Islamic Finance Is One Of The Fastest Growing Segments Finance Essay

Islamic finance is one of the fastest turning sections of the planetary fiscal industry. There are over 300 Sharia ‘ compliant fiscal establishments worldwide in more than 75 states ( El Qorchi, M 2005 ) . Harmonizing to latest study published in Khaleej times, the volume of Islamic funding will make to 2 trillion USD by 2015. It is excessively large to be ignored.

Several factors have contributed to the strong growing of Islamic establishments, such as ( I ) strong demand in many Islamic states for Sharia’-compliant merchandises ; ( two ) advancement in beef uping the legal and regulative model for the Islamic fiscal industry ; ( three ) increasing demand from conventional investors for variegation intents ; and ( four ) the capacity of the Islamic industry to make a figure of fiscal instruments that meet most of the demands of corporate and single investors.

Several points make difference between Islamic and conventional banking system. These of import points include prohibition of preset or fixed rate of return based minutess and the bank operations demands that carried out harmonizing to certain processs through usage of some fiscal instruments. The regulative frame work for the conventional Bankss and Muslim Bankss are rather different. Hence, there is a demand for complete instruction and preparation for apprehension of how to run Islamic banking through an appropriate and better regulative system ( Errico and Farahbaksh, 1998 ) .

Islamic banking system depends upon net income and loss sharing, having and dealing of physical goods, engagement in trading procedure, and besides Islamic manners of finance are used for renting and building contracts. As for intent of income coevals, Islamic Bankss trade with assets direction. The Muslim Bankss carefully manage involved hazard in assets direction with devotedness to best exercising of corporate administration.

Addition on the capital is appreciated by the Islamic Shari’ah but the involvement based minutess are prohibited. The involvement is a fixed sum that is charged over chief sum of loan or debt which is prohibited in Islamic Shari’ah. Islamic Shari’ah considers public presentation of capital when existent capital is rewarded. Islamic Shari’ah prohibits hazard free return and trading and the fiscal activities and minutess in the Islamic Shari’ah rule are existent asset-backed, with an ability of value add-on.

The constitution of modern Islamic fiscal establishments started three decennaries ago. Dubai Islamic Bank was the first modern commercial Islamic bank in the universe which was established in 1975. Before this, clients had no pick but to utilize conventional Bankss for all their fiscal demands. Since so, Islamic Banking is turning quickly throughout the universe and has been introduced in more than 75 states. Global fiscal participants like Citibank, ABN AMRO, American Express Bank, HSBC, etc. are besides take parting in Islamic Banking and Financial Industry.

The recent planetary crisis has renewed the focal point on the relationship between Islamic Banking and fiscal stableness and, more specifically, on the resiliency of the Islamic banking industry during crisis. Economists have observed the enormous growing in Islamic banking in recent old ages. Some have argued that the deficiency of exposure to the type of assets associated with most of the losingss for conventional Bankss during crisis – and the asset-based and risk-sharing nature of Islamic finance – have protected Islamic banking from the impact of the planetary fiscal crisis.

To analyse the public presentation of Islamic and Conventional Bankss, three UAE Islamic Bankss, Dubai Islamic bank, Emirates Islamic Bank, Abu Dhabi Islamic Bank and three UAE conventional Banks i.e. Abu Dhabi Commercial Bank, Commercial Bank of Dubai and First Gulf Bank are selected since all of these Bankss have important market portions in their several classs. For this survey, merely pure Islamic Bankss and pure Conventional Bankss have been selected and those conventional Bankss with Islamic window have been excluded.

The survey uses bank degree informations covering 2005-2011 for all the Bankss. The cardinal variables used to measure the impact are the alterations in profitableness, bank loaning, bank assets, and external bank evaluations.

The grounds shows that, in footings of profitableness, Islamic Banks fared better than Conventional Banks in 2008. However, this was reversed in 2009 as the crisis hit the existent economic system. The alteration in Islamic Banks ‘ hazard appraisal, as reflected in the evaluation of Bankss by assorted evaluation bureaus, has been lower than that of Conventional Banks. This means that Islamic Banks ‘ have been involved in hazardous concerns. Factors related to Islamic Banks ‘ concern theoretical account helped incorporate the inauspicious impact on profitableness in 2008, while failings in risk-management patterns in some IBs led to larger diminutions in profitableness compared to Conventional Banks in 2009.

The remainder of the paper is organized as follows: Chapter II provides the organisation profiles for each of the Bankss selected in the survey ; Chapter III gives an overview of the chief characteristics of Islamic banking, foregrounding cardinal differences with conventional banking. Chapter IV describes the Research Methodology such as Data beginnings, statistical tools. Section V examines the chief factors that could explicate differences in public presentation between IBs and CBs. Section VI discusses the cardinal findings of the survey. Finally, Section VII summarizes the chief decisions and provides policy recommendations.

1.2 Need for the survey

Islamic Financial Services is deriving popularity at a really fast gait. United Arab Emirates is the birth topographic point of the Islamic Banking system in the universe. Dubai Islamic Bank is the first bank in the universe to do Islamic fiscal services commercial while still following the Shari’ah rules. Islamic Financial merchandises and services have gained a batch of attending from around the universe and has become excessively large to disregard. Since United Arab Emirates is the centre of Islamic Banking industry, this survey is focused on the public presentation of Islamic Banks against the Conventional Banks in UAE.

Previously there have been efforts to measure the public presentation of Islamic Financial industry around the universe. It has been observed that the UAE Islamic Banking industry displays a different tendency as compared to the Islamic Banks in the other parts of the universe. But no survey has been made to truly find the Islamic Banking ‘s public presentation as against the Conventional Banking ‘s public presentation and the relationship between the public presentations of the two classs of these Bankss.

The proposed survey will reflect the visible radiation on the strong countries of Islamic Banks and the countries that can still be improved to the industry benchmark.

1.3 Objective of the survey

To Analyze and measure the public presentation of Muslim Banks through the cardinal fiscal ratios.

To Analyze and measure the public presentation of Conventional Banks.

To do the comparative analysis between the public presentation of Islamic Banks and Conventional Banks during pre-crisis and post-crisis stage.

To execute the t trial and find the statistical difference between the findings of Islamic and Conventional Banks.

July 12, 2017