Long term finance programmes in the banking industry: the case of Islamic & traditional Arab banks

Islamic Finance grows in international finance across the globe. The aim of this study is to introduce the importance and specificities of the rapidly expanding Islamic banking system worldwide, as well as its expansion process. After a summary of the economic principles of the Islamic banking systems, with special emphasis on the principle of profit and risk sharing, - which essentially distinguishes Islamic and traditional interest-based banking systems - special highlight will be on the countercyclical feature of Islamic banks, which is also a fundamental difference from the procyclical feature of the traditional banking systems. The spread of the Islamic banking system is investigated, also stated, that the growth of it can be only partly explained by the expansion of the Muslim population. It can be stated, the Islamic banking system will become a decisive factor that will gain more portion of the financial market, mostly in some specific regions, but also worldwide – especially considering only the distribution of non-speculative transactions is concluded.

The global crisis in 2007 has revived interest in the Islamic banking and finance industry. The profit and loss sharing (mudaraba and musharaka) attributes of Islamic banking and finance have shielded Islamic banks from the impact of a crisis. In other words, the Islamic banking system is stable by virtue of the profit and loss sharing principle. The relative stability of the Islamic banking model can also be deduced from the fact that the Islamic banking and finance system is effectively under the control of the authority of the central bank, which is not easily influenced by non-policy factors. This study concludes that a case for the superiority of Islamic banking has been made for example in Tunisia and Iran, where separate Islamic or interest-free counters were opened in all branches of commercial banks along with traditional or westernised interest-based banks. The substitution of western interest-bearing deposits by profit and loss sharing deposits connotes to the stability of the Islamic finance and banking system. The Islamic profit and loss sharing system does have merit and deserves attention from academics and policy-makers alike, especially in view of the financial crises and rampant bank failures.

PurposeThe main objective of this paper is to highlight the unprecedented growth of Islamic banking and finance in the contemporary finance world. It captures the advancements of Islamic banking and finance industry across the tools, systems, sectors, markets and over 75 countries from Africa, Asia, Europe and North America.Design/methodology/approachThe paper deals with the paradigm of Islamic banking and finance. It constitutes a general review that bears special features, facts and figures over the recent developments of Islamic banking and finance across the globe. It takes stock of the growing institutional and infrastructure support for the Islamic banking and finance system in Muslim countries and Western financial markets.FindingsThe findings of the paper hold that Islamic banking and finance industry has been making breakthrough improvements to become a truly viable and competitive alternative to conventional systems at the global level. Islamic banking and finance institutions have acquired booming grounds in the Middle East, South East and South East Asia. These growing Islamic hubs have been acting as a launching pad to promote Islamic banking in Western business and financial markets. There are some core factors contributing to the recent success of Islamic banking and finance, such as spiraling oil prices worldwide, prolonged boom in the Middle Eastern economies, product innovation and sophistication, increasingly receptive attitude of conventional regulators and information technology advancements that have been acting as a catalyst for the Islamic banking and finance industry to go global. Given all growth patterns, Islamic banking may be able to win over the majority of customers from the Muslim world that constitutes almost 24 per cent of the world's population (over 1.3 billion), and other ethical groups across the globe in times ahead.Research limitations/implicationsThe paper takes stock of on‐going developments in Islamic banking and finance industry worldwide. It deals with latest information, facts and figures, which however do not amount to a substantive volume to allow statistical testing and analysis to figure out the main factors and their actual contributions in making Islamic banking and finance emerge as the fastest growing industry of the global finance. This paper mostly bears a subjective outlook.Originality/valueThe paper aims to attract the global attention towards the fastest growing industry of the contemporary world of finance. It presents the case of the Islamic banking and finance industry in the most powerful, comprehensive and logical fashions to remove all misgivings about it in some circles, and let it be seen as an industry adding more ethical, competitive, flexible and diversified tools and systems to global financial markets. The paper highlights the increasing moral and material support that Islamic banking has been enjoying from Muslim governments and the public, and Western market players and regulators. It draws attention towards the growing number of products, systems, infrastructures and supporting institutions of Islamic banking over the recent years. The current trends of Islamic banking industry worldwide captured in this paper can tell all about its strength and weakness, future prospects and ambitions to become a truly innovative, competitive and integrated part of contemporary global finance.

This study aims to discuss the concept of both Islamic and commercial banks, in order to illustrate the similarities and differences between Islamic and commercial banking systems. Additionally, this research evaluates the profitability of the Islamic and commercial banks in the GCC region and examines the impact of the subprime global financial crisis on both banking sectors during the period 2005-2013. The analysis of the financial information revealed significant findings in the profitability levels of the Islamic and commercial banks. The findings indicate that the Islamic banking system is more efficient in using its assets to generate profit; while commercial banks are more efficient than Islamic banks in terms of controlling their operating costs, conventional banks suffered significant losses in the financial market instruments, which led to reduce the profitability levels.

The emergence of Islamic banks in Indonesia today is increasingly mushrooming. This is inseparable from the role of the number of Muslim populations in Indonesia who want an Islamic economic and banking system that is far from usury. The Islamic banking system has been exemplified by the Prophet Muhammad and his companions in the past and this has become the basis or foundation for the establishment of Islamic banks. But in reality in Indonesia, the relevance of the Islamic banking system is less attractive. This research is a descriptive qualitative research, using library research method. The purpose of this study is to examine the practice of Islamic banking as exemplified at the time of the Prophet Muhammad SAW and to see the relevance and development of Islamic banking practices in Indonesia. The conclusion of this study is that the model of banking services, products and activities exemplified by the Prophet is still used in the Islamic banking system in Indonesia, but in fact there are many Islamic bank practices that deviate and are not in accordance with Sharia rules.

This study aims to highlight the bankruptcyBankruptcy-related challenges and the reasons behind bank failures for the global Islamic banking industry, and to understand the expected impact of Covid-19 on the financial health of the Islamic banking industryIslamic banking industry. Moreover, the study shows that going bankrupt is a costly process that affects all stakeholdersStakeholders.. Evidence shows that in the case of Islamic banking, a Shariah-based bankruptcy prediction model for apprehending the true bankruptcy prediction is over-sighted. It may further sour the existing uncertain situation for the Islamic banking industry with the additional unfavorable impact of Covid-19COVID-19. As the subjected pandemic has badly affected the flow of the financial system worldwide, Islamic banking is not isolated. Therefore, efficient bankruptcy prediction models equipped with the latest micro and macro-economic factors are compulsory for the sustainability of the Islamic banking industry.

PurposeThe purpose of this paper is to examine the relationship between Islamic bank margin (BM) and its determinants. It also compares the BM behavior of Islamic and conventional banks in the Indonesian dual banking system.Design/methodology/approachThe paper employs a time series approach under the dealership framework of Ho and Saunders. The autoregressive distributed lag model is used to inspect cointegration between BM and its determinants for the period of January 1996 to February 2006 of five sample banks (two Islamic banks and three conventional banks).FindingsThe result confirms that there exists a long‐running relationship between the Islamic BM and its determinants. In particular, as interest rate volatility increases, Islamic BM responds negatively while that of conventional banks responds positively. The findings differ from most of the other studies as they found a positive relationship between BM and interest rate volatility. This paper also shows that the margin behavior changes as the basis of bank operations changes from conventional to Islamic principles.Research limitations/implicationsThe paper uses a relatively small sample of three (out of 150) conventional banks as a comparison to two sample Islamic banks. However, as they come from the same peer with the Islamic banks, it is believed that the finding is valid. Islamic banks in Indonesia are not remote from the interest rate volatility in their presence under a dual banking system. It is the displaced commercial risk that threatens Islamic banking profitability in a changing market interest rate situation.Practical implicationsUnder a dual banking system, the stability of interest rates and the financial system is of great importance for the policy maker in developing the Islamic banking industry in Indonesia. As long as the BM is still a major source of income to the Islamic banks, it is necessary for Islamic banks to have prudent risk management to mitigate the negative effect of displaced commercial risk and maintain its profitability. Implementation of profit equalization reserves concept is a possible measure for Islamic banks to shield their operation.Originality/valueThis paper is believed to be the first study on Islamic BM behavior in Indonesia. It is expected to provide useful information for policy makers and Islamic bank management to develop a sound and profitable Islamic banking industry in Indonesia.

Bank Margin Determination: A Comparison Between Islamic and Conventional Banks in Indonesia

N HIS COMMENT on my paper (Staff Papers, Vol. 33, March 1986, pp. 1-27) Doak contends that I used the "wrong" model to characterize the Islamic banking system, and that I should have employed criteria other than dynamic stability to contrast the Islamic and traditional banking systems. The objective of my paper was clearly stated: to examine the dynamic response of an Islamic bank to a sudden decline in income (fall in asset values). The model specified, which is simply a dynamic version of the standard IS-LM framework, seems perfectly sensible for the purpose at hand. The assumption of only outside money is perhaps unrealistic, but relaxing this assumption to allow banks to issue deposits does not change the analysis in any way. There is only one bank in the system (with no distinction made between the central bank and commercial banks), and it issues a liability. I called that liability money but could easily have called it deposits. I agree with Doak that my model does not explain the effects of moving to a 100 percent reserve requirement for banks. But the model was not designed to do so. There are a whole host of important issues in Islamic banking and finance other than stability, and, as shown in a recent collection of papers on the subject,' one needs different models to analyze them. Doak's criticism of my model-that it is not sufficiently general to be able to handle all the relevant issues, including "questions of a political nature"-is certainly correct. But how many models in economics would be immune to such criticism?

Purpose: The article covers the prospects, challenges and criticism of Islamic Banking. There is still a confusion among people about the differences in Islamic and commercial banking. The implementation of Islamic banking is not as per the true spirit with which it was started. 
 Methodology/Approach: A systematic literature review was conducted and a thorough research was carried out by studying 2725 articles and finally qualifying thirty articles (30 articles) for the review
 Findings: The results revealed that there is still a confusion among people regarding the difference between Islamic and Conventional banking. The Islamic banks should organize more awareness programs to improve the knowledge of people regarding Islamic banks. The social objectives of Islamic banks are not highlighted from their operations.
 Implications/Originality/Value: This articles contributes to the literature by giving important insights regarding the Islamic Banking industry. The Islamic Banks can definitely improve by adopting the suggestions given in paper.

Purpose — This study examines the Islamic banking industry’s commitment to ESG (environmental, social and governance principles) in selected countries by assessing it from the maqāṣid al-Sharīʿah (objectives of Islamic law) pyramid perspective. Design/Methodology/Approach — A rigorous quantitative study was conducted using the REFINITIV database, which covered 12 countries from 2020 to 2024, resulting in 497 observations. Findings — The study finds statistically significant evidence that the Islamic banking industry sets a high standard of ESG for Islamic banks to comply with at the country level. In the long run, the rate of commitment of the Islamic banking industry to each component of the ESG score is explained by the industrial environmental index score (7.21%), the social index score (25.43%), and the governance index (17.98%), respectively. This parameter provides information about the proportion of the ESG score to which there is a greater commitment than for the others. This suggests that the Islamic banking industry pays more attention to the social index score, followed by governance and the environment. It can therefore be deduced that the Islamic banking industry pays substantial attention to the social aspects as ḍarūriyāt (essentials), followed by strengthening governance factors as ḥājiyyāt (needs) and the environmental factor as taḥsīniyyāt (embellishments). On average, the commitment of Islamic banks to ESG at the country level is statistically significant (49.73%). However, there is still scope for Islamic banks at the country level to increase their commitment. Since ESG commitment varies among Islamic banks, the number of Islamic banks with low ESG commitment contributes to the average being driven down. Therefore, the Islamic banking industry is expected to have a standardised industry benchmark for each ESG component and the combined ESG. Originality/Value — This study adds value to the body of knowledge by exploring the Islamic banking industry’s commitment to ESG through the three levels of maqāṣid al-Sharīʿah—a first in this area that is not found in previous studies on ESG. Research Limitations/Implications — The availability of data imposed certain constraints on including more countries beyond the selected Muslim nations. Nonetheless, the findings offer valuable insights for Islamic banks in countries not covered in this study. Practical Implications — This study provides Islamic banks with a clear understanding of the extent of their contributions to ESG within the framework of maqāṣid al-Sharīʿah. Therefore, each Islamic bank could re-strategise its approach as necessary. Social Implications — These findings present Islamic banks with the opportunity to examine the environment in which they operate and adhere to the most essential aspects of maqāṣid al-Sharīʿah that are pertinent to that location, thus making their contribution significant to the local community.

and Key Findings Islamic Banking is a rapidly growing industry worldwide. Its raison d'etreis primarily due to the Islamic prohibition of Riba, commonly translated from Arabic as interest, coupled with the need of practicing Muslims to become engaged in the modern global economy.This paper seeks to address the current utilization of Islamic Banking services in the United States. Based on the results of a survey that was conducted at New Jersey mosques, the paper suggests that American Muslims consume conventional banking services at rates quite similar to the general American population. There is also some evidence that Islamic Banking is a pan-Islamic phenomenon: it is not clearly limited to a certain ethnicity, age group, education level or religious identification. This can be interpreted as good news for the Islamic Banking industry in the United States, as it means that its market potential is not significantly limited by any of these factors. However, this may also prove to be a double-edged sword, if the Islamic Banking industry in the United States is unable to strongly differentiate itself from the conventional banking industry, and therefore cannot generate a large and loyal clientele. 1.Outline The paper starts by briefly recapitulating the origins and development of the Islamic Banking system, with specific emphasis on its emergence in the United States. Next, the literature review highlights some findings and observations from other relevant works. Finally, the results and analysis of a survey that was administered at a few mosques in New Jersey will be provided, in order to get an idea of the current usage of the conventional and Islamic Banking industries by Muslims in the United States, in order to determine if there are any demographic factors that are linked to a higher utilization of Islamic Banking services, as well as to predict the future growth prospects of the Islamic Banking industry in the United States. The survey that is analyzed in this paper is concerned with Islamic Banking in the United States. While there has been some limited availability of some Islamic financial services on a minute scale in the United States for around thirty years, Islamic Banking only began to see significant participation from the Muslim American community over the past ten years or so. However, there may be a sizeable untapped market for the Islamic Banking sector in the United States. The primary target population for Islamic Banking in the United States would be Muslim Americans, although the target clientele may extend beyond that in the future, especially if Islamic Banks offer services competitive with those offered by conventional banks. Estimates of the

This study discusses the market structure, conduct, performance (SPK) Islamic banking industry as well as the enforceability SPK Islamic banking industry. Variables include the study of concentration, market share, advertising intensity, the level of financing, financing problems, capital intensity, and the performance of the Islamic banking industry include profitability and operational efficiency, as well as variable dummy macro economic conditions. Source data from the financial statements of Islamic banking, and financial statements of four foreign Islamic banks, namely Bank Syariah Mandiri, Bank Muamalat Indonesia, Bank Mega Sraiah, and BNI Syariah. The technique of multiple regression analysis using panel data. The results showed that the market structure of the Islamic banking industry is an oligopoly 2005-2014 period. But in the meantime, there has been a change in the structure of the full oligopoly (2005-2008), a tight oligopoly (2009-2012) and became a monopolistic competition (2013-2014) due to the emergence of new Islamic banks in 2010 up to 2015 amounted to Islamic banks 12. Determinants of real influence on the market share structure is variable and intensity behavioral advertising. Advertising will increase the intensity and the concentration of market share. Perikalanan intensity intensive Islamic banks classified about 25 percent. That is about a quarter of the income allocated to the cost of promotion and advertising. Advertising intensity can improve the structure and market share. Advertising determinants that influence the behavior of Islamic banks is capital intensity, market share, concentration and interaction of market share, expansion financing and capital intensity. SCP variable relationships in the study of Islamic banking industry in Indonesia were tested empirically is the hypothesis of efficiency. Profit performance of the banking industry was not caused by the structure of sharia concentrated or collusion of the oligopoly but because of its efficiency. Keywords: concentration, market share, promotion intensity, profitability.

Customer satisfaction is critically important for banks to stay competitive as the customer is the ultimate source of income for any organization. Islamic banking system and conventional banking system are considered as rival systems working in the same banking industry. In order for Islamic banks to compete successfully with conventional banks, Islamic banks must give extremely high consideration to their primary customers. Whenever either Islamic banks or conventional banks offer any product or service, its success depends upon the customer satisfaction towards that product or service. This study examines the level of customer satisfaction on Islamic banks as well as conventional banks in Malaysia. It also investigates the relationship between different demographic variables and the satisfaction of customers. A sample of 1,153 respondents from various cities representing different states in Malaysia was selected. The results in this study suggest that customers are mostly satisfied with the quality of services which include competency, friendliness, and efficiency of the staff of the Islamic and conventional banks.

The objective of this paper is, firstly, to test the existence of contagion between the conventional and Islamic banking system, and secondly, to determine the best hedging strategy for. We use a FIEGARCH-EVT-copula model to analyse the dependence structure between the two banking systems in Gulf Cooperation Council (GCC) countries during the period from 16 June, 2006 to 15 May, 2013. Our results show the existence of a significant dependence between conventional and Islamic banks especially during the crisis period. The increase of the Kendall tau between the period before the crisis and the crisis period shows that financial contagion can be one of the most important factors of financial distress of Islamic banks. Concerning the best hedging strategy for conventional-Islamic stock portfolio, our results underscore the Islamic banking index usefulness in terms of reducing portfolio risk. Our results also corroborate the effectiveness of the hedging futures of Islamic banking indices.