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

Abstract

This research draws empirically a clear and comprehensive picture of long term programme finance in the Islamic and traditional Arab banking industries: Islamic banking industry is examined through musharaka, mudaraba, murabaha and muzaraha and; traditional banking industry is examined through lending. It pioneers and lays out the foundation of the research in this area. A survey was conducted on long term finance programmes in both the Islamic and traditional banking industries. A total of 109 banks were surveyes, 34 of which were Islamic banks. One main obstacle encountered in the research investigation was collecting the required primary data from banks. The research investigates questions related to the differences between groups and subgroups of banks: a) Islamic banks and traditional banks; b) Islamic banks located in Islamic economies and Islamic banks located in non Islamic economies; c) commercial banks and specialised banks; d) younger banks and older banks and e) smaller banks and larger banks. The findings of the research investigation suggests that there is generally a lack of differences amongst groups and subgroups of banks in terms of size, growth, ownership and long term finance programme performance. The performance is determined in terms of proportion of resources, involvement, required rate of return and the degree of success in long term finance programmes. Apart from the basis of their operations, Islamic banks differ from traditional banks in their age, growth, involvement and the required rate of return on long term finance programmes. The research investigates the practice and the importance of four Islamic finance politics namely; musharaka, mudaraba, murabaha and muzaraha to long term finance in the Islamic banking industry. The findings suggest that musharaka, mudaraba and murabaha are equally important: muzaraha is the least used in the long term finance programmes in the Islamic banking industry. The analysis of 80 hypotheses lead to 18 being accepted and 62 being rejected. Although some hypotheses are more important than others the findings suggest that the literature of banking is in bad need for further empirical research investigations.