).

Islamic Derivatives: This comprises both Islamic Futures and Embedded Options in a contract. However, the evolution of it is largely unrealized (……………). (……………) Recommends to produce, develop and implement Islamic hedging and risk minimizing facilities such as Islamic futures (Bai Al-Salam/Istisna), Islamic swaps, etc. (……………). (……………) Further recommends designing, develop and implement Islamic facilities that enhance the competitive ability of Islamic banks and reduce their risk exposure.

The excessive use of credit facilities by Islamic banks globally has drawn the ire of scholars such as (……………). Conventional futures are highly controversial with the Ulema - religious scholars (……………). It should be noted that certain Ulema such as Justice Taqi Usamani have given their decision allowing contracts with embedded options (……………).

Part of the study of (……………), conducted in Jordan, aimed at establishing the perspective of local people towards Islamic banking. The results suggest that religious stimulation did not seem to play a fundamental role in bank selection; the introduction of new branches was not a decisive factor in increasing the utilization of financial services provided by Islamic banks; while 39.4 per cent of respondents would withdraw their deposits if an Islamic bank did not generate sufficient profit to make a distribution in any one year, 30.4 per cent would retain their deposits because the Islamic bank could allocate a higher return the following year.

(……………) study establishes that, in Singapore, which has a minority of Muslims in its population, both Muslims and non-Muslims are generally unaware of the philosophy of Islamic banking. Also the two distinct groups have different attitudes towards the Islamic banking division, with the degree of variation depending on the nature of the particular matter value to them. For example, when asked what they would do if an Islamic bank did not give sufficient profits make a distribution in any one year, 62.1 per cent of Muslims said they would keep their deposits within the Islamic banking division, while 66.5 per cent of non-Muslims said they would withdraw their deposits.

Much has been written since the early 1960s on the theme of the bank collection system (see, for example, the published articles of (……………); compared the bank selection process in relation to "conventional" and Islamic banks. (……………) Compared responses about the bank selection criteria of both Muslims and non-Muslims.

In addition to establishing attitudes towards Islamic banking, (……………) sought to establish, and then compare, the bank selection criteria of customers of conventional and Islamic banks in Jordan. (……………), among other things, sought to determine the relative importance of effective bank selection criteria using a variety of Muslims and non-Muslims, none of whom had to be patronizing an Islamic bank at the time of the study. The three most critical criteria in the bank selection process for Muslims were: first, "the provision of a fast and efficient service"; second, "the rate of the transaction"; and third, "accessibility of bank personnel". As regards the non-Muslims, the three most prestigious bank selection criteria were: first, "accessibility of bank personnel"; second, "the provision of a fast and efficient service"; and third, "the reputation and image of the bank".

Islamic banks has come of age since its beginning in the 1980s as (……………) mentioned , and expanded to contain 20% of banking assets in some of Gulf countries, and the Islamic assets poised to grow more rapidly than conventional banks over the next half decade.

(……………) observed in their studies that Islamic banks and commercial banks both offer similar services and play a vital role in economic development of their societies, however Islamic Banks operate within the boundaries of Islamic Sharia'h. Nowadays International conventional banks are showing interest in the Islamic banking system, and the importance of it is that Islamic banks operating in Islamic countries are facing a stiff competition not only from Islamic banks but also from non Islamic rivals. When such competition appears it is the customer satisfaction that can affect the performance of an Islamic bank and determines its competitiveness and prosperity.

A research presented by (……………) about Islamic banking in Singapore, a country that have a large number of Muslims in its citizens seeking to understand the level of awareness that Singaporeans (Muslims and non Muslims) have toward the philosophy of Islamic bank. Their determination showed many salient point, like Muslims were far more of the opinion that religion and profitability reasons motivate people to deposit monies with Islamic bank, others belief that increasing on the number of branches will lead to a wider use of Islamic bank, other would retain deposits within the Islamic banking move even if that Islamic bank did not make any profit in any one year, and more strongly other agreed that granting of interest free loans by Islamic banks help the people in a just and efficient manner.

One of the important conclusions of (……………) research is that the majority of customers banked with Islamic bank because of religious reasons as the bank implement Islamic Sharia'h principles, and customers deal with Islamic bank are prepared to accept any form so long as the bank observes Islamic Sharia'h principles, and they expect the bank as regards their money and in its ability to meet religious concerns. However: (……………) mentioned that Islamic Banks have not made sufficient use of their natural competitive advantages within the Muslim community.

Moreover (……………) in the result of their research on commercial banks in Bahrain they perceive that the diversity of Islamic Banks in the bank selection process appears to be primarily a religious based decision. However, this comparative benefit has been threatened in recent years with some conventional banks lunching their Islamic investment units.

On the other hand as, (……………) agreed on the previous feature on their research on Malaysia, they mentioned that a recent study indicated that Muslims patronized Islamic banks not mush because of the religious factor, but more because of the returns they would receive from their investments. Also Islamic bank should not over emphasize, and rely on, the religion factor as a strategy in its effort to attract more customers. The Islamic bank should be aware that only 40 per cent of Muslims believe that religion is the primary factor in why people keep an account with Islamic bank.

Moreover (……………) point out that international banks such as City bank have been involved in Islamic finance, they develop their range of banking products to compete with Islamic financial institutions, and other banks also established a separated network of Islamic branches spread Islamic products in a "window".

They mentioned also that perhaps 15 to 20 % of all consumers have a strong preference for a purely Islamic source, but most consumers seem willing to use Islamic products for conventional banks.

Islamic banking is not necessarily without difficulty transportable toward either non-Muslim country, additionally there are problems of Islamizing banking systems in predominantly Muslim countries themselves. Thus, the nature of Islamic banking besides support at all, in that do the same as it is practiced even in Western countries, it does not seem to put on a look up to capitalist social relations seeing that we give the image to see them, with the exception of the prevention of exacting products out of the way. On the converse, Islamic economics appears to support inter as well known the same as constructive entrepreneurship.

It is remarkable that UAE has achieved stability in many fields including political, economy, social as well as technological sectors. Focusing in the banking sector, which flourished since the creation of the federation due toward the diverse variety of products in addition to services they provide just the investments products like mutual funds as well as bonds. Islamic banking is gaining success early in the country for the basis that it uses alternatives to interest charges besides the fact that they are following the sharia rules in this Islamic state. The investment atmosphere in the country is stipulated in a way that attracts foreign investment.

Islamic banking is an extremely young idea. Yet it has already been implemented at the same time as the only way to two Muslim countries; there are Islamic banks in many Muslim countries in addition to a few in non-Muslim countries as well. Therefore, with only minor changes in their practices, Islamic banks can get rid of all their unwieldy, hard plus sometimes controversial forms of financing in addition to provide a moral as well as effective interest-free banking. Furthermore, participatory financing is a distinctive feature of Islamic banking, also can provide reliable financing toward socially in addition to economically relevant development projects. This is an additional service Islamic banks offer by as well as above the traditional services provided through conventional commercial banks. Moreover, we used a few of our selected financial terms while we are explaining the concept of this section, along with mentioning the different meaning of each time in some individual countries. Besides we gave our attitude toward the proper meaning of the same word.

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