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ISLAMIC BANKING AFFECT ON UK FINANCIAL CRISIS
This dissertation is for analyzing the Islamic banking affects on the UK financial crisis, and for checking if the country is operating with the Islamic banking operations then what will happen to the country financial crisis either this effects to the UK finance or it improves financial activities. Islamic banking shows that ethic and funding can be connected to supply the society.Â Islamic banking is a savings and financing perception which expands internationally. Now a day People are flattering more attentive of the Islamic banks. Islamic bank is fully different from conventional banking system in the majority of the characteristics. Islamic banking religious conviction is very important for operating financial operations. There are different connections to political associations and these political associations and different narrations have been predisposed the achievement of the Islamic banking structure in the different countries where the Islamic banking system maneuvers.
As an alternative of organism supported on enthusiasm Islamic banks are offering different categories of accounts and an assortment of financing alternatives but all with the Islamic law only. I was identified in this dissertation that there is a lack of interest for handling over the different funds flow to different banks and to different financial institutions that authorizes in various companies affianced in unprincipled socially unfavorable activities. Several organizations work to achieve international standardization and harmony to make banking activities more transparent and attractive. The accomplishment of coordination as well as performance of the banks is essential for the future of Islamic banking. The idea of Islamic banking contains much more than its prohibition of interest. For serving the society Islamic banking is following the ethical values and providing interest free banking for the people. When Islamic banking with its moral values first appeared first, it was pleasured as a utopian reverie by the financial surroundings in the world.
The approaches are changing progressively and in the last few years the importance neutral conventional banking has begun to difficulty the principles of an increasing number of people. Islamic banking is not very populated in western countries; the revival of Islamic economic system has now become a point central attention in Islamic world. The UK economic growth may affected by the Islamic banking principles. Islamic banking disallows interest on money but doesn't prohibit all gains on capital. Islamic banking is based on risk sharing, owning and management of physical goods, participation in the process of trading, leasing and manufacture contracts using various Islamic approaches of finance. Islamic principles simply require that performance of capital should also be measured while gratifying the capital. The different structures of dealings acceptable by Islam is at the time the Holy Quran was exposed joint ventures supported on the distribution of risks, profits and requirements of services throughout trading both currency and recognition and leasing activities are operated through the Islamic banking operations.Â Islamic banking was based on different Islamic economic systems, and is not controlled to Muslims only.
The main intention of Islam restriction is wellbeing of the whole humankind. The depositors are embedded to be capital provider and profits of the Islamic banks are circulated at the judgment of the bank managements. But the Islamic banks follow the concept of Mudaraba (profit sharing) based on investors capitalist relationship. Islamic banks consider depositors as entrepreneur. The profits generated through this relationship are divided between the two parties as per agreed ratio. This dissertation is analyzing the effect of the Islamic banking on the UK financial crisis, through the analysis of Islamic banking by differentiating with conventional banking operations. This dissertation concentrates on the methods of the Islamic banking, different approaches of banking, risk associated with the Islamic banking approach, benefits of the proposed system. This dissertation analysis should identify the status of UK if they follow Islamic banking operations. Sharia banking is fast growing and main flow banks are preliminary to offer Islamic accounts.Â Its scheme of shared risks and profits could offer a representation for the financial services of the future extraordinary report.
No economy is protected to financial crises, no matter how much investors and leaders try to prove to themselves. There are two different aspects in sharia model like joint ownership and profit sharing, but Islamic financiers disagree stressing on these aspects. The main relationship between the bank and the customer is mainly based on distribution risk and sharing the different rewards from financing and investments. The continuation of interest free banking system in UK will remove many difficulties occurring financial operations. In Islamic banking system the depositors are well thought-out as the lenders of the bank, since a Muslim lender cannot accept any interest, he lends with no interest but with agreement that his capital will be returned full. Interest free banking is disturbed with different group of people. Shareholder provides the financing and then shares profits and absorbs loss. It is the accountability of the industrialist to present a good project proposal. This dissertation analyzes different areas for analyzing the financial crisis of UK if they follow Islamic financing activities.
Now a day the most discussed issue is almost certainly economic crisis all over the world. There are so many issues happening in the world in the perspective of economical crises. Recently we get to hear about fall in shares, decrease in growth of company's economy, cut downs in jobs, new company's in administration; the overall world's economy is distributed in a shell. UK is suffering in financial crises for quite some time now. Over the preceding two decades two most significant facts come into view if we are looking at inside the banking and finance industries. The main increasing complication of financial systems in the development and the globalization tendency has made the banking and financial environment and running through more than challenging. Banking industries are facing different types of risks from the market. Different types of risks included security of the system, deception, the extension of e-commerce, system failure risks, and many other considerable risks such as; the increasing use of outsourcing preparation, and new risk alleviation like credit derivatives and securitization. Islamic banking is financing and investment models which expand worldwide.
Now a day People are becoming more conscious of the Islamic banking and financial system. Islamic banking system is different from conventional banking system in various aspects of banking operations performing in various sectors. The main implementation of Islamic banking is prejudiced by the different connections to politics and histories in various countries where the system is operating. Islamic banks are based on Islamic law (Shariah), it follows Islamic rules and transactions. Sharia disallows the payment or acceptance of interest for the lending and accepting of money. The continuation of interest free banking system in UK will remove many difficulties occurring financial operations. There are two different aspects in sharia model like joint ownership and profit sharing, but Islamic financiers disagree stressing on these aspects. A number of techniques and innovative concepts are introduced in the early stages of Islamic banking operations like, bills of exchange, the forms of partnership (mufawada) such as limited partnership called mudaraba, and there are some earliest forms of capital called al-mal, and capital accumulation called namal-mal. Islamic banking has the same principle as a conventional banking excepting that it operates in accordance with the rules. There are of some common terms used in Islamic banking Ijarah (leasing), Mudharabah (profits haring), Wadiah (safekeeping), Murabahah (cost plus), musharakah (joint venture).
The fundamental principle of Islamic banking is the contribution of profit and loss and the prohibition. This dissertation is for analyzing the financial crisis of the UK Islamic banking effects on the UK financial crisis. The Islamic banking and the finance sector built on the information of Islamic economic thought. Islamic banking is providing interest free commercial banking. Islamic banks face number of challenges, like issues related to macro operation of Islamic banking system. Valuations of bank assets, credit creation and monitory policy, financial stability, ownership of banks, and issues related to micro operations like increased cost of information, control over cost of funds, mark-up financing, utilization of interest rate for fixingÂ profit margin, and financial social concerns.
This dissertation mainly focuses on the effects of the Islamic banking operations on the UK financial crisis. Islamic banking is an instrument for the enlargement of an Islamic economic order. The present financial crisis has two main effects in the UK. First the banks have less willing to lend money, driving up the price of borrowing. The main purpose of this dissertation is to present financial structure for Islamic financial crisis for UK market. This dissertation is to identify various aspects of the Islamic banking with respect to the conventional banking approach.Â This dissertation is for analysing different crisis in the UK financial aspects and different approaches of the financial crisis.
Lending and investigating are treated differently; in the Islamic banking loans are interest free based but carry a service charge. This dissertation is based on extensive literature review and a personal interview with a professional with in an Islamic bank in London. Islamic bank is different from conventional banking in more aspects. As an alternative to support on interest for investments and for loans Islamic banks offer different kinds of accounts and a variety of financing and banking alternatives all conforming to the Islamic law. To work according to Sharia is basic for the banks and their different actions those are humiliated by an unexpected Religious Supervisory Board. The functioning of the Islamic banking system varies to various extents between Islamic countries. Several organizations work to accomplish international consistency and agreement to make the banking performance more clear as crystal and attractive.
The accomplishment of harmonisation as well as the performance of the banks is essential for the expectations of Islamic banking. The present financial crisis has had two main effects in UK. Primarily, the banking systems have turned into less willing to lend money, motivating up the price of scrounging. Secondly some of the financial institutions have been confounded most importantly for the private finance initiative industries. Islamic banking system wallops steadiness among flexibility and supervision. The advertisers of Islamic banking system experienced that credit could not take place in the financial Islamic communications, because this system operates based on joint venture between the client and the banks. There is social obligation surrounded by the Islamic banking.
3.AIMS & OBJECTIVES
AIMS & OBJECTIVES:
The main aim of this research is for analysing the financial crisis of UK, if they are following Islamic banking operations, this includes the following operations.
GOALS RELATED TO MACRO OPERATIONS OF ISLAMIC BANKING IN UK:
HANDLING CREDIT CARD FORMATION AND MONITORY POLICY:
The universal responsiveness is most of the traditional procedural implementation of the central bank are superfluous under Islamic banking system. These implementations include minimum cash store requirements, liquidity requirements and general credit maximums on different lending actions of the Islamic banking system. Monitory policies under Islamic banking system are distributing as a somewhat cheering role to money. Equating goals of monitory policy in Islamic banking to those of the free marketplace economies would not be fair since there is an important difference in importance of two systems to economic principles and socio-economic impartiality. Monitory policy under Islamic banking allocates a somewhat inactive role to money. There is a returning importance in Islamic banking literature on 100 percent preserve requirements. This authorizes the central bank a direct control of bank a straight control of money stock. One solution for these uncertainties is nationalization of commercial banks, which has already occurred in UK banking system.
MANAGEMENT OF FINANCIAL STRENGTH OF THE BANKING SYSTEM:
In the nonexistence of deposited insurance the benefit of each depositor depends on the achievement of these depositors. It is supposed that the depositors in Islamic banks, due to dread of capital or profit losses in the event of having no insurance experience, would not stay behind with the Islamic banks. The benefit of each depositor depends on the different actions of other depositors in the banking system.Â The specification of deposit insurance has concentrated on the problem of financial frights. Lack of insurance coverage is to be considered as a problem for Islamic banking system. It is acknowledged that the depositors in Islamic banking system, due to apprehension of capital and profit sufferers in the event of having no insurance reporting. It does not require the precondition of deposit insurance.
FINDING THE OWNERSHIP OF THE BANKS:
The ownership apprehension of Islamic banks relates mainly to the distributional force on the society. Particularly, credit formation power of commercial banks with limited preserve ratios has been the point of intentional. Generally the most Commercial banking systems in UK are indispensable to maintain limited treasury. On the other hand all commercial banking systems in UK are state owned.
EVALUATION OF CAPITAL MARKETPLACE AND FINANCIAL INSTRUMENTS:
Islamic banks functioning under conventional banking framework in UK lacks capital market and instruments for venture. Availability of Islamic capital market and instruments help enlargement of these banks.Â Enlargement of Islamic capital market and financial instruments also helps generating the environment for management financing.
The conventional Islamic banking function has need of legal protection. A systematic evaluation of all applicable regulations having a posture on banking businesses is needed for this issues. Laws are relating to the companies, investment and legal actions need to be appraised and reformulated to suit the prerequisite of the well-organized functioning of Islamic banks. It is not satisfactory that company law maintains to talk about different kinds of bonds and different types of interests while ignoring contribution activities and earnings.
ISSUES RELATING TO MICRO OPERATION OF ISLAMIC BANKING SYSTEM IN UK:
MONITORING INCREASED COST OF INFORMATION:
The monitoring price as well as the cost of lettering and implementing contracts would be higher in the interest based conventional banking systems. This is with musharaka, the bank investments, and the working capital of a business pleasing a position in the economy. In financing a administration company is produced which floats a flexible protection. The bank may fully investment a project within the scope of its agreement. With musharaka, the bank finances, and the working capital of a business endeavor taking equity position in the economy. The advanced cost of information could be main delay in the effective accomplishment of the PLS system.
CONTROL OVER COSTS OF FUNDS:
Islamic bank is interest-based free bank and its profit subject to the cost of funds as it is in a agreement to know in progress. The depositors are paid a sector of the bank's proceeds the volume of which is really indecisive.Â As Islamic bank is operating with provides interest free based approach it is differentiated from the conventional banking approaches as conventional banking environment provides interest and it exploits profit subject to the cost of funds as it is in a situation to know in advance. Ideally Islamic banking provides to calculate their rate of return on PLS deposits once in a while. The usual practice is that the deposits are biased to replicate differences in their development. In spite of that individual banks are permissible to slightly deviate from the anticipated rate of return.
MARKUP FINANCING IN THE BANKING ENVIRONMENT:
Eventual main objective of Islamic banking system speculation oriented long term sponsorship. There is extensive concern that little dissimilarity can be originated between mark up, knowledgeable by Islamic banking systems and conventional banking systems. Mark up was observed by the banks as a contrivance to give a hand the transition to Islamic banking system without disconcerting the system. Because the final goal and most important is Islamic banking is investment oriented long term economics, the transition from mark up to evenhandedness investment would also demand a greater increase between different types of rates of lot of returns to the banks and to their different depositors.
The authentic substitution of different types of interests mainly in the Islamic financial system is the appearance of profit or loss sharing along with qardal hasanah, while the other techniques like Murabahah, ijara wa iqtina, and bai-muajal, ijara, cannot be of corresponding to some different implications in achieving Islamic socio economic objectives of the system. The characteristic that makes the interest based system inequitable is that the contributor of capital finances is assured a fixed return while all the menace is natural by the user of these capital resources. Equality demands that the source of capital finances should share the risk with the capitalists if they wish to produce profit.
CONCENTRATING ON DISPROPORTIONATE RESORT TO THE MURABAHAH MODE:
Islamic banks influence murabahah transaction in two stages. The frequent analysis against Islamic banks, which is applicable in many counts, is that it takes source to disproportionate use of Murabahah mode in financing. Yet it is not a contravention of Shari'ah as long as the murabahah agreement is accurate from Shari'ah view point and is free from intentional fraud.
The opposition is from two groups of people, the first group believes Murabahah to be the same as prearranged rate of return. But this is not right; the Murabahah is dissimilar from interest based approach. The client has a right to change his brain and the bank runs the possibility of losing the money it has endowed in this particular transaction.
USE OF INTEREST RATE FOR FIXING THE PROFIT MARGIN IN MURABAHAH SALES:
Still Islamic banks have to avoid more than the established interest rate or utilizingÂ the clients through clerical methods as engaged by some banks. It is also assessed that Islamic banks operate interest rate as a standard for setting up the profit margin in the Mudarabah sales. To be reasonable there is no recognized method of avoiding the suspected link up as long as Islamic banks coexist with conventional banks.
FINANCING SOCIAL CONCERNS:
The Islamic banking operations are typically instigate to be paying concentration in enlarging credit services to embedded commercial organizations which often obtain credit facilities from both conventional banking system and Islamic banking system without authentic promise or an effort to free them from the proscribed way of finance. Islamic banks are indicted of following the identical path of line as follow by the conventional banking system as regarding to the social financial characteristics. These banking systems are frequently derive to be paying attention in enlarging credit conveniences to well established profitable organizations which frequently get embrace of credit services to well establishment commercial organizations which often obtain credit facilities from both conservative approaches and Islamic banks devoid of real undertakings or endeavor to free them from the disqualified possessions of finance.
DETECTION OF POSITIVE RESPONSES:
It is recognized information that the fashionable state is always in have need of funds and possessions put into operation of useful projects, Islamic bank not succeed to suitable high profit from high-return projects since the holders of these projects have a preference of borrowing from conservative banks where the cost of scrounging revolves out to be subordinate. That means, only the schemes with charges of return equivalent to or below the marketplace rate of interest are missing with the Islamic banks. Islamic banks are not accomplished to authorize on the ventures having rates of return below the presented rate of interest thereby precautionary their capability to operate investment opportunity to the level of their conventional accompaniment. This expresses to preventing the application of profit loss sharing forms such as Mudaraba and Musharaka. Islamic banking systems at more conditions, exchange over to other advances of financing such as Murabahah is useful for lending money.
FAILURE OF ISLAMIC BANKS TO ESTABLISH COOPERATION AMONG THEMSELVES:
Islamic banks are responsible for their necessities of progressiveness to one another, a state of relationships to get in the way the accomplishment of mutual collaboration surrounded by them. In spite of good objectives, Islamic banks are answerable for their lack of non-judgmental attitude to one another.Â This is in spite of the determined accomplishments of the Islamic Development Bank to transport them nearer to one another and merge their stands.
In analyzing the effect of Islamic banking on UK financial crisis, there may arise various questions to understand the Islamic banking approaches and as well as the UK financial crisis. Before observing UK financial crisis, if they follows Islamic banking there should be a need to understand what is Islamic banking?, how they reflecting on financial crisis?, major modes of Islamic banking and finance?, can Islamic banking play any role in economic development of UK?, and what is the Islamic bank global scenario? These research questions should be evaluated for understanding proposed system effectively.
RESEARCH QUESTION ONE: WHAT IS ISLAMIC BANKING?
Islamic banking cam be defined as a banking in system by means of the attitude and evaluation system of Islam and governs, in accumulation to the conventional good authority and risk management regulations, by the ethics put down by Islamic Shariah. Islamic banking provides interest free banking operations for loans as well as for investments, but charges only some service charge. Interest free banking is a constricted conception indicating a number of banking mechanisms or procedures, which keep away from interest. Islamic banking is the most universally is expected not only to avoid interest based dealings prohibited in the Islamic Shariah system but also for avoiding unprincipled practices and contribute uncompromisingly in achieving the targets and different objectives of an Islamic economy.
RESEARCH QUESTION TWO: HOW ISLAMIC BANKING REFLECTS ON FINANCIAL CRISIS?
Islamic banking eliminates interest but it does not proscribe all gains on capital. It is only the raise programmed or obligatory in excess of the principal of a loan that is prohibited. Islamic ethics simply require that presentation of capital should also be measured while rewarding the capital. The prevention of a risk free return and authorization of trading, as preserve in the Verse 2:274 of the Holy Quran, creates the financial actions in an Islamic system real asset-backed with ability to foundation value addition. Generally Islamic banking systems are based on possibility sharing, personalizing and management of various substantial possessions, contribution in the process of operating different operations, agreement and production dealings using a variety of Islamic banking modes of finance. Islamic banking system compact with different asset supervision for the purpose of income development. The Islamic banking systems will have to carefully handle the inimitable risks concerned in management of various assets by attachment to best presentation of commercial governance. The different forms of businesses permissible by IslamÂ Â was open to the elements integrated joint ventures sustained on distribution of risks & profits and requirement of services through trade, both currency and recognition, and the most leasing behaviors. Along with the opportunity of profit, the legal accountability of risk of loss on capital breaks up with the capital itself; no other concerns can be made to accept the weight of the risk of loss. Financial communications, in order to be satisfactory should be interrelated with different goods and services or benefits. At macro level this characteristic of Islamic banking and finance system can be accepting in creating better guideline in conduct of financial and economic policies. In addition to trading, Islam banking system permits leasing of assets and getting rentals adjacent to the assets taken by the resident.
RESEARCH QUESTION THREE: WHAT ARE MAJOR MODES OF ISLAMIC BANKING AND FINANCE IN UK?
Following are the main modes of Islamic banking and finance:
Exactly it means a sale on mutually decided profit. Precisely, it is an agreement of sale in which the seller announces his cost and profit. Islamic banks have implemented this as a mode of financing.
Ijarah is an agreement of a recognized and projected one against a specific and lawful return or deliberation for the service or return for the benefit planned to be taken, or for the endeavor or work proposed to be finished.
An agreement under which an Islamic bank supplies equipment, building or other assets to the client adjacent to an agreed rental together with a independent responsibility by the banking system or the client that at the end of lease period, the ownership in the advantage would be transported to the leaseholder.
Musawamah is a widespread and customary category of sale in which price of the product to be traded is disquisitions between merchant and the buyer without any orientation to the price paid or cost incurred by the former.
It is a contractual conformity for industrialized goods and merchandise, for allowing cash imbursement in advance and for future delivery, future payment and future delivery.
Accurately it means a recognition transaction. Strictly, it is a financing technique for approving by Islamic banking system that acquires the different forms of Murabaha and Muajjal.
This is also one form of joint venture where only one party provides the funds for operating business operations while the another party presents expertise and management. Then the concluding is referred to as the Mudaraba.
Musharakah means a connection documented under an agreement by the mutual authorization of the parties for sharing of profits and losses in the joint dealings in operating their business operations.
Salam means an conformity in which advance compensation is made for goods to be delivered afterwards. The retailers take for granted to supply some particular goods to the buyer at a prospect date in replacement of an advance price fully remunerated at the time of agreement.
RESEARCH QUESTION FOUR: CAN ISLAMIC BANKING PLAY ANY ROLE IN ECONOMIC DEVELOPMENT OF UK?
Islamic banking system while running within the scaffold of Shariah and can carry out a fundamental task of resource draft, the Islamic banking system is populated through Interest free approach and their efficient allocation their resources on the basis of both PLS like, Musharaka and Mudaraba and non-PLS like, trading and leasing based classes of different modes and strengthening the payment systems for making a payment considerably to economic growth and development of an organization. There are different sharing modes those can be useful for short term, medium term and long-term business enterprise financing, introduction financing, pre shipment send overseas financing, operational capital financing and financing of all single transactions. In order to guarantee maximum responsibility of Islamic finance in enlargement of the financial system it would be indispensable to create an atmosphere that could encourage financiers to allocate more resources for Musharakah or Mudarabah based financing of industrious units, particularly for small enterprises.
The non-PLS techniques, as satisfactory in the Islamic Shariah, not only accompaniment the PLS modes, but also make available the flexibility of preference to get together the needs of dissimilar subdivisions and economic agents in the society. Trade based performances like Murabaha with less significant risk and enhanced liquidity options have numerous advantages. Different procedures may not be as industrious in sinking income differences and manufacture of investment merchandise as different participatory methods. Ijarah interconnected financing that would require Islamic banking systems to obtain and continue the possessions and afterwards organize them according to Shariah regulations, require the banks to connect in performance beyond financial intermediation and can be very much causal to the arrangement of fixed assets, medium term and long-term savings. On the foundation of the above discussion it can be said that make available and command of capital would persevere in an interest free conditions with supplementary compensation of greater supply of possibility based capital along with more knowledgeable allocation of resources and self-motivated role of banks and financial institutions as obligatory in asset based Islamic presumption of finance.
Islamic banking system can not only transmit on without interest but also could be supportive in accomplishing the intention of development with distributive evenhandedness by increasing the supply of risk capital in the economy, make probable capital configuration and improvement of fixed assets and real sector company behaviors. It is also make available inspiration to improve development as the seller would spare no enterprise in producing, at least the magnitude needed for declaration of the loan taken by him as advance price of the merchandise. It would smooth the progress of savers to communicate their savings to speculation openings without waiting, for occurrence, until the manufacturing time of agricultural products or the time when they essentially require business goods and without being obligatory to waste their savings on disbursement.
Islamic banking system might assign in fund management and collection management through a number of advantage organization and leasing, trading companionship. Such company's entities can carry on in the financial system on their own or can be an indispensable part of some big conglomerate or subsidiaries, as in the case of Universal Banking in Europe. Different banking systems would manage Investors techniques to congregate collectively possessions on Mudarabah establishment and to some amount on organization basis, and use the possessions so composed on Murabaha, leasing or equity donation basis. Supplementary can be produced for specific sectors of organizational operations. Low risk Funds based on short-term Murabaha and charter operations of the banks in both local as well as different Foreign exchange would be best suitable for risk investors who cannot have sufficient money possible fatalities, in PLS based savings. Under evenhandedness based Funds, banks can recommend a type of equity disclosure through specified conjecture accounts where they may identify possible speculation chances from existing or new business customers and request account proprietor to donate.
5. BACK GROUND
Over the last three decades Islamic banking and finance has residential into a fully fledged system and regulation supposedly mounting at the rate of maximum of 15 percent per year. For the present day, Islamic financial different places organizations, in one form or the other, are working in about 75 countries of the world. As well individual financial institutions working in many countries, efforts have been happening to implement Islamic banking on a country wide and widespread basis in a number of countries.Â The mechanisms used by them, both on assets and legal responsibility sides, have developed considerably and therefore, they are also contributing in the money and capital market communications. In UK Islamic banking systems and Islamic financial institutions are working corresponding with the conventional system. Bahrain with the prevalent thoughtfulness of Islamic financial associations in the Middle East region is hosting so many Islamic financial institutions advertising in branch out activities including commercial banking systems, investment banking systems, funds administration and offshore banking systems. It follows a double banking system, where Islamic banks activate in the environment in which Monetary Agency affords equal occasions and treatment for Islamic banks as for predictable banks.
The share of Islamic banking system operations in UK has developed from different sectors. They have an arrangement to improve this share to 20 percent excessive by the year 2011. There are some speculative differences in considerating and Shariah location of various concurrences like retailing and purchase of balance due mechanisms and contribution of gifts on savings and financial identification. This dissertation investigation should be familiar with the condition of UK if they follow Islamic banking system operations. Sharia banking system is fast on the increase and main stream banks are beginning to offer Islamic accounts. Like other Islamic banks something like most of the banks in Sudan are relying in the previous years on Murabaha investment. The share of Musharaka and Mudaraba procedures is on increase and currently comprises about 40 percent of total bank investments. The Islamic financial system has taken a good quality establishment in Sudan; considerable tribulations still stays behind to the banking system are addressed.
There are some insubstantial differentiations between Islamic banking system in Iran and the majority movement of Islamic banking systems and financial systems. Outstanding to the mounting amount of capital accessibility with Islamic banks, the enhancement of Islamic financing techniques are very popular with their effective services and the enormous obligation of shipping magnification in different Muslim countries there has been a large number of project investment transactions predominantly in the Middle East region. Islamic banking systems now make a payment in a wide financing sphere of pressure comprehensive from simple Shariah acquiescent retail products to highly complex approved finance and large scale project lending. These different projects are inter alia; include power stations, roads, water plants, bridges and other communications projects.Â
A devoted high court has been set up to hold Islamic banking and finance cases. Banks can also suggest open ended Multiple Equity Funds to be endowed in stocks. Small and medium activity sector has a great probable for increasing production capacity and self employment openings in UK. Enhancing the role of financial sector in progress of sub sector could moderate the serious problems of unemployment and low level of sell to other countries. The banks may commence finance resources with various environmental locations.
The business sector and the money-making banks may set up an understanding of such Funds. Instead of distributing in the bank's profit, the investors would distribute the profits of the venture in which the funds are placed with the commercial bank taking a management fee for its work. There are of different companionships has been a substance of discussion in the Shari'ah experts in the present century. A compilation of the Shari'ah professional is of the observation that it is not acceptable for a Muslim to understanding in the allocation of such a company, even if its main big business is halal. Their fundamental disagreement is that every investor of a business is a sharik of the company and each sharik according to the Islamic jurisprudence is a delegate for the other acquaintances in the material of the cooperative business. The mere procure of a share of a company symbolizes permission from the investors to the company to transmit on its business in whatsoever comportment the management considers vigorous.
If it is acknowledged to the investor that the companionship is Islamic banking management, concerned in an un-Islamic operations, he embrace the contribute to that company, it possessions that customers authorizes the administration to continue with that un-Islamic transaction, in Islamic banking operations will not only be accountable for giving customers permission to an un-Islamic transaction, but that operations will also be technically recognized to the customer, because the management of the company is working below customer implicit authorization. When a companionship is investment on the basis of interest, its finances engaged in the business are adulterated. When the corporation gets seize of interest on its deposits an infected element is automatically incorporated in its revenue which will be disseminated to the shareholders through payments. An outsized number of the current intellectuals do not support this vision. They squabble that a joint accumulation company is essentially different from a simple joint venture. In partnership, all guiding principle decisions are taken by the agreement of all the partners and every one of them has a negative response authority with measured to the guiding main beliefs of the business. All the procedures of an organization are theoretically attributed to each coworker. The policy pronouncements in a cooperative stock company are taken by the preponderance.
This research methodology follows the following approach for analysing the effect of Islamic banking on UK financial crisis:
Research plan will be provided through the framework to be used as a channel for collecting data for analysing particular research approach and for analyzing individual data. But it is not essential that a meticulous research design is constantly the best. Understanding with dissimilar investigate devises will normally provide the researcher with the competence to match a research problem with an appropriate design pattern. Research methodology depends only on a large amount on the objective inhabitation and how unproblematic or difficult to admittance it. The second factor which manipulates research methodology is more important of decisions which will be engaged supported on the research approach. This dissertation research is done in different views for producing better results; there are three different research approaches in research methodology.
The dissertation research is said to be exploratory research when to use no previous representations as a foundation of the research. Exploratory research is almost not to know something about the substance at the beginning of the project. Exploratory revisions make available just round the corner into and comprehension on any different issues. Exploratory research is a type of research conducted because when a problem has not been clearly defined.
Descriptive research approach involves in collecting quantitative information. It describes categories of quantitative information. This type of research is also known as the statistical research. Descriptive research describes data and characteristics about the population, descriptive research deals with everything that can be counted and studied. This research is also called as the survey research.
Causal research determines the consequences of one thing on the other hand the consequences of one changeable on the other. Causal research is usually used for determining what impacts for a specific change will have on existing standards and permits different advertise researchers to forecast theoretical state of relationships upon which a company base its production plan.
This research study is having one main objective to check the financial crisis of UK, if they are following Islamic financing operations. This main objective can achieve by the following sub objectives.
WHETHER MUSLIMS INVEST IN FINANCIAL PRODUCTS OR NOT
Muslims have availed of existing products and are unlikely to abandon for the new Sharia complaint products. The whole saving and borrowing patterns of UK Muslims is likely to change.
THE REASONS FOR THE INVESTMENT
The majority Muslims in spite of having information relating to the Shariah agreeable opportunity, they have a first choice to invest in Non Shariah acquiescent goods. Muslims can be potential for the corporation, if unbelievable progress motivating to Invest is run amongst Muslims.
FREQUENCY OF INVESTMENT
The nature of the study is exploratory, used to clarify the thoughts and operations about the research problem on how to do casual research. The methods used in the exploratory studies can range from the usual research to analyse the selected areas.
ANALYSIS OF PLAN
Analysis plan is the base point for any dissertation research. This research analysis is based on the some specific answers given to some different questions. It is very important to have an analysis plan with intelligence even before disappearing to the field of the researcher. It is from time to time supposed that it can be prepared later or that all possible analysis can be completed anyway, so why difficulty to plan the analysis in progress. But for many motivations it is very important to do.
7. LITERATURE REVIEW
Islamic banking is working based on the Islamic economic system and procedures and it is not only for Muslims only. The main objective of the Islamic banking is welfare of the humanity; Islamic is not confined to concepts and ideas only. The methodological approaches of the Islamic banking approach are to follow different approach compared to the conventional approach. Islamic banking support various salient features like, Islamic banking is not providing interests for deposits, but capital is guaranteed. As Islamic banking operations are not providing interest the non Muslim investors are not showing deliberation to go through with Islamic banking and financial operations. The shares of an organization are to be discussed only if the company possesses some illiquid assets.
Islamic banking treats landings and investments differently, this banks provides loans without interest but carries service charges, while investing is on a profit and loss share basis. There are different approaches for handling financial operations in UK with Islamic financial banking approaches, like zero interest capital guarantee, lending and investigating, participatory financing, financing by lending, interest free commercial banking, loan default insurance, participatory financing through the commercial banks, compensation for inflation government bonds, modular implementation.
WHAT DOES ISLAMIC BANKING OFFERS?
SAFEKEEPING IS CALLED AS WADIAH
Â Â Â Â Â Â Â Â Â Â Â Â Â For deposited manufactured commodities or Wadiah conference, a bank is the protector and trustee of resources. A person deposits finances in the banking environment and that bank promises compensation of any measurement or the complete total of the deposit when stipulated by the depositor. The depositor at the banks judgment may be given Hibah as a noticeable manifestation of appreciations for the use of possessions by the bank.
PROFIT SHARING CALLED AS MUDHARABAH
Mudharabah is a income distribution consideration or conventionality between a capital merchant and a capitalist. The capitalist is presented with finances by the capital provider to inaugurate a business activity with efficient sources. Any proceeds completed will be shared between the capital supplier and the manufacturer according to the programmed profit sharing ratio. The losses shall be tolerated by the capital supplier of the organization.
JOINT VENTURE CALLED AS MUSYARAKAH
This perception is in general functional for business organizations or joint ventures. The proceeds made are shared while losses incurred and these will be separated based on the equity contribution ratio. All other conditions appropriate to musyarakah are valid for musyarakah. The musyarakah can be used where the retailer is not in an understanding to decide specifically the costs of merchandise that he is offering to sell. It is an agreement under which the Islamic bank offer funds, which are assorted with the funds of the dealing enterprise and others. The profit is circulated among the partners in pre agreed ratios, while the loss is borne by each collaborator strictly in percentage to respective capital contributions.
COST PLUS CALLED AS MURABAHAH
The selling's of commodities at an ordinary consequence, which comprises a revenue margin agreed by both of the festivities. The acquisition and selling price and the profit margins and that must be noticeably affirmed at the time of the sale conformity. Istisna'a can be used for make available that the competence of investments that produces or constructions of houses, undergrowth, developments and construction of association.
DEFERRED PAYMENT SALE CALLED AS BAI' BITHAMAN AJIL
The selling's of goods on a deferred compensation basis at a price, which includes a profit margin decided by both parties. The undertaking or the guarantee does not become an integral part of the lease agreement to make it provisional.
AGENCY CALLED AS WAKALAH
This situation is when a person appoints a representative or delegates a responsibility to another party to commence transactions on behalf. As a representative the bank will be compensated a payment for the services it provided.
INTEREST FREE LOAN CALLED AS QARD
A loan comprehensive on a generosity foundation and the borrower is only requisite to reimburse the amount borrowed. However, the borrower may, compensate superfluous as a token of approbation. It is a consultation in which the bank produces a earnings fringe on his acquired prices and permits the consumer to pay the price of the manufactured goods at a prospect date in a protuberance sum or in payments. It has to principally announce the cost of service and the periphery of revenue is reciprocally accepted. The price permanent for the product in such a business can be the similar as the pustule penalty or higher or subordinate than the smudge consequences.
HIRE PURCHASE CALLED AS IJARAH THUMMA BAI
There are two different contracts: Ijarah contract and Bai contract. The agreements are commences one after the other. When the leasing interlude ends then the Bai agreement comes into an effect for enabling the customer.
GIFT CALLED AS HIBAH
An indication prearranged in return for mortgage given or advantage obtained. The most important dissimilarity between Islamic and unsurprising banking is the prevention of interest in Islamic banking system. Islamic banking movement must fulfill with Shariah main viewpoint and avoid banned activities.
PRINCIPLE OF SHARIA''H INVESTMENT
Islamic Investment is a cooperative collection in which the shareholders make a imbursement in the form of money for the standard of its conjecture for earning halal proceeds in authoritarian conventionality with the main beliefs of Islamic Shari'ah. The subscribers of the finance will accept a document confirming their compensation and permiting them to the profits essentially gathered to the finance.
Firstly, as an alternative of a fixed return together up with their face value, they must carry a profit in point of fact earned by the Fund. Therefore, neither the most important nor a rate of profit can be assured. The subscribers must enter into the fund with a clear thoughtful that the return on their contribution is tied up with the actual profit earned or losses undergo by the Fund. If the Fund earns enormous profits, the return on their contribution will increase to that percentage; however, in the case the Funds experiences loss, they will have to share it also, unless the failure is caused by the carelessness or unprofessional conduct, in which case the supervision, and not the Fund, will be legally responsible to balance it. Through this condition is involved in so many conflicts and people are not interested to take risk this is not so populated and this will not shows effect on financial crisis.
Secondly, the amounts so pooled jointly must be invested in a business satisfactory to Shari'ah. It means that not only the direct of investment, but also the terms decided with them must conform to the Islamic values. Keeping these different basic fundamentals in different views, the Islamic banking speculation finances may accommodate a assortment of methods of investment.
In evenhandedness finance the quantity are advanced in the contributed to the joint stock organizations. The proceedings are mainly accomplished through the investment gains by procuring the shares and advertising them when their charges are augmented. Proceedings are also accomplished by the payments disseminated by appropriate companionships. It is understandable that the main commerce of a companionship is not officially recognized in terms of Shari'ah, it is not acceptable for an Islamic Fund to acquire to hold or sell its shares because it will involve the direct participation of the share holder in that proscribed production. The contemporary Shari'ah authorities are almost undisputed on the position that if all the communication of a companionship are not in full conventionality with Shari'ah which comprises that the corporation scrounges currency on concentration that maintains its additional in an concentration attitude account, different types of shares can be acquired, detained and advertised without any impediment from the Shari'ah side. But obviously, such corporations are extremely uncommon in the existing stock markets. Approximately all the companionships quotation in the current accumulations marketplace are in some way concerned in an movement, which contravenes the commands of Shari'ah. Even if the most important production of a companionship is halal, its borrowings are supported on interest. On the other hand, they maintain their additional money in an interest comportment explanation or purchase interest posture bonds or securities.
This dissertation research is continued with the strategic approach and in this dissertation includes two different types' research approaches one is the survey study and another one is the approach in multiple case study. In the first approach is a suitable method is used for collecting questionnaires and for identifying factors affecting on the research topic.
Different kinds of survey research are presented with the great impact on the research. This dissertation used a descriptive survey and the descriptive survey is aimed to describe some questions for understanding the survey like what situations are occurring, events at the research level and the attitudes and opinions of the organizational persons.
The approach in the multiple case studies is describing the role of top level management, in this dissertation for finding out the role of top level management in supply chain management practices a multiple case study approach is used. This type of research is differentiated from the first approach by which the attitudes of both approaches are fully different in all aspects.
THIS DISSERTATION IS CONTINUED BY ANALYZING DIFFERENT INVESTORS WHICH ARE USING THROUGH ISLAMIC BANKING:
In the light of the abovementioned discussion, dealing in equity shares can be acceptable in Shari'ah area under discussion to the following conditions: This research approach is continued with multiple case study analysis.
CASE ONE: ANALYSIS OF COMPANIES BUSINESSE THOSE FOLLOWING ISLAMIC BANKING:
The main businesses of the company are not violative of Shari'ah. Therefore, it is not acceptable to acquire the shares of the businesses providing financial services on interest, like conservative banks, insurance companies, or the Companies apprehensive in some other businesses not accepted by the Shari'ah, such as the company's manufacturing, selling or offering liquors, pork haram meat, or involved in gaming, night club activities. So the Islamic banking operations are not operating in all areas of businesses in UK.
CASE TWO: ANALYSIS THROUGN HALAL BUSINESS APPROACH
If the main businesses of the companies are following halal principle, the most popular companies are like automobiles, textiles etc... but they deposit their superfluous amounts in an interest posture account or they will borrow money on interest based approach, the shareholder must communicate his dissatisfaction against such communications, preferably by raising the profits against such activities in the annual general meetings of the company. If all the possessions of a company are in the form of money, they cannot be obtained or sold excepting on equivalence value because in this case the shareholders share represents money only and the money cannot be operated in excluding at equivalence
CASE STUDY THREE: IS THIS ISLAMIC BANKING APPROACH IS BENIFIAL FORÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â UK FINANCIAL CRISIS?
If some income statements from interest attitude accounts are included in the income of an organization, the percentage of such revenue in the dividend remunerated to the shareholder and that must be given to contributions, and that must not be maintained by the organization. As Islamic banking operations are not providing interest the non Muslim investors are not showing deliberation to go through with Islamic banking and financial operations. The shares of an organization are to be discussed only if the company possesses some illiquid assets.
It is a well-known fact that the contemporary state is at all times in need of resources and possessions to apply helpful projects, such as the provision of schools, roads, electricity, and water and telecommunication services. Generally, government's alternative to issuance of bank account bills among interest in agreement with the appearance used by conventional banks. Islamic banks are mandatory to go into this turf so as to prove their facility to play their role in the financing of developments in a method that be conventional to the Islamic arrangement from beginning to end, the issuance of performance of Musharakah, advance-sale, salam and such other appearances that convince the requirements of the state for investing and, at the same time, advantage from speculation of their redundant liquid excesses.
- This analysis identifies that the UK financial crisis would be effected slightly by the Islamic banking operations but would be under same financial crisis if they follows Islamic banking.
- This dissertation identifies that UK would be under same financial crisis, why because; the least participation of Muslims in stock market is either because of spiritual matter or because of not having superfluous.
- Lack of knowledge regarding Islamic Investment opportunity is happening in UK.
- Most Muslims in spite of having knowledge concerning the Shari'ah acquiescent opportunity, they have a preference to invest in Non Shari'ah compliant Products.
- People who are pleased are highly satisfied & the people who are not pleased are highly dissatisfied in investing into the Islamic finance.
- Muslims can be potential for the company, if incredible movement interesting to Invest is run among Muslims.
- Generally most of the Muslims are aware of Shari'ah philosophy and try to follow that philosophy fully or partially. This is also one restriction for investment.
- This originated that more than half part of Muslim does not invest in any financial institution.
This dissertation discussed various aspects of Islamic banking operations for identifying UK financial crisis, if they follow Islamic banking and the analysis is continued by discussing various aspects regarding this research including different questionnaires for understanding different views of Islamic banking operations in UK, different research methods, he following are the different discussions in this dissertation. The modern have different views about this dissertation. Some concerns are of the view that the part of illiquid assets must be 51% at the least. They dispute that if such possessions are less than 50%, the most of the resources are in liquid form.Â There are different opinions of individual shareholders those can be taken precedence by a majority decisions. Each and every act taken by the company cannot be documented to every shareholder in his individual capability. If shareholder elevates a doubt in opposition to a particular transaction particularly in an Annual General Meeting, but his opposition is canceled by the majority of concerns, it will not be fair to bring to close that shareholder has given permission to that transaction in individual capacity, particularly when shareholder proposed to remove from the income applicable to that particular transaction. If a company is occupied in a halal business it keeps its additional cash in an interest bearing account where from a small supplementary income of interest will get.
What is Islamic Banking?
Islamic banking has the same principle as a conventional banking excepting that it operates in accordance with the rules. Islamic banking structure is based on risk-sharing, owning and managing of physical goods, contribution in the process of operating, charter and production deals using a variety of Islamic modes of finance. As such, Islamic banks compact with asset direction for the purpose of income invention. They will have to carefully handle the unique risks apprehensive in management of assets by devotion to best performance of corporate governance. Once the banks have steady stream of Halal income, depositors will also obtain stable and Halal income.
How UK financial crisis reflects if they would follow Islamic banking systems?
The UK economic growth may affected by the Islamic banking principles. Islamic banking disallows interest on money but doesn't prohibit all gains on capital. Islamic banking is based on risk sharing, owning and management of physical goods, participation in the process of trading, leasing and manufacture contracts using various Islamic approaches of finance. Islamic moralities mainly require that the performance of capital should be deliberated while gratifying the capital. The main purpose of this dissertation is to present financial structure for Islamic financial crisis for UK market. This dissertation analysis is mainly for identifying various aspects of the Islamic banking system with respect to the conventional banking approaches.Â This dissertation is for analysing different crisis in the UK financial aspects and different approaches of the financial crisis. Lending and investigating are treated differently; in the Islamic banking loans are interest free based but carry a service charge.
This dissertation focused for analyzing financial crisis of UK, if they follow Islamic banking activities, this analysis is continued with the analysis of various operations operated by Islamic bank in UK and the rules and principles of Islamic banking. This dissertation concluded that this type banking operations are happening in eastern side countries, because of Muslim population over there, this dissertation is mainly analyses the financial crisis of UK by analysing the operational activities of Islamic banking in UK. Islamic banking is operates with interest free mechanism for both savings and for investments. Islamic banking is based on the principle of Islamic economic system. When Islamic banking with its moral values first appeared first, it was pleasured as a utopian reverie by the financial surroundings in the world. The approaches are changing progressively and in the last few years the importance neutral conventional banking has begun to difficulty the principles of an increasing number of people. Islamic banking is not very populated in western countries; the revival of Islamic economic system has now become a point central attention in Islamic world.
The UK economic growth may affected by the Islamic banking principles. Islamic banking disallows interest on money but doesn't prohibit all gains on capital. Islamic banking is based on risk sharing, owning and management of physical goods, participation in the process of trading, leasing and manufacture contracts using various Islamic approaches of finance. This dissertation founds that Islamic banking is not only for Muslims but also for other religions for performing their financial operations with some ethical values and principles. In Islamic banking operations they wouldn't provide interest for investments but they maintain secure capital amount and they wouldn't take interest for loans but they take service charges for operating operations.
There are many different issues in macro operations of Islamic banking system, in credit card creation and monitory policy, financial stability of the banking system, the owner ships of banks, lack of capital market and financial instruments, insufficient legal protection. There are issues relating to micro operation of Islamic banking system like, increased cost of information, control over costs of funds, markup financing in the banking environment, excessive resort to the murabahah mode, utilization of interest rate for fixing the profit margin in murabahah sales, financing social concerns, lack of positive responses, failure of Islamic banks to establish cooperation among themselves. This dissertation identifies various problems in Islamic banking and financial operations under the famous conventional banking system operations, like Islamic banking systems are failed due to finance of very high return developments, identifies the allocation efficiency, and loss of distributive efficiency.
The main purpose of this dissertation is to present financial structure for Islamic banking and financial crisis for UK mark