Islamic Banking in Non Muslim Countries

GROWTH AND MARKET SHARE OF ISLAMIC BANKING IN NON- MUSLIMS COUNTRIES
A REPORT SUBMITTED TO DEPARTMENT OF BUSINESS ADMINISTRATION FEDERAL URDU UNIVERSITY KARACHI IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER IN BUSINESS ADMINISTRATION
BY MUHAMMAD MUNEEB KHAN Enrolment No: MBA/E/760/10 Seat no: 1008563
SUBMITTED TO SIR Abdul Aziz
DEPARTMENT OF BUSINESS ADMINISTRATION FEDERAL URDU UNIVERSITY, KARACHI.
Table of contents
TITTLE OF CONTENTS
SERIAL NO
PAGE NO
Acknowledgement Executive summary CHAPTER NO 1 1.0 1.2 1.2.1 1.3 1.3.1 1.3.2 1.4 1.5 1.6 1.7 1.8 1.9 Introduction Interest free banking Verses prohibited interest in the holly Quran Historical background When interest free banking remained an idea When interest free banking become reality Statement of the problem Objective of the study Hypothesis of the study Significance of the study Scope and limitation of study Definition of term CHAPTER NO 2 2.0 2.1 2.1.1 2.1.2 2.1.3 Factors which appeals Muslims and non Muslims towards Islamic banking in non Muslims countries Religious factors Interest free banking Banking system based on Islamic tenets Limpidity and trust
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01 03 04 06 06 07 08 09 10 11 12 12
13 15 15 16 16
2.2.1 2.2.2 2.2.3 2.2.4 2.2.4.1 2.2.5 2.2.6
Financial stability of IB,s in recent economic crises Reputation of Islamic banking Islamic banking emerging as a new industry Islamic banking versatile product Islamic banking vs conventional banking products Concept of partnership by sharing profit and loss
17 18 18 18 18 20
Saturation of conventional banking market 2.2.7 Asset based financing Personal and psychological factors 2.3.1 International standard and consistency in accounting rules of IB 2.3.2 2.3.3 2.3.4 Awareness of IB Advice of friends Neighbors and family has a stronger influence on customer decision 2.4 Situational factors 22 22 21
23 2.5.4 2.5.1 2.5.2 2.5.3 Friendly staff Free chequing services Adequate drive in services Accurate bank statement 23 23
CHAPTER NO 3
CHAPTER NO 4
4.0 4.1 4.2 4.3 4.4 Methodology Research design Sources of data Method of data collection Analytical procedures 39 39 40 40 41
CHAPTER NO 5
5.0 5.1 Data analysis and discussion Empirical analysis 42 49
CHAPTER NO 6
6.0 Conclusion 66
CHAPTER NO 7
7.0 Graphs and tables 69
CHAPTER NO 8
References
8.0
75
TABLES
PAGE TABLE NO NO LIST OF TABLE
TABLE 2.1 Islamic Banking Vs Conventional Banking Products TABLE 5.1 TABLE 5.2 TABLE 5.3 TABLE 5.4 Muslims Population In Non Muslims Countries (In 2009 Est.) 51 England population and Islamic banking growth rate 53 Correlation Regression analysis summary output ANOVA TABLE 5.5 United states population and Islamic banking growth TABLE 5.6 rate Correlation
18
53 54 56
58
TABLE 5.7 Regr ession Analysis Summary Output 60 TABLE 5.8 ANOVA 59 TABLE 5.9 TABLE5.10 Japan population and Islamic banking growth rate TABLE5. 11 Correlation 63 TABLE5. 12 TABLE5.13 ANOVA 64
61
GRAPHS
LIST OF GRAPHS GRAPH NO Graph 5.1 Graph 5.2 England population and Islamic banking growth rate Scatter diagram United states population and Islamic banking growth rate Graph 5.4 Graph 5.5 Scatter diagram Japan population and Islamic banking growth rate
PAGE NO 52
57
62
Graph 7.1 Graph 5.6 7.3 Graph 7.2 Graph 7.4 Graph 7.6 Graph 7.5
Population of UK Scatter diagram Population of USA Islamic banking growth rate of UK Islamic banking growth rate of USA Islamic banking growth rate of Japan Islamic banking growth rate of Japan
69 62 71 70 72 74 73
AKNOWLEDGEMENT
All praise to almighty ALLAH, who deserve all, praise alone. Its only his blessing which enabled us to reach this apex level of knowledge. Or help us for finalizing this thesis. From the beginning it was clear to usthis is not about us or what we can do, rather this is about what God wants from us to do and how He will enable us to do it. This thesis owes its existence to the help, support, and inspiration of many people. In the first place, we would like to express our sincere appreciation and gratitude to our teacher Mr. Abdul Aziz for his support and encouragement during the thesis's work. His help, guidelines and acknowledgement lead us to make it possible. He has provided for an optimum working environment. His uncompromising quest for excellence significantly shapes everyone. we are tempted to individually thank all of our friends but as the list might be long and for fear we might omit someone, we will simply and genuinely say: Thank you to you allfor your love, care and trust For their constant presence and care and instant moral support. we cannot finish without acknowledging how eternally grateful and we are to The One, The Everlasting, The All Determiner, The Trustee, The Dependable and The Protecting Friend that guides us, teaches us to be patient and to never give up.
IS L A M IC BA N K I N G IN NO N MU S L I M CO U N T R I E S
EXECUTIVE SUMMARY
Interest is the back bone of conventional banking without which they never subsist whereas it is not in the case of Islamic banking. Islamic banking is exceedingly swelling not only in Muslims but also in non Muslims countries. As the people get awareness of Islamic banking system they abundantly come towards Islamic banks. This study focuses on the growth and market share of Islamic banking in non Muslims countries where a preponderance Muslim population is living. This study also highlights the Muslims population growth rate and its relation with growth rate of Islamic banking in non Muslims countries furthermore its help to find out ratiocinate of its rapid growth in these countries. It also focuses to find out the factors which have prominently stabilized Islamic banking even in the crisis specifically in those countries. Also find out the factor allure the people towards the Islamic banking. The primary step for entering in any non Muslim country for an Islamic bank is a thorough research about the Muslims population in that particular country and analyzing the trend of population. They must studies the population statistics of Muslims in the country of interest. The factors of invigorating growth determine by generation of hypothesis that there are one main factor enlisted due to which the growth and market share increasing in non Muslims countries day by day. The factor is growth of Muslims population in non Muslims countries. But that is not only single factor there are many other factor which contribute in enhancing the growth rate of IB in non Muslims countries. In our study all others factor remained constant. These factors may be religious, socio economic, situational, service and other personal and physiological factor. These factors are further classified. This basal research study is descriptive type and exploration of the study had propelled out through different secondary sources. Main source of data accumulation was Literature reviews, Books, web browsing, News paper and Articles on Islamic banking. The study capacitates us to understand the growth and marketing share of Islamic banking in non Muslims countries. Finally this study enables us to find out the relation between population growth rate and
IS L A M IC BA N K I N G IN NO N MU S L I M CO U N T R I E S
growth rate of IB and factors which contribute in enhancing growth rate of IB in non Muslims countries. With the help of correlation we find out that in UK, USA and Japan there is positive relationship between Muslim population and Islamic banking growth, if other factors remained constant which might be effect on the growth rate of Islamic banking industry. The results of regression analysis show the impact of Muslim population in growth rate and with the help of derived equation we are able to forecast the growth rate of Islamic banking in that particulars country but remained other all factors constant which might effect on the growth rate of Islamic banking. The actual impact on other factor could not be found because of limitation of the sources and time. The researcher not able to reach or interact with the customer of Islamic banks in non Muslim countries so the other factor would not measure there magnitude in contributing to growth is not known due to the above reason. The value of t stat is greater than 1.96 in all cases. In all countries t value greater than 1.96 shows the acceptation of hypothesis. The results may vary because there are many impregnable factors which have a profound impact on the growth rate of Islamic banking in non Muslims countries and these factors conduce strongly in enhancing the growth rate of IB in non Muslims countries. In our study all these factors which have substantive influence in the growth rate of IB remains constant.
IS L A M IC BA N K IN G IN NO N MU S L I M CO U N T R I E S
Chapter 1
1. IN TR ODU C TI ON
Islamic banking is a banking system that is based on the principles or rules of Islamic law (also known as Sharia, or Shariah) and guided by Islamic economics. A banking system observed the principles lay down by Islamic Shariah. The Islamic laws also called Shariah Islamiliah. That is the system which is consistent with Islamic law. As the name of Islamic banking comes, the concept of interest free banking comes into minds of people. Mostly people explain Islamic banking as an interest free banking only but interest free banking is the narrow concept. Islamic banking is not based only on the prohibitions of the interest but it also based on the fair ethical practices. Islamic banking the most general term is expected not only to avoid interest based transactions prohibited in the Islamic Shariah, but also to avoid unethical practices and participle activity in achieving the goals. Islamic law or principles simply require that performance of capital should also be considered which rewarding the capital interest is called RIBA in QURAN. The prohibitions of a risk free return( interest/ RIBA) and permission of trading as enshrined in the verse 2;275 of the holly QURAN makes the financial activities in an Islamic setup real and backed with ability to case value additional objective of an Islamic economy. There are two basic principles behind Islamic banking are the sharing of profit and loss significantly the prohibition of the collection payment of interest. Collecting interest, writing about interest, calculating interest is not permitted under Islamic law. In the recent time invigorating growth in Islamic banking has been observed in Muslim and non-Muslim countries. The Islamic baking industry is now worth at that time almost an estimated US$ 1 trillions and is widely considered to be one of the fastest growing sectors in the world of finance. Even in the recent global economic crisis Islamic banking shows the stability & strength. Islamic banking give positive impact on global economic even in crises, that thanks to strict regulations administered by Islamic law or Shariah. (Blank, jonah, 1998).
Islamic banking has also been defined by the state bank of Pakistan as, It is an Islamic economic system is harmony with Islamic ethics and value guided by good governance & risk management rules fully laid down by Islamic law
Islamic banking strictly based on Islamic tenets and Islamic economics rules lay down by Islamic Shariah. Any unethical practice & unethical activity get the banking system out of Islamic banking or it will not considered as a part of Islamic banking. Islamic banking has grown by 10-15 percent per year over past decade. There are currently more then 300 Islamic financial institutions spread over 51 countries and over the past decade the Islamic banking industry showing the rapid growth and many new financial institutions are growing very fast. Islamic banking industry has enjoying the growth rate of 10-15 percent per year. That trend is expected to continue. (Sole, Juan, 2007). According to study 100 largest Islamic banks has reported on annual growth rate of 26.7 percent. The market share of Islamic banking is also expected to increase by 15% annually. (source find). In non Muslim countries the recent example of the rapid growth of Islamic banking can be elaborated by the fact that in the United States mainly in California, New York, & Michigan, Islamic finance has also grown rapidly. According to estimation there are six million Muslims in the united states & about one third of the 1.8 million households desire Islamic financing, especially for home mortgages, US$ 300 million revenue was generated by Islamic financial institution by Islamic financing in gore & approximately $ 450 million in 2005. Including $300 million is Islamic mortgages (Norris Kim, 2005). According to one prediction that if the Islamic bank grow with the same rapid speed they will control 40-50 percent of all Muslim saving in the world by 2009/10, while the population of the Muslim in 200 calculated 1.4 billion. (zaher & hassan,2001).
Islamic banking has undergone an emanation in size & significance in an orotund number of countries throughout the world (sundaravajan & Luca Errico 2002).
A rapid growth of Islamic banking operation has been observed in recent time not only in different countries but also in different areas of finance (E-Gamal, 2006). The rapid growth of Islamic banking can imagine with the fact that the growth in the Islamic banking is 20 percent annually over the past few years to an estimated $500 billion. That show that Islamic financial are need top Sharia scholars & competition for top Sharia scholars with financial knowledge is stiff. There are 150 scholars who are globally accepted in the finance world said by Rashid siddiqui, director of the Dow Jones Islamic market index about 20 of them are the rock-and-roll, stars. Islamic scholars are becoming consultants for world class players like deutsche bank which started Sharia complaint metal fund credit Suisse. (Power Carla, 2007). When the name of Islamic banking come the concept of interest free banking come into the minds of people. Interest is prohibited strictly in QURAN.
1.2 Interest Free Banking

Interest is the back bone of conventional banking system with and which they never survive or their main source of revenue is interest. While in Islamic banking system interest (RIBA)is harram & completely banned. While in Islamic banking system interest (RIBA)is harram & completely banned. The literal meaning of interest or Al-RIBA as it is used in the Arabic language means to excess or increase. In the Islamic terminology interest means effortless profit or that profit which comes free from compensation or that extra earning obtained that is free of exchange. Hazrat Shah Waliullah Dehlvi a great scholar and leader has given a very concise and precise definition of interest. He says,
"Riba` is a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed."
Islamic banking means the institutions that provide the people both individual and businessman various financial products in conformity to Islamic religious practices. In Islamic dogma any sort of either payment and receipt of interest (RIBA) at a fixed or predetermined rate is prohibit. There is also prohibition of financing the capital in gambling business alcohol trade and pork. (Vishal dugar, 2007). Islamic banking is strictly based of the Shariah rules which are described by the HOLLY QURAN. In conventional banking system interest use as a tool to attract more customers but in Islamic banking interest is strictly prohibited. The prohibition of interest (RIBA) is come in different places in the holly QURAN.
1.2.1 Verses Prohibited Interest In the Holly Quran

~ Those who eat Riba (usury) will not stand (on the Day of Resurrection)
except like the standing of a person beaten by Shaitan (Satan) leading him to insanity. That is because they say: "Trading is only like Riba (usury)," whereas Allah has permitted trading and forbidden Riba (usury). So whosoever receives an admonition from his Lord and stops eating Riba (usury) shall not be punished for the past; his case is for Allah (to judge); but whoever returns (to Riba (usury)), such are the dwellers of the Fire -they will abide (Al-Baqara,Chapter#2,Verse#275) Allah will destroy Riba (usury) and will give increase for Sadaqat (deeds of charity, alms, etc.) And Allah likes not the disbelievers, sinners. (Al-Baqara, Chapter #2, Verse #276) therein.
Those who believe, and do deeds of righteousness, and establish regular prayers and regular charity, will have their reward with their Lord: on them shall be no fear, nor shall they grieve. (Al-Baqara, Chapter #2, Verse #277)
you who believe! Be afraid of Allah and give up what remains (due to you) from Riba (usury) (from now onward), if you are (really) believers. (Al-Baqara, Chapter #2, Verse #278
If ye do it not, Take notice of war from God and His Apostle: But if ye turn back, ye shall have your capital sums: Deal not unjustly, and ye shall not be dealt with unjustly. (Al-Baqara, Chapter #2, Verse #279)
If the debtor is in a dificulty, grant him time till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew. (Al-Baqara, Chapter #2, Verse #280)
And fear the Day when ye shall be brought back to God. Then shall every soul be paid what it earned, and none shall be dealt with unjustly. (Al-Baqara, Chapter #2, Verse #281) O you who believe! Eat not Riba (usury) doubled and multiplied, but fear Allah that you may be successful. ( Aal-e-Imran, Chapter #3, Verse #130)
And their taking of Riba (usury) though they were forbidden from taking it and their devouring of mens substance wrongfully (bribery, etc.). And We
have prepared for the disbelievers among them a painful torment. ( An-Nisa, Chapter #4, Verse #161)
1.3 HISTORICAL BACKGROUND

With the passage of time as the world become developed more & more the socio economic forces demanding more involved in national economic & financial activities. People need the banks & avoiding the interaction with the banks became impossible. So people rapidly interact with banks to fulfill their business or personal day to day needs. Different banks established in a very short time of Spain and many foreign banks operated in different countries. With in short period the network of banking system expanded through out the world. They are interest based banks. Different individuals & businessman need to make transactions with these bank if they like or not. People tremendously comes towards banks & making a huge transaction with these local & interest based foreign banks the issue of interest is rise. This state of affairs drew the attention & concern of Muslim intellectuals become interest (RIBA) is haram in Islam. Then the story of interest free or Islamic banking starts. Shortly describe the origin of Islamic banking and the people who contribute most of their efforts. According to (Ghafoor, Abdul A.L.M, 1995) the history of interest free banking divided into two parts. when interest free banking remained an idea.
First part:
when interest free banking becomes reality.
Second part:
1.3.1 When Interest Free Banking Remained an Idea

As the popular saying is that necessity is the mother of inventions so in the similar means when the idea of interest free banking seems to be very recent origin. The earliest reorganizations of baking system based on profit & loss sharing rather then
interest is found in anwar qureshi (1946), naiem siddiqi (1948) and Mahmud Ahmed (1952) in late forties the emphasis on profit & loss sharing more elaborated exposition given then by mawdudi in 1950. (Siddiqi, Muhammad Najatullah 1961). Muhammad hamidullahs 1994, 1995, 1957 and 1962 writes abundantly about the evil of interest in the commercial bank & proposed the concept of mudarahabha profit & loss sharing. After that working in the next two decade interest free banking became popular & attracted more attentions and working on interest free banking is start more potentially. Another sophisticated set of works emerged in the late sixties and early seventies by Abdullah al-araby (1967), najatullah siddiqi (1961, 1969) all najjar (1971 &) Baqir al sadr (1961-1974) were the main contributors. After the great contributions of scholars & Muslim economists in early seventies may institutional involvement has been seen. The involvement gives the result that confers of the finance minister of the Islamic countries held in Karachi 1970. An Egyptian study 1972 shows that first international conference on Islamic economics in MECCA in 1976. There conferees very helpful & with the involvement of institutions & governments led to application of theory to practice and result is originated in the form of first interest bank. The Islamic developed bank an inter-governmental bank established in 1975, was born due to there involvement & efforts. (Ghafoor, Abdul A.L.M, 1995).
1.3.2 When Interest Free Banking Become Reality

Previous step show the working & efforts happening on the interest free banking. And known in this step interest free banking become a reality and may interest free banks established in the result of effort describe in previous step. This idea changes into reality with the existence of first Islamic bank. Dubai Islamic bank was set up in 1975 by a group of business man from different countries. It was first private sector interest free bank. Later on two more Islamic banks founded in 1977 under
the name of Faisal Islamic bank in Egypt & Sudan. (Ghafoor, Abdul A.L.M, 1995). But the first Islamic banking practice was undertaken in Egypt owed to Ahmed EI Najjar who took blooming step a establishing a profit & loss sharing saving bank. In the Egyptian town of Mit Ghamr in 1963. At the end of 1969 there were nine such banks in country (ready 1981). These banks engaged in profit & loss sharing business not engaged in interest based transactions (siddiqui 1988). The first saving bank Mit-Ghamr in Egypt established in 1963 was very popular & proposed initially and then closed down for various reasons (Wilson, 1984). Same interest free Islamic banks have tried before on small scale but never survived one banking Malaysia in mid forties & another in Pakistan in late fifteen never survived.
After ten years since the establishment of the first private sector bank in Dubai which was said to be interest free bank more than 50 interest free banks have come into being. But all of there are in Muslim countries. There are some in Western Europe as well In Denmark, Luxembourg, Switzerland and UK. Most of the banks established in 1983(11) and 1984(13) respectively. The numbers have become declined considerably in the following years (Ahmed, Ausaf, 1 994). So with the above reference we imagine that Islamic banking is growing very rapidly not only in Muslim countries but also in non Muslim countries.
1.4 Statement of the Problem

Islamic banking is a weather new phenomenon the recent crises of conventional banking system increased the needs on stable economic system or banking system. Islamic banking system is gaining both importance and growth in world. In Islamic world it is growing with a rapid pace and annual market share is shooting all the time but the point of interest is lies in the fact that Islamic banking is also growing with prominent rate in non Muslim countries. Therefore our study focuses
on the growth on Islamic banking in non Muslim countries. Our problem statement is that to Investigate the relation between population growth in non Muslim countries and the growth rate of Islamic banking Our study will also highlight the certain other potential factor contributing in growth rate of Islamic banking.
1.5 Objective of the Study

The main objective of study is to explore the growth and making share of Islamic banking in non Muslim countries. The purpose of study also elaborated the reason of rapid growth of Islamic banking in non Muslim countries or in other words it describes the factors which motivate the people to adopt Islamic banking. The main factor which we analyze in this study is growth of Islamic banking due to the growth of Muslims population in these countries. There are many other factors which urging the people towards Islamic banking but the study found the relationship between the Islamic banking growth rate and Muslims population. These factors may include religious factors, crux economic factor, personal and psychological factor, situational factor and service factors. But the main objective of the study is to highlight the main appealing factor which urged the people of non Muslim countries towards Islamic banking. And meanwhile this study gives the level of relation of two variables Islamic banking growth and Muslims population in these countries. Our objective of study focus on
1. 2.
To find out the growth of Islamic banking in non Muslim countries. To find out the reason of rapid growth of Islamic banking in non Muslim countries.
3.
To find out the marketing share of Islamic banking in non Muslim countries.
4.
Highlight the attractiveness of IB in non Muslim countries.
5.
The study helps us also to find out the Islamic banking consistent growth and stability in the recent economic crises or the factors which have prominently stabilized Islamic banking even in crises.
6.
This study also elaborated the level of acceptance of Shariah regarding Islamic banking in non Muslim countries.
7.
Study will provide us a better understanding of IB.
8.
Find out the trend or relation between the Muslim population growth and Islamic banking growth. And elaborated that there is any relation between them if relation exits than it is positive or not. The objective of study to broad this study not only enable us to find the factors
which motivate the people of non Muslim countries towards Islamic banking. The study not only elaborated the factor regarding the Muslim customer but also elaborate the factors which given sufficient consideration by non Muslim countries or the factors which motivate the non Muslim customers.
1.6 Hypothesis of the Study

The factors of invigorating growth determine by generation of hypothesis that there are one main factor enlisted due to which the growth and market share increasing in non Muslims countries day by day. The factor is increasing the population of Muslims in non Muslims countries. There are many other factors which motivate people to opt Islamic banking. These factors disunite into religious, socio economic and other personal and physiological, situational and service factors. These factors are further classified. The religious motivating factors may be: Interest free banking, banking system based on Islamic tenets, limpidity & trust, existing of Shariah advisory board. The crux economic factors which motivate the peoples towards Islamic banking or a reason of rapid growth of 10
Islamic banking are: financial stability of IBs in recent economic crisis, Market reputation of Islamic Banking which is a new trend in the market, Islamic Banking emerging as a new industry, Asset based financing, Saturation of conventional banking market, concept of partner by profit and loss sharing basis. The personal and psychological factors may include, long term confidence of people because of international standard and consistency in accounting rules of IB, a lot much awareness of IB, advice of friends, neighbors and family members has a stronger influence on customer decision. The situational factor may include, convenient location, waiting line, depositing and withdrawing money, long transaction and etc. The service factor may include free chequing services, adequate drive in services, accurate bank statement and friendly staff.
Hypothesis prove that increasing Muslims population in these countries increase the growth and market share of Islamic banking in non Muslims countries or not. Ho {Rapid growth is being observed of adopting IB in non Muslims countries due to increasing Muslims population in these countries or not} OR Ho {preponderance Muslim population plays significant role in the rapid growth and increasing market share of IB in non Muslims countries or not} And alternative hypothesis is
H1 {Rapid growth is being not observed of IB in non Muslims countries due to increasing Muslims population in these countries} OR H1 {preponderance Muslim population not plays significant role in the rapid growth and increasing market share of IB in non Muslims countries}
1.7 Significance of the Study

This study is very for significant for checking or analyzing the growth trend in Islamic banking industry. Although Islamic banking industry consistently growing. But this study has importance with respect to growth of IB in non Muslim
11
countries. The result of study may contribute to find out the trend that due to increase in Muslims population the Islamic banking also increase but there are certain others motivating factors which motivate the people towards the Islamic banking. The study also gives a list of motivating factors with the level of significance. The Islamic banks of non Muslim country also the IB industry of Muslim countries get benefit from this study to implement or improve the factors which motivating more the people towards Islamic banking . With the help of study analyze that which factor motivates the people towards Islamic banking. The significance of study is that we get informed about the growth rate is IB in non Muslim countries and market share of IB in non Muslim countries. The significance of study is that with the help of regression analysis we able to predict the growth rate of Islamic banking with respect to population growth. The study able us to easily analyze the future trend of IB in any non Muslim countries.
1.8 Scope and Limitation of Study

The study covers the few non Muslim countries and analysis the growth rate and market share of Islamic banking in these countries. The limitation of study is that this study only analyzes the trend of Islamic banking growth rate and population growth rate of previous three to five years. The limitation of study is also that there is many other factors which contributing in the growth rate of IB. The main weakness of this study is that we are not able to find the ranking of these other factors which contributing in rapid growth of IB in these countries because No interaction has been made with customers or people of non Muslim countries. Secondary data get sufficient information about growth rate and market share of IB in non Muslim countries. Due to no interaction with the customers & people of non Muslim countries, given conclusion about the ranking of motivational factor is only based on literature review so it may be vary.
1.9 Definition of Term

IB refers to Islamic banking, IB,s refers to Islamic banking system. RIBA refers to interest, HARRAM refers to prohibit in Islam,
12
Chapter 2
2.0 FACTORS WHICH APPEALS
MUSLIMS AND NON MUSLIMS TOWARDS ISLAMIC BANKING IN NON MUSLIMS COUNTRIES.
Islamic banking industry is in recent time growing very fast. The importance of Islamic banking has no ignorance in this era; Islamic banking industry grows with rapid pace. There are different factors to opt Islamic banking some factor discuss here which appeals the Muslim and non Muslim people towards the Islamic banking. These factors may include religious factor, socio economic factor, personal and psychological, service and situational factors and many others. They are further classifying into different categories.
1. The religious motivating factors may be interest free banking, banking system based on Islamic tenets, limpidity and trust, existing of Shariah advisory board. 2. The crux economic factors which motivate the people towards Islamic banking or a reason of a rapid growth of Islamic banking are financial stability of IBs in recent economic crises, market reputation of Islamic banking which is a new trend in the market, Islamic banking emerging as a new industry, Islamic banking
13
versatile product, concept of partnership by sharing profit and loss, saturation of conventional banking market and asset based financing.
3. The personal and psychological factors may include, long term confidence of people because of international standard and consistency in accounting rules of IB, a lot much awareness of IB, advice of friends, neighbors and family members has a stronger influence on customer decision. 4. The situational factor may include, convenient location, waiting line, depositing and withdrawing money, long transaction and etc.
5. The service factor may include free chequing services, adequate drive in services, accurate bank statement and friendly staff. How ever the first one is more concern with Muslim while the other one with both the Muslims and non Muslims. But according to recent study by (erol and el-bdour, 1989) indicated that Muslim patronized Islamic banks not so much because of the religious factor, but more because of the return they would receive from their investment (Eat al, 1990) says that the customer in Islamic countries also did not different between the conventional and Islamic banking services which they offer. The two factor analyze by (regall, 1980) are service factor and situational factor but his study stated that both factors not shown the importance in influencing the customer behavior in his or her selection of a bank. There are different studies which carried out to analyze the behavior of customer that which factors appeals the both Muslim and non Muslim customers not only Islamic banking but also towards conventional banking. In Singapore (Anderson at al, 1976) and (tan and chua, 1986) finds that some person choose the bank on advice of friends, neighbors and family members has a stronger influence on customer decision compare with other variable in selecting financial institutions. These factors realize in the category of personal and psychological factors. In the similar manner (laroche et al, 1986) found certain
14
factors which is related to service factors. They were investigating these factors on the experiment on 140 Canadian households. They found that the primary choice was friendliness of staff followed by ours of operation, size of waiting line, convenience of location, efficiency of personal speed of processing item, parking facilities and accessibility, availability of credit bilingualism of staff and interest on savings. (Javalgi et al, 1989) conducted a study in the USA using analytical hierarchy process to determine the bank selection criteria and reported that following are the important factors which motivated the people to select bank include safety of one funds to be the main factor followed by paying highest interest rates on saving, location, reputation, availability of loans, low interest rates on loan, ease of qualifying for current account by maintaining a minimum balance and lastly list the Saturday banking.
2.1 RELIGIOUS FACTORS

Religious factor may include the following factors. 2.1.1 Interest free banking 2.1.2 Banking system based on Islamic tenets 2.1.2 Limpidity and trust 2.1.4 Existing of Shariah advisory board
2.1.1 Interest Free Banking

Interest free banking is the most important religious factor. Some time when the name of Islamic banking comes the concept of interest free banking comes into the minds of peoples. Most of Islamic bank use interest free banking as a main theme to promote their banks. Interest is called RIBA in HOLLY QURAN. The literal meaning of interest or Al-RIBA as it is used in the Arabic language means to excess or increase. In the Islamic terminology interest means effortless profit or that profit which comes free from compensation or that extra earning obtained that is free of exchange. Hazrat Shah Waliullah Dehlvi a great scholar and leader has given a very concise and precise definition of interest. He says,
15
"Riba` is a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed." So interest free banking is prohibited in Islam. Islamic banking offers different products based on profit and loss sharing.
2.1.2 Banking System Based On Islamic Tenets

This factor also belongs to religious factor. Banking system based on Islamic tenets refers to the system which is based on Islamic laws and rules. The people are motivated to opt Islamic banking because the Islamic banking system based on Islamic rules.
2.1.3 Limpidity and Trust

Islamic banking system is clear and unambiguous banking system which attracts the people to opt this financial system. People also have faith and conviction on Islam which is a distinct reason for them to adopt Islamic banking system. This point is also related to previous one, the people limpidity and trust is very high because the Islamic banking system is based on Islamic tenets, here limpidity refers to transparency in all the functions of Islamic banking and trust refers to confidence of people on Islamic banking. Due to transparency in the function of Islamic banking trust built on Islamic banking and people motivate towards IB.
2.1.4 Shariah Advisory Board

The Shariah board is a key element of the structure of an Islamic financial institution, carrying the responsibility of ensuring that all products and services offered by that institution are fully compliant with the principles of Shariah law. Shariah Advisory Board provides advise and guidance on prudential regulations, guidelines, modes of financing, and model agreements for Islamic industry, but the central bank issues instructions though in case of differences in perspectives on Shariah matters the advisory boards notified by central bank is
16
final; Shariah Advisor, meeting central bank fit and proper criteria, approve products and give guidance on legal and tax matters etc.; and a mechanism for Shariah Audit System which inspects the Shariah compliance of all bank operations. Shariah Advisory Board has Shariah scholars but also industry representatives. Shariah advisory board consists of different Islamic scholars which provide the guidelines to bank and help them in making their functions smooth and according to Islamic rules. People confidence built because of Shariah advisory board because mostly it consist on popular religious scholars
2.2 ECONOMIC FACTORS

Economic factor may include following factors. 2.2.1 financial stability of IBs in recent economic crises 2.2.1.1 market reputation of Islamic banking which is a new trend in the market 2.2.2 Islamic banking emerging as a new industry 2.2.3 Islamic banking versatile product 2.2.4 concept of partnership by sharing profit and loss 2.2.5 saturation of conventional banking market 2.2.6 asset based financing
2.2.1 Financial Stability of IBS In Recent Economic Crises

World is facing the blossoming economic crises in the recent time. Many banks industries and institution are going to bankrupt because of recent economic crises but Islamic banking shows a great strength in facing these crisis. Islamic banking industry not only faces these crises by strength but also support the world economy to some extent. Due to this stability the people confidence edifice on Islamic banking and the rapidly come towards IB system
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2.2.2 Reputation of Islamic Banking

Another factor which motivates or appeals the people towards IB is Islamic banking reputation. At that time Islamic bank shows great strength, stability and consistency. Islamic banking industry grows at the rate of 15 to 20 percent per annum. In last 5 years more than 50 new Islamic institutions established due to high reputation of IB people opt the Islamic banking.
2.2.3 Islamic Banking Emerging As a New Industry

Now in this era Islamic banking become emerging as a new industry with the asset of more than US$ 1 trillion. The worth, reputation of IB and its stability in crisis not only compel the individual to switch from conventional banking but also compel the investor to come towards IB.
2.2.4 Islamic Banking Versatile Product

Islamic banks have variety of versatile product they have alternative of each and every product of conventional banking products. IB products are more attractive then the conventional banking products and they also claim that these products are according to Islamic principles due to this reason more people opt Islamic banking. Following are the list which gives us the idea that Islamic banking have versatile product and each product become a alternative of conventional banking product so people have no need to go towards conventional banking.
2.2.4.1 Islamic Banking Vs Conventional Banking Products

(Table 2.1) particulars Rate of return Lending rate Conventional banking Interest BLR Islamic banking Wadiah (token/appreciation) IFR (Islamic financial rate)
18
conclusion Both banking system have the same rate, regardless the term used.
particulars Conventional banking Deposit account Saving accounts
Islamic banking Wadiah account Mudharabah (safe keeping) account (profit sharing)
Return
interest
Hibah token or Profit sharing based in gift in monetary IPR (indicative profit rate) term
conclusion All 3 types of saving account have the similar rate of return (interest rate, hibah) i.e. they all pay the same
Particulars
Conventional banking
Islamic banking Mudharabah account (profit sharing)
Investment account Fixed deposit account
Return
interest
Profit sharing based in IPR (indicative profit rate)
conclusion Both type of investment account have the similar rate of return i.e. they all pay the same
Particulars Mortgage
Conventional banking Fixed rate
Islamic banking Fixed rate (leasing arrangement)
Return
Variable rate
Bai bithaman ajil (deferred payment sale)
19
conclusion Generally the cost of loan under both the banking system is very similar, however, unlike conventional loan, additional payment to Islamic mortgage will not resulted in lowering the total loan costthe loan already fixed.
Particulars Personal loan
Conventional banking Interest rate
Islamic banking Bai al-inah (sell and buy back)
2.2.5 Concept of Partnership by Sharing Profit And Loss

In Islamic banking interest is completely banned so most of product are Islamic banking based on a profit and loss sharing due to profit and loss sharing concept the sense of partnership occurs and more people are attracted towards IB.
2.2.6 Saturation of Conventional Banking Market

Every product has its peak time after that time they become decline with the passage of time. In the similar manner the conventional banking market is fully saturated or overcrowded. Due to saturation of conventional banking market people were confused to choose the bank. Due to this reason many people divert towards IB. Because it is emerges as a new industry.
2.2.7 Asset Based Financing

Assets based financing the secure moo0d of financing. in which loans are secured by the guarantee of assets. A specialized method of providing structured working capital and term loans that are secured by accounts receivable, inventory, machinery, equipment and/or real estate. This type of funding is great for startup companies, refinancing existing loans, financing growth, mergers and acquisitions.
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2.3 PERSONAL AND PSYCHOLOGICAL FACTORS

Personal and psychological factors may include the following aspects. 2.3.1 Long term confidence of people because of international standard and consistency in accounting rules of IB 2.3.2 A lot much awareness of IB 2.3.3 Advice of friends 2.3.4 Neighbors and family members have a stronger influence on customer decision.
2.3.1 International Standard and Consistency in Accounting Rules of IB

Islamic banking industry has consistent international standard and also having consistency in accounting rules. Due to this reason people confidence built on IB. There are two institutions which regulate the policies of IB and maintain the international standard in their rules and procedure. Then institution working on international level & keeping up to date the rules & procedure of accounting & other. Institutions include 1. The accounting & auditing organization for Islamic financial institution (AAOIFI) which issues internationally recognized Shariah standard on accounting, auditing& governance issues.
2. The Islamic financial service board (IFSB) which issues standards for the effective supervision & regulation of Islamic financial institution.
2.3.2 Awareness of IB
Islamic banking now a day is very quite common. At that time most of people unaware about the operation, function and procedure of IB. IB promote themselves by launching the awareness program on TV and by using other media. As a people with IB they never hesitate in selecting IB as their bank
21
2.3.3 Advice of Friends

Another most important personal factor is the advice of the friends. Most of the people select their bank on advice friends when some person wants to open account most of time they get advice from friends.
2.3.4 Neighbors and Family Has a Stronger Influence on Customer Decision

Another personal factor which influences the customer is the advice from neighbors and family. They are stronger influence on customer decision then the advice of friends. This is also an important factor of selecting a bank.
2.4 SITUATIONAL FACTORS

Situational factor includes the following things. 2.4.1 Convenient location
2.4.2 Waiting line 2.4.3 Depositing and withdrawing money 2.4.4 Long transaction and etc.
2.4.1 Convenient Location

Most of peoples select the bank due to its convenient location irrespective of that it is Islamic or conventional bank. Convenient location refers to bank in that place where customer approach every time easily without facing difficulties.
2.4.2 Waiting Line

Waiting line refers to that the bank is never overcrowded, having a long waiting line for clearing a cheque paying utility bills or for the other operational activities
22
2.4.3 Depositing and Withdrawing Money

Another situational factor is that people select a bank where easy deposit and withdrawing service is available without any charges.
2.4.4 Loan Transactions

Loan transactions refers to that, people select that bank which easily guaranteed the loan with low rate of interest.
2.5 SERVICE FACTORS

Service factor may include the following factor. 2.5.1 Free chequing services 2.5.2 Adequate drive in services 2.5.3 Accurate bank statement 2.5.4 Friendly staff.
2.5.1 Free Chequing Services

People give preference to that bank which offer free chequing service without deducting any amount while clearing the cheque.
2.5.2 Adequate Drive in Services

The bank which gives the adequate sophisticated and proper services people prefer that bank.
2.5.3 Accurate Bank Statement

Accurate bank statement refers to that, bank issue the statement having no error.
2.5.4 Friendly Staff

Most of the people attract towards banks because of its friendly staff. The customers get the family environment 23
Chapter 3
3.0 LITERATURE REVIEW

Islamic banking industry is now growing very rapidly in recent decade. Islamic banking system not only gains importance in Muslim countries but also in non Muslim countries. When any Islamic banks decide to operate in any non Muslims country they must analyze the population statistics of that particular country. If there is preponderance Muslims population in that country than Islamic banks take decision to enter in that country. They also analyze the different trends of Muslims population in particular country that the population of Muslims is increasing in that focused country day by day or declining due to any reason such as Muslims migrate from that country to other.(Sole,jaun,2007) (Sole juan, 2007)stated that the Islamic banking not only expanding in Muslim countries or countries where Muslim in majority in population but also in other countries where Muslims are in minority such as united kingdom & Japan similarly more non Muslim countries like India Kyrgyz republic and Syria have recently guaranteed licenser for Islamic banking activities. (Schmith scott, 2005) elaborated that Islamic banking grows with the rate of 15 to 20 percent. In last five years Islamic banking industry having estimated $270 billions assets controlled by more then 300 Islamic banks in various countries.(Schmith, scott, 2005) studied & find that the largest markets for Islamic finance, included turkey, Indonesia, Saudi Arabia united states of America and France, the growing market which grow very rapidly in recent years are Malaysia, Bahrain the united Arab emirates, Indonesia and Pakistan. That is very positive sign for Islamic banking sector that some estimate suggesting that within eight to ten years Islamic banks save the half the saving of 15 billions Muslims. (Mustak parker, 2004) stated that Islamic banks attract towards Britain because the preponderance population of Muslims living in the Europe and it is gradually increasing so it is a green signal for Islamic banking industry to operate in UK.(Ali Jasim, 2008) the member of Bahrain parliament stated that the Islamic 24
banking sector is very large. As of Jan, 2008 300 Islamic financial institutions operated in 75 countries managing some 500 billion. (Wallace by Klaus-peter Gushurst, Ivan de souzo, vanilla, 2009) said that the primary step for entering in any non Muslim country for an Islamic bank is a thorough research about the Muslims population in that particular country and analyzing the trend of population. They must studies the population statistics of Muslims in the country of interest. And also elaborated that one of the fastest growing industry in two global financial services industry is Islamic banking they have strong demand on both the individual & corporate sides. Now in recent time the total value of Islamic assets now reached US$500 Billion & the numbers of institutions offering the Islamic finance services are multiplying with the passage of time only in last three years more then 50 new Islamic financial institutions have opened offering Islamic financial services. (Ali Jasim, 2008) stated that Islamic banking have growing demand in non Muslim countries. They gave the example of United Kingdom. The Islamic bank of Britain (IBB) established in 2004 offers various financial products complained with Sharia. They further suggested that UK government is contemplating issuing Sukuk & inform that, for the facility of Muslim community France is seeking to get a share of Islamic finance. (Phillips Melanie 2009) suggest that The primary step for entering in any non Muslim country for an Islamic bank is a thorough research about the Muslims population in that particular country and analyzing the trend of population. They must studies the population statistics of Muslims in the country of interest. Britains Islamic banking sector is now bigger than that of Pakistan report by international services London. The study stated that among all the western countries UK has the largest number of banks for Muslims. United Kingdom now at that time has fully Sharia compliant or in other words full flagged Islamic banks. Providing various kind of product which prohibit interest payments and investment in alcohol or gambling firms in accordance with Sharia law and there are many others leading institutions who open Islamic window or subsidiary firm for Muslim clients. The number of institutions 17 in which include Barclays, RBS and Lloyds banking group (K Grose Thomas, 2008) elaborated that the rapid boom of Islamic banking is providing a crescent shaped silver of good news for the city, Londons
25
beleaguered financial district. Thomas K Grove suggested that London become the main hub of Islamic banking outside the Middle East. Development in Islamic banking sector is encouraged by the Britains labor government which laid out the welcome mat to Sharia- compliant banks several years ago. They think that this is the way of serving the Muslims population or its the right the Muslims to do there financial transaction according to their religious prospective. Mckanzie the director of economics at international financial services London stated that government see it as another way to draw business to London to bring investor to the UK. (K Grose Thomas, 2008) reported that the blue ocean is one of many European companies which take the benefits from a surrey in Islamic financing that pushing Sharia compliant banking into mainstream & extending in appeal to non Muslim. The author gives the reason that the Islamic sector growth come at a time when western banking system caught is liquidity crisis Blue Ocean took comfort in fact that BLME drawn on the petrodollars surplus of Persian Gulf oil producers the chief financial officers Tariq Aslam say the liquidity was there the editor of Islamic banker. (Mushtaq Parker 2006). (Norris Kim 2005) give a comprehensive views that in the United States, particularly in California, New York, and Michigan. Islamic finance has grown very rapidly. In United States estimated sex million Muslim out of six million about 1.8 million household desire Islamic financing especially for home mortgages. They also elaborated that as the Muslims population increases the demand for Islamic banking increase side by side. The rapid growth of Islamic finance has helped to diversify markets & institutional structure. Mostly diversify the market & institutions structure in oil rich Muslim countries but also in countries with large Muslim minorities. Islamic banks banking system operate in various Muslims countries which adopted new Islamic Sharia principles ( Iran, Pakistan & Sudan) with both Islamic & conventional banks in developed countries side by side with conventional banks (Karbhari, Yusuf, Naser, Kamal & Shahi Zerria). (Sole, Juan, 2007) suggested that there are certain factor which enhance the growth rate of IB in non Muslims countries. The rapid expansion of the Islamic finance industry that was started in 1970 was not accompanied by creation of internationally recognized accounting rule of initial stage but gradually their new products.
26
The rapid expansion of Islamic banking started for 1970. People confidence edifice on Islamic banking because of its own international recognized accounting rules. After the establishment of two internationally recognized institution the growth of Islamic banking became more fast. Following are the name of institutes. 1. The accounting & auditing organization for Islamic financial institution (AAOIFI) which issues internationally recognized Shariah standard on accounting, auditing& governance issues.
2.
The Islamic financial service board (IFSB) which issues standards for the effective supervision & regulation of Islamic financial institution (Sole, Juan, 2007). Islamic banking industry is growing rapidly because many multilateral
institutions have been recently created to provide assistance to government & supervisory agencies to help them understand Islamic banking & issue standard & best practice guidelines for the industry. The institution includes IMF, IFSB, AAOIFI & Islamic development bank. In addition the authorities should engage in industry to provide guide line & assistance to industry for the sake of its promotion (Sole, Juan, 2007). (Ali jasim, 2008) in his article suggested three challenges for the Islamic banking in non Muslims countries. These challenges includes
1.
Developing short term product to absorbs demand to help develop a secondary market.
2.
Lack of Sharia scholars with knowledge of conventional and Islamic finance.
3.
Third challenge deals with ensuring available of qualified human resource meeting the requirement of as ever growing industry.
27
These are the obstacles of fastest growing Islamic banking industry.
Like ali jasim (Wallece by Klaus peter, gushurst ivan de souza, venessa, 2009) also stated the challenge facing by the Islamic financial institutions. These challenges may be Lack of product differentiation the inherent complexity of Islamic banking operations and observe of universal standard governing what initiatives are admissible under Islamic law or Sharia. One another author describe some challenges to Islamic banking industry. They suggested that Islamic financial market establish its position to several markets. In a short period of time Islamic banking grow in several markets. But its expedition spread growth ultimately its characters will depend on how it confronts several key challenges including, The general acceptance of Islamic finance, regulatory & soundness compatibility obstacles to innovations & other important burrier as such as edifies economics of scale & training professionals in intricacies of Islamic financial product. (Ainly M, 2007).(Greenless Donald, 2005) the oil prices also effect on the product or growth of Islamic banking more recently a second resurgence in oil prices an increase in variety of Sharia compliant product. The estimation was made by Thomas k Grose (2008) that Islamic banking sector is growing at a rate of 10 to 15 % a year and total assets are estimated from 500 billion to trillion boast (K-Grose Thomas, 2008). (Mustak parker, 2004) identified some interesting global indicators which underline the dynamism of the current Islamic finance market. They suggested that the Muslims population is growing very fast is all over the world so for meeting the demands of these Muslims Islamic banks rapidly expanding in non muslims countries. In recent time due to demand of Islamic banking in west many of the banking majors including HSBC, Merrill lynch, citigroup, Morgan Stanly, societe generale and standard chartered have started a long term association with Islamic banking because of fulfillment the requirement of their middle east clients. (Mustak parker, 2004) There are various factors which attract the people towards the Islamic banking. Islamic banking industry grows rapidly not only in Muslim countries but also in non Muslim countries. In UK the Islamic banking industry get a boost when in august 2004. The FSA authority accept the Islamic bank of Britain (IBB) this authorization make the Islamic bank of Britain the first stand alone Islamic bank in UK. 28
The writer give an example that experience in Malaysia has shown that Islamic banking is not only for the Muslims but also for anyone interested in ethical or profit & loss sharing banking. In Malaysia 70% non Muslim Chinese customers use the Islamic banking financial services (Mustak parker, 2004) Mustak parker elaborates the market share of Islamic banking deposits.
1. 2. 3. 4. 5.
Islamic banking deposits are 10.4% of total banking sector deposits in 2003. Islamic banking assets are 9.7% of total assets of banking industry. Islamic banking finance are 10.3% of total banking industry finance. In monitory term as compare to 2002 the assets which was RM82, 1 96m Total Islamic banking deposit as compare to 2002 increase by 13% which were RM60,212M
6.
Total Islamic financing increasing 8.24% in 2003 as compare to 2002 which as RM48.615M (peter muster 2004) The modern commercial banking system gain importance in Europe especially
in the United Kingdom. The basic philosophical roots of system revolve around the basic principle of capital certainly for deposits. For implementing there rules the central bank used its power of supervision & central to make the functioning of banks smooth. All banks must be following the rules of central bank. Those Islamic bank which are wishing to operate in a non Muslim countries have many difficulties in following there rules. These difficulties in operating non Muslim countries may be certainly of capital, return, supervisions & central & tax regulation. (Rad, 1991). The conventional banks give guarantee the capital and rule of return, which is Islamic banking system working on the principle of profit & loss sharing & cannot give any fixed rule of return on deposits. Mostly Islamic banks never give a guarantee of capital either, because if there is loss facing by the bank they distribute and deduct the capital.
29
(Sir Leigh Pemberton, 1991) the governor of the bank of England told the Arab bankers association in London that,
If allowing who essentially difered banking system to operate in parallel it is important not to risk misleading & confusing the general public. A central feature of the banking system of the United Kingdom as enshrined in the legal framework is capital certainty for depositors. It is the most important feature which distinguished the banking sector from the other segments of the financial system; Islamic banking is a perfectly acceptable mode of financing but it does not fall within the definition of what constitutes banking in the UK;
The Bank of England is not legally able to authorise under the Banking Act, an institution which does not take deposits as defined under that Act; The Islamic facilities might be provided within other areas of the financial system without using a banking name.
In the some manner because of certainty in return on capital some comments say by (Mr. charls Schotte, 1995) the US Treasury department specialist in regulatory issues has remarks. Thum word says in UK. There has never been an application for an Islamic establishment to set up either as a bank or as anything else. So there is no precedent to guide us. Any institution that wishes to use the word bank in its title has to guarantee at least a zero rate of interest -- and even that might contravene Islamic laws. (Steele F, 1984) The other issue arise that the supervision & control by the central bank because the central bank supervise its schedule bank & control them. This issue mainly relates to liquidity requirement & adequacy of capital A financial advisor stated that the bank of England faces a great difficulty in putting value on the assets of an Islamic institution under the 1979 act which wanted to operate as a bank in the UK. The conventional or traditional banking system has much of its fixed assets in fixed interest instrument and it is very easy to value. 30
The author gives one example which we quoted in his words.
If they are British Government instruments they will have a quoted market value; and there are recognized methods for valuing traditional banking assets when they become non-productive. But it is very dificult indeed to value an Islamic asset such as a share in a joint venture; and the Bank of England would have to send a team of experienced accountants into every Islamic bank operating in the UK as a bank under the 1979 Act, to try to put a proper and cautious value on its assets. As we discuss the growth of Islamic banking the issue of supervision & control is very important. Because Islamic banking never give a fixed rate of return so one financial analyst said that. Even if a method could be found for assessing the risks to calculate the capital necessary, little comfort could be taken from the profitability which is usually relied upon to cover day-to-day losses arising from the banks business, because a substantial part of an Islamic banks portfolio is venture capital without any guaranteed return. ( Suratgar D, 1984). Another most important aspect of operating Islamic bank in non Muslim country is tax procedure in non Muslim countries because interest is the biggest income. In addition in trade financing there are little transfers twice one from seller to bank and then from bank to buyer. Then due to twice taxation on account decreasing the profit of ventures so in this regard the director of international Islamic bank Denmark says.
There could be potential dangers for the international system, where the failure of such an institution could bring with it the failure of other associated institutions, or of all the Western banking institutions which come closely tied to with such an operation. (Karsten I, 1982). (Muhammad ridza) a lawyer stated that there is rising demand for Sharia compliant investment from an estimated 1.6 billion Muslim world wide and also estimation shows that the Islamic assets are set to his US 1.4 trillion by 2010 and it is also estimated that the Islamic financial system will soon be managing
31
approximately 9 percent of world economy by showing the Muslims population in the world they shows the potential market size for the Islamic banking industry. (Professor Abdullah saeed) stated that mostly non Muslim is interested in various form of ethical investment which provide by the Islamic banking. The Islamic banking market is growing very rapidly not only in Muslim countries but through out the world. The author urged that Islamic banking grow rapidly over the past few years and it is expected to continue to exhibit robust growth for the future. The main reason of growth of Islamic banking is the retail banking customers who were finding the opportunities to invest according to their personal beliefs. In many countries government is on the bank of Islamic banking to provide support such in case of Malaysia. (Booz & Company) The writer gives the information that Islamic asset grown very rapidly in the past five years. The rater of growth is between 15-20% per annum. In this manner Islamic banking is one of the fastest growing sectors in the global financial services industry. The growth in Islamic banking industry is not only seed in retail & commercial alone. But they have been exponential growth in the assets management sides and he Shariah compliant funds in rapidly increasing in recent years. In the parallel of that Islamic capital market have showed a wave of innovation over the past few years. There are many instruments of Islamic banking which have strength in market but the most notable instrument that has engaged has been sukuk. In the period 2002-2007 US$ 85 billion in funds were raised through sukuk(Booz & company).Aazim mohiuddin elaborated in his article that Islamic banking industry is the sector which is least affected by the global financial crisis. Islamic banking industry faces only little trouble only after this crisis had snowballed into a recession in developed economic affecting growth prospects of Pakistan & other developing countries. According to latest state bank report Islamic banking industry overcome easily on there problem and know most of the indications are showing a reversion towards the usual high growth trend. This report also showed some fact & figure that the asset of Islamic banking in overall banking industry grew from 3.4 in June 2007 to 5.1 percent in June 2009. in term of value these assets increases 97 percent from Rs. 159 billion to Rs 313 billion total deposits jumped 120 percent from Rs 108 billion or 3.1 percent of the banking industry to Rs. 238 billion or 5.2 percent not only this but also the financing & investment rise from 90 billion to Rs.195 32
billion that show a very rapid growth in finances & investment is about 117 percent. The financing & investment share of Islamic bank in overall banking industry is group up from 2.6 to 4.2 percent in last two years.Mohiuddin azim also stated that there is three factors or things which helped in this rapid growth of Islamic bank. 1. IB had a narrow bone in June 2007. It is said by the dead of large local Islamic banks.
2.
Islamic banking has a man appeal
3.
Islamic banking has same inbuilt characteristics that offer a better cushion against man-made crises. Among the all above three characteristics the third one is most important and
unique features of Islamic financing do protect banks from the elements of man made crises in all but evident Mohiuddin Aazim also gives a comprehensive comparative review of Islamic banking with conventional banks. Top 100 Islamic Islamic bank The assets of top 100 Islamic banks Grew 66%. 580 billion in 2008 from 350 billion in 2007. Conventional banks The assets of 100 commercial banks in Asia (the region that was not in the centre of the financial crises) posted only 13.4 percent growths. According to international media global Islamic banking is set to grow up to 30 percent in 2009. Dand Vicary Abdullah stated in his article that he is very impressed by some points of Islamic development bank president Dr. Ahmed Mohammad Ali address. Dr. Ahmed Mohamed Ali the president of Islamic development bank in his address identified that 70% of the Islamic finance industry is commercial banking & that there was a need to diversify into area like investment banking, venture capital small and medium sized enterprises and specialist financing. According to his opinion not to much concentrate only on commercial banking but must
33
diversified. His opinion was or conclusion was more diversity equals more sustainability In his address the second thing in which they focused on emphasis is the regulatory and accounting standards of Islamic banking industry. He felt that the regulatory & accounting standard must be revisited and revised at system level both macro and micro in order to meet future demands. Dr. ahmed Mohamed ali also suggested that building integrated stability would provide a firewall against further systemic shocks. Thirdly they give suggestion about knowledge service and products. They knowledge with creativity and innovation and proposed that knowledge based growth was a key dimension that needed attention for him Islamic finance equal value creation Lastly he suggested that innovation equal growth that is the most important aspect that if you are innovative then your must grow. You must be innovative or make innovation in services, product and other function. Then you must grow. He also cautioned that innovation must create not destroy; value and that new Islamic financial products must demonstrate both value and efficiency to the market place. This was indeed food for thought as well as a call to action. At the end the president of Islamic development bank Dr. Ahmed Mohamed ali wish that at that time we must take the steps to take the Islamic finance into the next level. Islamic banking facing a number of challenges despite of all there challenges typical of a new and emerging industry, the prospects for growth of Islamic finance are promising but rests and building an effective system for Islamic finance. (Dr Akhter, shamshad Dr Akhtar shamshad says that due to increase in interest on Islamic finances. Raising the investment in Islamic finance and resulted in phenomenal growth in Islamic finance business. They also said that interest in this discipline has already extended beyond Muslim and Islamic countries to non-Muslim population and jurisdictions and non Islamic financial institutions Further elaborated that the Muslims are attract towards the Islamic banks because the avoidance of forbidden investment (harram products) interest rule and speculative structures prohibited in Islamic jurisprudence and Islamic finance emphasis on equitable financial system.
34
In 14th world Islamic banking conference held in Bahrain 9-10 December 2007. Some silent key drives are elaborated which enhance the efficiency and competitiveness of Islamic finance include.
1. 2.
Financial engineering and innovation. Global financial centers and their regulators support for Islamic finance industry.
3.
Standard governance and prudential regulation and supervisory guidance with required tweaking regulations to properly identify and assign proper weights for new and different types of risks associated with the special and unique characteristics of Islamic finance business.
4.
Development and adoption of simple standard and cost affective legal frameworks for contracts associated with the new and hybrid products.
5.
Flexible and practical application and enforcement of Shariah principles and injections and its acceptability by public.
Dr Akhter Shamshad assets that at that time Islamic finance now seems to be reality and it is as the way to be institutionalized. Islamic finance have different levels in different countries not only in Muslims countries but under the western or other non Muslim world selectively & cautionary positioning to invest in this system. Islamic finance system has great potential to meet the financial gaps & requirements of development and society at large and its demand would be robust going beyond religious grounds. Mean this industry now at that time growing very rapidly irrespective of religious ground in Muslim but also in non Muslim countries. Akhtar Shamshad (2007) in closing keynote address in town university, Washington it is said that Islamic finance is spread across 70 countries and rapidly expanding in other countries. It has grown to almost a trillion industries. Islamic finance growing very fast reached an trillion dollar industry but despite all there
35
thing it is still a niche market in the overall global financial industry, but the future of industry is quite bright because in future they may be fulfill the demand of 1.4 billion Muslim population. In the global scenario the level of growth, interest & motivation for industry is varies. The growth in gulf cooperation council has been exceptional with Bahrain emerging as main hub adopting and implementing Islamic finance education. Islamic finance has exceptional growth not only in Muslim countries but also in some western country they grow very rapidly. Islamic finance is grow rapidly in London that now provide policy and tax incentives to promote Islamic finance industry to attract funds from high net worth client. Such kind of motivation & interest seem in many global banks which are world class players such as HSBC, standard chartered, deutsche bank, city bank etc. they set special hubs to structure Islamic finance products. Akhtar Shamshad said in his speech that the motivational and driving factor of this industry vary across the world. These factors change country by country, nation by nation. Akhter Shamshad elaborated that what is the thing that build one confidence in large investment by financial industry across main hubs GCC/Middle east south east and south Asia, for building once confidence and attracting more people towards Islamic bank we make infrastructure development in this industry through
1. Issue of holistic banking license or opening of special window or creation of hubs/ dedicated Islamic asset management funds, private equity fund and hedge funds. Accompanied by Dow Islamic Index to which all such transaction subscribe too are large. 2. Secondly most of people unaware from Islamic banking industry & its versatile product. Develop Shariah knowledge and understanding and engagement of Shariah advisors and scholars which together and providing required consensus.
3. Development of Islamic standard which edifices the people confidence on Islamic banking such as development of Islamic financial supervisory
36
board and according and auditing organization for Islamic institutions (AAOIFI) and international Islamic financial market (IIFM).
These agencies helped develop and initiate implementation of Islamic prudential regulatory, according and auditing frame works and inspections and supervision of financial institutions These efforts can build the confidence of people and Islamic banking industry grows with a rapid pace not only in Muslim countries but also in non Muslim countries. According to one market survey it is confirm that the potential from retail housing and project finance and innovation happens in there market is significant and augurs well for economic and financial services development Islamic banks have registration double digit growth in retail market. They penetrate very rapidly where personal banking solution has been structured well and where information technology is used to offer online ATM and telephone. Its often said that Islam is not just a religion, but a way of life and commerce is a big part of that life. The way many Muslims manage their money is, for them, part of being a practicing Muslim. There are over half a million Muslims in Canada, a population which has increased 128 per cent from 1991-2001 according to Statistics Canada. As a growing Muslim population is looking for financial solutions that work with their religious beliefs, Islamic banking is becoming more popular in Western countries. (Nisha Patel and Jason Satur, 2008). An estimated 1520 million of them are Muslims. And while the countrys population is largely diminishing, Russias Muslim population is on the increase. It has grown by around 40 per cent since 1989, due to high birth rates in the Muslim community and continued immigration from the Caucasus and Central Asia. Some analysts project Muslims to become one-fifth of the countrys overall population by 2020.Although the Arab world considers Russia a potentially emerging market with regard to Islamic finance, there is still a lot of apprehension when it comes to investing capital in it. There are many hitches and complications. (New horizon. Global perspective on Islamic banking & Insurance, 2007)
37
(Taipai times, 2006)Japan is looking to become the first major industrialized nation to issue Islamic bonds in hopes of attracting money from oil-rich Muslim countries, a bank official said yesterday. Islamic financial practices ban the payment or receipt of interest or any transactions that include alcoholic beverages or gambling, which are banned by the Quran. "The bank is studying the possible issuance of the bond with Malaysia," said Hiromi Inukai, a spokeswoman of the government-backed Japan Bank for International Cooperation (JBIC). In Canada, the Muslim community has been steadily increasing and is estimated to have reached over 750,000 people in 2007. Despite this growth, there are very few Canadian financial institutions that offer Sharia-compliant products and services. (Michael Hsu, 2007)
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Chapter 4
4.0 METHODOLOGY
The emergence of Islamic banking industry has observed a dramatic shift in the perception of people towards Islamic banking. Especially in non Muslims countries Islamic banking seems to have great potential to grow and compete the orthodox interest based banking. When any Islamic banks decide to operate in any non Muslims country they must analyze the population statistics of that particular country. If there is preponderance Muslims population in that country than Islamic banks take decision to enter in that particular country. This study aimed to finding the relation between two factors the Muslims population and Islamic banking growth rate in non Muslims countries by supposing all other factors which have impact on growth rate of IB, constant. There are many other factors which contribute in growth rate of IB and urging people to opt Islamic banking in non Muslims countries. The study propelled out through secondary data resources. The study find the relation between the Muslims population and growth rate of IB in non Muslims countries by analyzing the last five years Muslims population trend and growth rate of IB in these countries. Different Statistical contraption will be applied to interpret the results which show the relation between them.
4.1 Research Design

The basal research study would be descriptive and co-relational type and exploration of the study will be propelled through different secondary provenience. In order to go for the proposed study, data were collected through different sources. In this study we try to find out the relation between two variable the Muslims population and growth rate of IB in non Muslims countries. Identify relation between these two variables by using different statistical tools. In our study we have taken two variable x and y. where x represent Muslim population in non Muslim countries and y stands for Islamic banking growth rate. In this study x
39
variable is the population growth is independent variable while the y Islamic banking growth is dependent variable. The independent variable x (Muslims population in non Muslims countries) is in million, and the dependent variable y (Islamic banking growth rate in non Muslims countries) is in percent. In order to find out the relation between these two variables we use two statistical tools the correlation and regression analysis. Correlation represents the relation between the two variables while regressions express the growth trend with respect to Muslims population.
4.2 Sources of Data

Our main provenience of data collection is secondary data resources such as Literature reviews, Books, Web browsing, News papers and Articles about the Islamic banking growth and Muslims population are also main source of data accumulation, and reviewing. This data use to educe the information about the rapid growth of Islamic banking in non Muslims countries. We collect the 5 years Muslims population and growth rate of Islamic banking in non Muslims countries by different secondary resources.
4.3 Method of DataCollection/Sampling

Sampling is most important in any kind of research weather its qualitative or quantitative. Our basal study is quantitative type study. Quantitative research seeks explanatory laws. Quantitative research generates statistics and measures what it assumes to be a static reality in hopes of developing universal laws. For data collection the sampling technique use for this study is cluster sampling. The sampling helps to estimates population parameters. All the non Muslim countries are our population of study. Out of all the non Muslims countries we choose or 3 non Muslim countries for study the growth rate and market share of Islamic banking in these countries. The size of sample is very stubby because in some non Muslims countries IBs still unacquainted and in some countries the population of Muslims is very stunted. Cluster sampling is justified here because homogeneity between the clusters in term of population characteristics. Population
40
of Muslims community in one non Muslim country shows the similarities with the Muslim community of other non Muslim country. In cluster sampling we divide the population in to subgroups which are called clusters we try to maintain homogeneity between subgroup and heterogeneity within subgroups. In our study we have divided the Muslim population residing in the non Muslim countries in to various clusters and selected three of them randomly for the study. The reason for selecting this sampling is that we have obtained homogeneity between clusters which have proven to provide us with accurate data. The cluster sampling is also economic and easy to adopt. Unavailability of data and limitations of resources led us to select this appropriate type of sampling.
4.4 Analytical Procedures

For analyzing the relation that there is positive or negative relation between the Muslims population and growth rate of IB in non Muslims countries we use the two statistical tools correlation and regression. In our study we have taken two variable x and y. where x represent Muslim population in non Muslim countries and y stands for Islamic banking growth rate. In this study x variable is the population growth is independent variable while the y Islamic banking growth is dependent variable. The independent variable x (Muslims population in non Muslims countries) is in million, and the dependent variable y (Islamic banking growth rate in non Muslims countries) is in percent. Correlation represents the relation between the two variables while regressions express the growth trend with respect to Muslims population. By finding out the regression equation we able to forecast the growth rate of IB non Muslims countries if other factors remain constant.
41
Chapter 5
5.0 DATA ANALYSIS AND
DISCUSSION
Islamic banking industry is blossoming at the rapid rate all over the world. It is engulfing not Muslims countries but taking also root in non Muslims countries and appealing Muslims community with profound impact on their socio economic order of lives. This impact is consequent of many possible factors. As Islamic banking based on interest free mechanism hence its may appealing to Muslims on the other hand conventional banking is pillared on interest without which they cannot subsist. Islamic banking is exceedingly swelling not only in Muslims but also in non Muslims countries. As the people get awareness of Islamic banking system they abundantly come towards Islamic banks. When any Islamic banks decide to operate in any non Muslims country they must analyze the population statistics of that particular country. If there is preponderance Muslims population in that country than Islamic banks take decision to enter in that country. They also analyze the different trends of Muslims population in particular country that the population of Muslims is increasing in that focused country day by day or declining due to any reason such as Muslims migrate from that country to other. After understanding these thing we are able to state that population is important factor which must be considering by the Islamic banks while they want to operate in any non Muslim country. There is increasing trend of Muslims population in the non Muslims countries. Due to which that particular market is very attractive for the Islamic banking industry.
42
The following table illustrates the potential market size in mainland Europe and other countries for an Islamic bank, as well as highlights the potential for Islamic banking in these countries (Table 5.1)
MUSLIMS POPULATION IN NON MUSLIMS COUNTRIES (in 2009 EST)

COUNTRY TOTAL POPULATION IN 2009 Est. MUSLIM PERCENTAGE (%) OF TOTAL POPULATION PERCENTAGE (%) OF WORLD MUSLIM POPULATION ENGLAND USA CANADA AUSTRALIA FRANCE GERMANY ISRAEL SWEDEN DENMARK CHINA AUSTRIA RUSSIA INDIA 2,527,000 2,545,000 8,97,000 3,65,000 3,554,000 4,026,000 1,194,000 1,49,000 88000 21,667,000 353,000 16,482,000 160,945,000 2.7 0.8 2.0 4.2 6 5 16.7 2 2.0 1..6 4.2 11.7 13.4 0.1 0.2 0 0 0.2 0.3 0.1 0 0 1.4 0 1.0 10.3
Source: http://en.wikipedia.org/wiki/List_of_countries_by_Muslim_population
The above population shows that there is sufficient market for Islamic banking in many non Muslims countries. The exceedingly growing population of Muslims in non Muslim countries attracts the Islamic banking industry in these countries. In this study researcher consider that growing population of Muslims in these countries is the main factor of Islamic banking growth while consider all other factors constant. This study shows the relation 43
between the Islamic banking growth and population growth in non Muslims countries. Because there are many other factor which motivate the people to opt Islamic banking and contributing in enhancing the growth rate of IB in these countries. The literature have shown that there is a gradual increase in the growth rate of Islamic banking in non Muslims countries on the other hand Muslims population also experiencing an increase. This incremental in growth rate of Islamic banking could be due to increase of Muslims population in non Muslims countries. The rapid growth of Islamic banking in non Muslims countries is suggesting that Islamic banking system is proving to be an alternative to conventional banking system. The data shows the strong relation between population growth and growth of Islamic banking. The literature has also revealed that population is not a single factor which are involved in enhancing growth rate of IB in non Muslims countries. These factors could be appealing to Muslim community to a great extent. They also entice the non Muslims as towards the IB because the stability of IB in recent crises. The factors which have profound impact on growth rate, other than population can be classified into five categories. These factors are contributing in the growth rate of Islamic banking. They also enhance the growth rate of IB in non Muslims countries as the literature review revealed. There are many other factors which motivate people to opt Islamic banking. These factors disunite into religious, socio economic and other personal and physiological, situational and service factors.
These factors are further classified.
1. The religious motivational factors may be interest free banking, banking system based on Islamic tenets, limpidity and trust, existing of Shariah advisory board. 2. The crux economic factors which motivate the people towards Islamic banking or a reason of a rapid growth of Islamic banking are financial stability of IBs in recent economic crises, market reputation of Islamic banking which is a new trend in the market, Islamic banking emerging as a
44
new industry, Islamic banking versatile product, concept of partnership by sharing profit and loss, saturation of conventional banking market and asset based financing.
3. The personal and psychological factors may include, long term confidence of people because of international standard and consistency in accounting rules of IB, a lot much awareness of IB, advice of friends, neighbors and family members has a stronger influence on customer decision. 4. The situational factor may include, convenient location, waiting line, depositing and withdrawing money, long transaction and etc.
5. The service factor may include free chequing services, adequate drive in services, accurate bank statement and friendly staff. These are some other factors which also contribute to enhance the growth rate of IB to some extent. How ever the first one is more concern with Muslims while the other one with both the Muslims and non Muslims. Due to no interaction made with the customers and people of non Muslims countries, we are unable to give sufficient ranking to these factors that which factor is more appealing in motivating the people of these countries towards IB. The literature shows that there are five motivational factors in which religious factor is more appealing for the Muslims customer. The Muslims population is increasing day by day and they prefer the religion. The religious factor is one of the important factors which motivate more Muslims towards IB. In religious factor there is more division of this factor. As the literature review suggest the most important religious factor is interest free banking. Because when the name of Islamic banking comes the concept of Interest free banking comes into the minds of people. Interest is prohibiting in Islam and it is completely banned. Most of the people in non Muslims countries are more concerned with religion due to this reason interest free banking is the most important sub factor of religious factor which is given preference by the Muslims people. On the contrary interest free banking is the
45
factor which de motivates the non Muslims customers towards IB because they prefer the interest as the literature suggested. Non Muslims customers prefer that particular banks which offers the high interest rate. Interest rate is very important for non Muslims customers and many of the conventional banks try to compete each other by offering high interest rate. They try to attract the customer by offering high interest rate. Many conventional banks offer high interest rate on deposits and minimum interest rates on loan for catching the customer. But Islamic banking is not granting the fixed rate of interest. Because interest is prohibit and completely banned. So this factor has two aspects once in the form of stronger motivator for Muslims in attracting towards Islamic banking while on the other hand it is the stronger de motivator for the non Muslims customers. The second sub factor of the religious factor is, banking system based on Islamic tenets. All of the Islamic banking industry base on Islamic rules and principles. Due to this factor more people comes towards IB. Because they realize that every activity and each transaction is based on Islamic tenets. Third religious factor is limpidity and trust. Islamic banking purely based on Islamic tenets people have more satisfaction and trust on Islamic banking specially Muslims customer they feel satisfaction and having trust that Islamic banking must follows the Islamic Shariah. People have faith and conviction on Islam which is distinct reason for them to adopt Islamic banking system. This point is also related with previous sub religious factor, the people limpidity and trust is very high because the Islamic banking system based on Islamic tenets. One of the important religious factors is the existing of Shariah board. They also are urging the people toward Islamic banking because the Shariah board is key element in the structure of Islamic banking. The Shariah board consist on top Shariah scholars a carrying the responsibility of ensuring that all products and services offered by these institutions are fully complained with the principle of Shariah laws. They provide advice and guidance as prudential regulation guideline mode of financing and model agreement for Islamic industry. When these top Shariah scholars become the member of Islamic bank Shariah board the more people come towards IB because of people trust on these top Shariah scholars. This is important factor which motivate the people and this factor also contribute in
46
enhancing the growth rate of IB. due to importance of this factor many world class players such as royal bank Dutch bank and other who take the assistance of top Shariah scholars and opening Islamic banking windows for attracting the people as literature review suggested. The second motivating factor shows by the literature, which attract the people towards IB is the crux economic factor. This factor is not only concerned with Muslim customers but also concerned with the non Muslim customers as well. One of the economic factors is the financial stability of IBs in recent economic crisis. Due to this stability people get the sense that Islamic banking has very strong muscles and also have very standardized rules and regulations and this sense urge the people not only Muslim but also the non Muslim towards Islamic banking. The non Muslims are more concerned with that factors due to this reason that there money is saved and not loose due to financial crisis at the people fund sink in other financial institutions due to these recent economic crisis. The next economic factor is the reputation of Islamic banking. People give more preference to institute or thing which has goodwill in the minds of people. In recent era Islamic banking have a sophisticated reputation because it is the new trend in the market. One of the economic factor is versatility in the product of Islamic banking which they are offering. They offer specialized product on the basis of people needs or by analyzing the needs of people. Islamic banking system has all the substitute product of those which is offering by conventional banking. Due to this reason Islamic banking system become proving to a suitable alternative of conventional banking system. One of the most versatile product of Islamic banking system is that IB offered the leasing of old cast which are not offering by conventional banking system. This is the unique product of Islamic banking system, the comparison of Islamic banking system product with conventional banking product given in chapter 2 named factor which appeal Muslim and non Muslim towards Islamic banking in non Muslim countries which shows the Islamic banking product as the strong substitute of each conventional banking product. Another economic factor suggested by literature reviews which urge the people towards Islamic banking system is the sense of partnership by sharing profit and loss. Some time this factor de motivate the non Muslim customers because they want only share the profit and not willing to share the loss. The Muslim 47
people motivate because in Islam the business of profit and loss sharing is allowed but non Muslim just think about the profit they have no concerned with the loss sharing. Muslim people get the sense of partnership by sharing profit and loss. The next economic factor due to which the people opt Islamic banking are the saturation of conventional banking market as the literature shows. In the recent time there is a large number of conventional bank enter in the market and open their branches due to this the conventional banking industry become saturated. This saturation of conventional banking industry divert people towards Islamic banking because it emerging as a new industry having a high reputation and showing stability in the recent economic crises. This factor not only appealing Muslim but also non Muslim customer as well. Asset based financing is also an economic factor which attract both the Muslim and non Muslim towards IB and contribute in enhancing the growth rate of Islamic banking system. We are trying to prove that Muslim population growth rate plays significant role in increasing the growth rate of Islamic banking industry. But Islamic banking not only grows due to this reason there are certain other factor which increase the growth of Islamic banking industry. The third factor which plays a significant role is personal and psychological factor. First personal and psychological factor is long term confidence of people build on Islamic banking because of its international standard and consistency in accounting rules. People feel confidence and never hesitate to come towards IB a lot much awareness created in non Muslims countries about Islamic banking and people get aware with IB and opt Islamic banking generously. One of the personal factors involved the advice of friend. People get advice from friends when they want to choose a bank for opening an account. Not only friends advice influence the decision of selecting a bank but also neighbors and family members have a strong influence on customers decision so that factor also contribute in increasing the growth of IB to some extent. There are some other situational factors which people consider while choosing the bank. Situational factor include convenient location some people only consider the bank which is on convenient location irrespective of banking system whether it is conventional or Islamic. Some other situational factors may include depositing and withdrawing money, waiting line and long term transaction some 48
people consider this factor as an important factor. Due to this Islamic banking try to improve situational factor to attract more people. Another factor which people consider while selecting the bank is service factor. Service factor is also important some people leave one bank only due to the reason that they never provide the good services. Services include free checqing service; adequate drive in service, accurate bank statement service, family staff and many more, online fund transfer facility. These are the factors which also contribute in increasing the growth rate of Islamic banking irrespective of population growth. The primary step for entering in any non Muslim country for an Islamic bank is a thorough research about the Muslims population in that particular country and analyzing the trend of population. They must study the population statistics of Muslims in the country of interest. Our study aimed to finding a relation between population growth of Muslims in non Muslims countries and growth rate of Islamic banking in these countries remains other all factor which contribute in growth of IB is constant.
5.1 Empirical Analysis

In our study we selected three non Muslims countries including UK, USA and Japan. The basal study propelled through by taking the population of Muslims in these non Muslims countries and the growth rate of Islamic banking in proposed countries, and focused was to describe and explain the growth rate of Islamic bank in terms of population growth of Muslim community in these countries. Or in other words find out the relation between these two, Muslims population in non Muslims countries and Islamic banking growth rate in proposed countries remaining other factor which contribute in enhancing the growth rate of IB is constant. Literature review elaborated that the preliminary step for any Islamic bank for operating in a non Muslim countries is to analyze the population of Muslims in that focused countries. They study the various trend of Muslims population in that particular country and also study that at what proportion the Muslims population increase in that country or that might be declining due to any reason. After studying these things an Islamic bank enable to enter in a particular non Muslim country for its 49
operation. In order to prove the hypothesis that there is positive or negative relation between population growth and growth rate of Islamic banking we dissect the trend of Muslims population and growth rate of Islamic banking. In our study we have taken two variable x and y. where x represent Muslim population in non Muslim countries and y stands for Islamic banking growth rate. In this study x variable is the population growth is independent variable while the y Islamic banking growth is dependent variable. The independent variable x (Muslims population in non Muslims countries) is in million, and the dependent variable y (Islamic banking growth rate in non Muslims countries) is in percent. In order to find out the relation between these two variables we use two statistical tools the correlation and regression analysis. Correlation represents the relation between the two variables while regressions express the growth trend with respect to Muslims population. When two quantities are so related that the fluctuations in the one are is sympathy with fluctuations in the other, so that an increase or decrease one is found in connection with increase or decrease of the other (or inversely), the quantities are said to be correlated and correlation is said to be simple in case of two variables. In other words correlation measures the degree of interdependence between two variables. Correlation may be direct or positive if an increase, or decrease in the values of one set is associated with increase or decrease of the other set. If the increase or decrease is associated with decrease or increase of the other and correlation is said to be inverse or negative. Regression help us to find out the equation, with the help of that equation we predict the future growth rate of Islamic banking in that particular country. T test use for taking the decision that we accept the hypothesis or reject which we generated.
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ENGLAND
(Table 5.2)
ENGLAND
ISLAMIC BANKING MUSLIMS POPULATION GROWTH RATE GROWTH (In Million) (in %) y X
2004
1.087
2007
2.327
5.5
The result shows that there is a constant increase in Muslims population and growth rate of IB. In 2004 the Muslims population in UK was 1.087 million while Islamic banking growth rate was 1.8%. In 2005 the Muslims population in UK was 2.017 million while Islamic banking growth rate was 2.9%. In 2006 the Muslims population in UK was 2.142 million while Islamic banking growth rate was 4.2%. In 2007 the Muslims population in UK was 2.327 million while Islamic banking growth rate was 5.5%. In the next year 2008 the Muslims population in UK was 2.422 million while Islamic banking growth rate was 7.8%.there is gradual increase in population as well as in Islamic banking growth rate but this increase in growth rate of IB in not only due to increase in Muslims population there are certain other factors which we supposed constant.
52
(Graph 5.1)
The graph shows the Muslims population in million in UK and Islamic banking growth rate in percent.
SCA TTE R D IAGRAM

(Graph 5.2)
53
Empirical and mathematical result has shown that there is positive relationship of 89% between Muslim population and Islamic banking growth in UK if other factor remained constant which might be effect the growth rate of IB. Correlation shows a very strong relation ship but this relation may vary because there are many factors which effects on the growth of IB in non Muslims countries which we assumed constant. (Table 5.4)
REGRESSION ANALYSIS SUMMARY OUTPUT
Regression statistics
Multiple R R Square Adjusted R Square Standard Error Observations
0.825490911 0.681435244 0.5 75246992
1.521899521 5
54
(Table 5.5)
ANOVA
df Regression resiual Total 1 3 4 ss 14.86346555 6.948534455 21.812 coefficients Intercept X variable 1
-2. 781131489 3.612371931
Ms 14.8634655 2.31617815
Significance F
6.4172376 0.085182984
Standard error 2.930693707 1.425996301
T stat -0.948966957
2.533226719
In order to find out relation we use regression analyzing technique in which y is dependent variable which shows growth rate of IB in percentage while the other variable x is the independent variable which shows the population growth in million. By using regression we find the equation of Y on X
Y=a + b x
Where: Y= dependent variable (growth rate of IB in percentage) X= independent variable (Muslims population growth in million) a=intercept b=coefficient of x variable 1 We get by putting values in equation
Y= a + b x Y= -2.78+3.61 (x)
55
This is the regression equation between these two variable supposed that if there is 1 (one) million increase in Muslims population and x represents the population then
Y= -2.78+3.61(x) Y= -2.78+3.61(1) Y= -2.78+3.61 Y= 0.83 The results show that if there is 1 (one) million increase in population that the growth rate is increase by 0.83%. But population growth rate is not the single factor which contribute in growth rate of IB there are some other factors which also contribute an impact on growth rate the other factor have proven to have profound impact on growth rate. The actual impact on other factor could not be found because of limitation of the sources and time. The researcher not able to reach or interact with the customer of Islamic banks in non Muslim countries so the other factor would not measure there magnitude in contributing to growth is not known due to the above reason.
With the help of regression equation we can forecast the growth rate of Islamic banking in non Muslim countries simply substituting the value of x variable which represent the Muslim population in million. By putting the value of X (Muslims population) we forecast the growth rate of IB in UK if other factors remained constant. This growth rate may vary because of other factor which we are unable to locate.
T test
T test use for taking the decision that we accept the hypothesis or reject which we generated .The t test shows that the value of t is greater than 1.96.The value of t in case of UK is 2.53 which is greater than 1.96 so we accept the hypothesis that preponderance Muslim population plays significant role in the rapid growth and increasing market share of IB in non Muslims countries.
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UNITED STATES OF AMERICA
57
(Table 5.6)
UNITED STATE OF AMERICA

YEAR GROWTH (In Million) GROWTH RATE (in %) MUSLIMS POPULATION ISLAMIC BANKING
2004 2005 2006 2007 2008
1.101 1.502 1.912 2.125 2.345
1.5 1.9 2.6 4.3 5.5
The result shows that there is a constant increase in Muslims population and growth rate of IB in USA. In 2004 the Muslims population in USA was 1.101 million while Islamic banking growth rate was 1.5 %. In 2005 the Muslims population in USA was 1.502 million while Islamic banking growth rate was 1.9%. In 2006 the Muslims population in USA was 1.912 million while Islamic banking growth rate was 2.6%. In 2007 the Muslims population in USA was 2.125 million while Islamic banking growth rate was 4.3%. In the next year 2008 the Muslims population in USA was 2.345 million while Islamic banking growth rate was 5.5%.there is gradual increase in population as well as in Islamic banking growth rate but this increase in growth rate of IB in not only due to increase in Muslims population there are certain other factors which we assumed constant.
58
(Graph 5.3)
The graph shows the Muslims population in million in USA and Islamic banking growth rate in percent.
SCA TTE R D IAGRAM

(Graph 5.4)
59
(Table 5.7)
CORRELATION
CORRELATION
Column 1 Column 2 1 0.925898 1
Empirical and mathematical result has shown that there is positive relationship of 92% between Muslim population and Islamic banking growth in USA if other factor remained constant. Correlation shows a very strong relation ship but this relation may vary because there are many factors which effects on the growth of IB in non Muslims countries which we assumed constant.
(Table 5.8)
REGRESSION ANALYSIS SUMMAR Y OUTPUT
0.. 925898266 0.85728 7598 0.80971679 7
0.737447892 5
60
(Table 5.9)
ANOVA
df Regression 1 ss Ms F Significance F 18.02129
9.80051182 9.80051182 0.02394359
residual Total
3 4 11.432 coefficients
1.63148817 0.54382939
Standard error 1.370430208 0.740208838
T stat -1.81454603
4.245149997
Intercept X variable 1
-2.486708693 3.142297548
In order to find out relation we use regression analyzing technique in which y is dependent variable which growth rate of IB in percentage while the other variable x is the independent variable which shows the population growth in million. By using regression we find the equation of Y on X
Y=a + b x
Y= a + b x Y= -2.49 + 3.14 (x)
61
This is the regression equation between these two variable supposed that if there is 1 (one) million increase in Muslims population and x represents the population then
Y= -2.49 + 3.14 (x) Y= -2.49 + 3.14 (1) Y= -2.49 + 3.14 Y= 0.65 The results show that if there is 1 million increase in population that the growth rate is increase by 0.65%. But population growth rate is not the single factor which contribute in growth rate there are some other factors which also contribute an impact on growth rate the other factor have proven to have profound impact on growth rate. The actual impact on other factor could not be found because of limitation of the sources and time. The researcher not able to reach or interact with the customer of Islamic banking in non Muslim countries so the other factor would not measure there magnitude in contributing to growth is not known due to the above reason. With the help of regression equation we can forecast the growth rate of Islamic banking in non Muslim countries. Simply substituting the value of x variable which represent the Muslim population in million. By putting the value of X (Muslims population) we forecast the growth rate of IB in USA if other factors remained constant. This growth rate may vary because of other factor which we are unable to locate.
T test
The t test shows that the value of t is greater than 1.96.The value of t in case of USA is 4.24 which is greater than 1.96 so we accept the hypothesis that preponderance Muslim population plays significant role in the rapid growth and increasing market share of IB in non Muslims countries
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JAPAN
(Table 5.10)
JAPAN
YEAR GROWTH (In Million) x y GROWTH RATE (in %) MUSLIMS POPULATION ISLAMIC BANKING
2006 2007 2008
0.78 0.98 1.301
0.7 1.6 3.54
In Japan the Muslim community has been steadily increasing and is estimated to have reached over 980,000 people in 2007. Despite this growth, there are very few Japanese financial institutions that offer Sharia-compliant products and services. In Japan there is no full flagged Islamic bank but the huge amount of transaction made through Islamic windows and large investment is made by Kuwaiti investors make the Islamic industry going forward. The result shows that there is a constant increase in Muslims population and growth rate of IB. In 2006 the Muslims population in Japan was 0.78 million while Islamic banking growth rate was 0.7 %. In 2007 the Muslims population in Japan was 0.98 million while Islamic banking growth rate was 1.6%. In 2008 the Muslims population in Japan 1.301 million, and Islamic banking growth rate was 3.54%. There is gradual increase in population as well as in Islamic banking growth rate but this increase in growth rate of IB in not only due to increase in Muslims population there are certain other factors which we supposed constant.
64
(Graph 5.5)
The graph shows the Muslims population in million in Japan and Islamic banking growth rate in percent.
SCATTER DIAGRAM
(Graph 5.6)
65
Empirical and mathematical result has shown that there is positive relationship of 99% between Muslim population and Islamic banking growth in Japan if other factor remained constant. Correlation shows a very strong relation ship but this relation may vary because there are many factors which effects on the growth of IB in non Muslims countries which we assumed constant. (Table 5.12)
REGRESSION ANALYSIS SUMMARY OUTPUT
0.997184 0.9943 76026 0.988752052
0.15392913 1 3
66
(Table 5.13)
Total
4.213066667 coefficients Standard error 0.431787514 0.41412229 T stat -8.503915809

13.29700007
Intercept
-3.671884666
X variable 1 5.506584122
In order to find out relation we use regression analyzing technique in which y is dependent variable which growth rate of IB in percentage while the other variable x is the independent variable which shows the population growth in million.
By using regression we find the equation of Y on X
Y=a + b x
Y= a + b x Y= -3.67 + 5.5 (x)
67
This is the regression equation between these two variable supposed that if there is 1 million increase in Muslims population and x represents the population then
Y= -3.67 + 5.5 (x) Y= -3.67 + 5.5 (1) Y= -3.67 + 5.5 Y= 1.83 The results show that if there is 1 (one) million increase in population that the growth rate is increase by 1.83%. But population growth rate is not the single factor which contribute in growth rate there are some other factors which also contribute an impact on growth rate the other factor have proven to have profound impact on growth rate. The may vary due to the impact of other factors which we are unable to find. The actual impact on other factor could not be found because of limitation of the sources and time. The researcher not able to reach or interact with the customer of Islamic banking in non Muslim countries so the other factor would not measure there magnitude in contributing to growth is not known due to the above reason. With the help of regression equation we can forecast the growth rate of Islamic banking in non Muslim countries. Simply substituting the value of x variable which represent the Muslim population in million. By putting the value of X (Muslims population) we forecast the growth rate of IB in Japan if other factors remained constant. This growth rate may vary because of other factor which we are unable to locate.
T test
The t test shows that the value of t is greater than 1.96.The value of t in case of Japan is 13.29 which is greater than 1.96 so we accept the hypothesis that preponderance Muslim population plays significant role in the rapid growth and increasing market share of IB in non Muslims countries.
68
Chapter 6
6.0 CONCLUSION
The prime interest of our study is to probe the growth rate of Islamic banking in non Muslim countries. Before join to the area of interest the exploration of study was made which demonstrate that when ever any Islamic bank intense interest to enter into a non Muslim country it undertake a thorough research about the Muslim population and see the potential growth chances of bank there. They analyze the population statistics of Muslim community in the interested country. The primary step for entering in any non Muslim country for an Islamic bank is a thorough research about the Muslims population in that particular country and analyzing the trend of population. They must studies the population statistics of Muslims in the country of interest. Our study aimed at finding the relation between population growth of Muslim in non Muslim countries and growth rate of Islamic banking for our study we use two statistical tools to find out the relation between two variables. First Muslim population in non Muslim countries being the independent variable and second is the growth rate of Islamic banking as the dependent variable with the help of correlation and regression analysis. The correlation represents the relation between the two variables while regression expresses the future prediction and IB growth trend with respect of Muslims population. The results have shown that in UK there is positive relationship of 89% between Muslim population and Islamic banking growth if other factors remained constant which might be effect on the growth rate of Islamic banking industry. And the results of regression analysis show that if there are one million increases in Muslim population of UK than the growth rate is increase by 0.83%.with the help of t test we are able to predict the future growth rate of Islamic banking in that particular countries if all others factor remain constant which might effect on growth rate of IB. But population growth rate is not the single factor contribution
69
in growth rate there are some other factors which also contribute impact on growth rate the other factor have proven to have profound impact on growth rate.
The results have shown that in USA there is positive relationship of 92% between Muslim population and Islamic banking growth if other factor remained constant. And the results of regression analysis show that if there are one million increases in Muslim population of USA than the growth rate is increase by 0.65%. But population growth rate is not the single factor contribution in growth rate there are some other factors which also contribute impact on growth rate the other factor have proven to have profound impact on growth rate. At last the results have shown that in Japan there is positive relationship of 99% between Muslim population and Islamic banking growth if other factor remained constant. And the results of regression analysis show that if there are one million increases in Muslim population of Japan than the growth rate is increase by 1.83%. But population growth rate is not the single factor contribution in growth rate there are some other factors which also contribute impact on growth rate the other factor have proven to have profound impact on growth rate. The actual impact on other factor could not be found because of limitation of the sources and time. The researcher not able to reach or interact with the customer of Islamic banks in non Muslim countries so the other factor would not measure there magnitude in contributing to growth is not known due to the above reason. The result shows the positive relation between two variable Muslims population and Islamic banking growth rate in non Muslims countries. With the help of regression analysis we analyze the change in growth rate of IB due to change in Muslims population but the results may vary because there are many strong factors which have a profound impact on the growth rate of Islamic banking in non Muslims countries and these factors contribute strongly in enhancing the growth rate of IB in non Muslims countries. In our study all these factors which have substantial influence in the growth rate of IB remains constant. The value of t stat is greater than 1.96 in all cases. In England t stat value 2.53, in USA t stat value 4.24, and in Japan t stat value is 13.29.In all countries t value greater than 1.96 shows the acceptation of hypothesis. With the help of t stat we accept the hypothesis that Rapid growth is being observed of adopting IB in non Muslims
70
countries due to increasing Muslims population in these countries if all others factors remain constant. At the end we conclude that when any Islamic banks decide to maneuver in any non Muslims country they must dissect the population statistics of that particular country. If there is preponderance Muslims population in that country than Islamic banks take decision to enter in that country. They also sieve through the different trends of Muslims population in particular country that the population of Muslims is increasing in that focused country day by day or declining due to any reason. The results may vary because there are many impregnable factors which have a profound impact on the growth rate of Islamic banking in non Muslims countries and these factors conduce strongly in enhancing the growth rate of IB in non Muslims countries. In our study all these factors which have substantive influence in the growth rate of IB remains constant.
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Chapter 7
7.0 GR A P H S
Muslims population growth in UK (in million)
MUSLIMS POPULATION GROWTH (In Million) X 1.087 2.017 2.142 2.327 2.422 (Graph 7.1)
72
Islamic banking growth rate in UK (in %)
ISLAMIC BANKING GROWTH RATE (in %) y 1.8 2.9 4.2 5.5 7.8
(Graph 7.2)
73
Muslims population growth in USA (in million)
MUSLIMS POPULATION GROWTH (In Million) x 1.101 1.502 1.912 2.125 2.345
(Graph 7.3)
74
Islamic banking growth rate in USA (in %)
ISLAMIC BANKING GROWTH RATE (in %) y 1.5 1.9 2.6 4.3 5.5
(Graph 7.4)
75
Muslims population growth in Japan (in million)
MUSLIMS POPULATION GROWTH (In Million) x 0.78 0.98 1.301 (Graph 7.5)
76
Islamic banking growth rate in Japan (in %)
ISLAMIC BANKING GROWTH RATE (in %) y 1.6 3.54
(Graph 7.6)
77
Chapter 8
8.0 R EFERENCES
Ahmed, Ausaf contemporary experiences of Islamic banks a survey: in estimation of Riba from the economy. Islamabad: institute of policy studies, 1994. PP 369-393. Ali, jasim Islamic finance is gaining importance in non-Muslim nations special to Gulf new published in March 23, 2008, 0017. Ainley M 1997, under a veil of regulation the banker, 147(8601, 73, 74. Aazim Mohiuddin, Islamic banking shows despite global financial crisis economic outlook Vol 42, No 10. Blank, jonah, the Muslim mainstream Islam is growing fast in America and its member defy stereotypes news and world report July, 1998. Donald Greenless banking in accordance with the quran Greenless , international herald Tribune published feb, 6.2005. Daud vicary Abdullah taking Islamic finance to the next level Islamic finance Asia published June/July 2000. Dr. Akhtar Shamshad ,10 December 2007 Islamic finance opportunities & challenges collection of speeches by 2006-2008. Dr akhter Shamshad Building an effective financial system Governor of the state bank of Pakistan at the global Islamic financial governors financial regulator forum in Islamic finance kaula lumpur, 27 March 2007. Dr akhter Shamshad closing keynote address Islamic finance : its sustainability and challenges Georgetown university , Washington October 18, 2007.
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Dr. Akhtar Shamshad Islamic finance growth competitiveness and sustainably 14 world Islamic conference Bahrain 9-10 December 2007 Islamic finance opportunities & challenges collection of speeches by 2006-2008 El-Gamel, M Amin (2006) overview of Islamic financial office of international affairs occasional paper no 4. Ghafoor, abdul A.L.M Islamic banking book interest free commercial banking Chap 4, 1995. K-Grose Thomas the rise of Islamic banking in on time of economic crisis how some financial institution avoid trouble by following the strict rules of the Quran. Published in December 10, 2008. Karbhari, yusuf, Naser, Kamal & shahin, zerrin September-october 2004, problems & challenges facing the Islamic banking system in the west the cause of the UK. Thunderbird international business review 46. Karsten I Islamic and financial intermediation IMF staff papers 1982 pp 108-142. Mustak parker, 2004 Islamic banking dybamics of growth published in December 14, 2004. Mohamed Ridza a leading consultant on Islamic finance in Malaysia and managing partner of mohemed ridza and co. Micheal hsu, vice president Canadian financial monitor Islamic Banking in Canada ipsosRied, 2007. Norris, kim, Islamic mortgage: faith, finance, forge news path published on 8/6/2005. Nisha Patel and Jason Satur, 2008) Islamic Banking offers choice to Muslims in Canada Newspaper: Omni Television. New horizon. Global perspective on Islamic banking & Insurance. Country Focus: Islamic banking and takaful in Russia: What the future holds01 April, 2007
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Objective and functions of the bank of industry and mines and Islamic banking system. Paper presented at international seminar on Islamic banking Tehran 11. 14 June 1986. Page 46 quoted in rad 1991. Power, Carla, Banking on faith publish on July2, 2007. Philips, Melanie Britains a world leader in Shariah banking but we have not grasped the sinister & dangerous implications for mail online last updated at 8:29 pm on feb 10, 2009. Professor saeed, Abdullah chair of Islamic studies at Melbourne university and author of Islamic banking and interest. Sole, Juan Islamic banking make headway IMF monitory & capital market department published on September, 19, 2007. Siddiqi, Muhammad Najatullah, a model of interest free banking, criteria (Karachi), 6(4) July, august 01 page 19-33. Siddiqi Islamic banking theory & practice in M.Ariff (1988). Schmith, scott Islamic banking experiencing rapid growth published in December 2005. Sir leigh pemberton ( the governor of bank of England from a speech gives to Arab bankers associations meed 5 October, 1984 page 2 quoted in rad, 1991. Schotta charles unresolved issue for the Islamic banking operation in the united states, Arabia, feb 1995. PP64-65 quoted in rad 1991. Steele F, 1984 Islamic bank operating in the western countries paper presented at the conference of Islamic banking. Its impact on world financial and commercial practices, London 18, September 1984 quoted in Rad 1991. Suratgar D, 1984 prospects for cooperation between western and Islamic financial system paper presented at the conference on Islamic banking. Its impact on the
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world financial and commercial practices. London 18 September 1984 PP 28-34 quoted in rad 1991. State bank report December 2007-2008. Taipai times, 2006, Japan set to enter Islamic banking AFP, TOKYO Saturday, Aug 19, 2006, Page 10. V Sundararaja & Luca Errico. Islamic financial institution & products in the global financial system key issues in risk management & challenges ahead IMF working paper, monetary exchange affairs department published on Nov 2002, WP/02/192. Vishal dugar, 2007 Islamic banking quest to adopt Basel II published 23 July, 2007. Vayanos peter, Dr. wackerbeck Philip in Islamic banking how do Islamic banks compete in an increasingly competitive environment booz & co. Wilson, R., Islamic Business: Theory and Practice. The Economist Intelligence Unit, 1984; pp.32-34. Wallace by Gushurst, klas peter de souza, ivan, Vanessa, a new world for Islamic banking. Published Feb. 20, 09. Zaher and Hassan.
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Islamic Banking in Non Muslim Countries

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Islamic Banking in Non Muslim Countries

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GROWTH AND MARKET SHARE OF ISLAMIC BANKING IN NON- MUSLIMS COUNTRIES

BY MUHAMMAD MUNEEB KHAN Enrolment No: MBA/E/760/10 Seat no: 1008563

SUBMITTED TO SIR Abdul Aziz

DEPARTMENT OF BUSINESS ADMINISTRATION FEDERAL URDU UNIVERSITY, KARACHI.

2.2.1 2.2.2 2.2.3 2.2.4 2.2.4.1 2.2.5 2.2.6

PAGE TABLE NO NO LIST OF TABLE

1.2 Interest Free Banking

1.2.1 Verses Prohibited Interest In the Holly Quran

1.3 HISTORICAL BACKGROUND

1.3.1 When Interest Free Banking Remained an Idea

1.3.2 When Interest Free Banking Become Reality

1.4 Statement of the Problem

1.5 Objective of the Study

Highlight the attractiveness of IB in non Muslim countries.

Study will provide us a better understanding of IB.

1.6 Hypothesis of the Study

1.7 Significance of the Study

1.8 Scope and Limitation of Study

1.9 Definition of Term

2.0 FACTORS WHICH APPEALS

2.1 RELIGIOUS FACTORS

2.1.1 Interest Free Banking

2.1.2 Banking System Based On Islamic Tenets

2.1.3 Limpidity and Trust

2.1.4 Shariah Advisory Board

2.2 ECONOMIC FACTORS

2.2.1 Financial Stability of IBS In Recent Economic Crises

2.2.2 Reputation of Islamic Banking

2.2.3 Islamic Banking Emerging As a New Industry

2.2.4 Islamic Banking Versatile Product

2.2.4.1 Islamic Banking Vs Conventional Banking Products

particulars Conventional banking Deposit account Saving accounts

Islamic banking Mudharabah account (profit sharing)

Investment account Fixed deposit account

Profit sharing based in IPR (indicative profit rate)

Conventional banking Fixed rate

Islamic banking Fixed rate (leasing arrangement)

Bai bithaman ajil (deferred payment sale)

Particulars Personal loan

Conventional banking Interest rate

Islamic banking Bai al-inah (sell and buy back)

2.2.5 Concept of Partnership by Sharing Profit And Loss

2.2.6 Saturation of Conventional Banking Market

2.2.7 Asset Based Financing

2.3 PERSONAL AND PSYCHOLOGICAL FACTORS

2.3.1 International Standard and Consistency in Accounting Rules of IB

2.3.3 Advice of Friends

2.3.4 Neighbors and Family Has a Stronger Influence on Customer Decision

2.4 SITUATIONAL FACTORS

2.4.1 Convenient Location

2.4.2 Waiting Line

2.4.3 Depositing and Withdrawing Money

2.4.4 Loan Transactions

2.5 SERVICE FACTORS

2.5.1 Free Chequing Services

2.5.2 Adequate Drive in Services

2.5.3 Accurate Bank Statement

2.5.4 Friendly Staff

3.0 LITERATURE REVIEW

Lack of Sharia scholars with knowledge of conventional and Islamic finance.

These are the obstacles of fastest growing Islamic banking industry.

The author gives one example which we quoted in his words.

Islamic banking has a man appeal