Internationalization of Islamic Financial Institutions by

Top 20 FREQUENT WORDS

islamic 146 ifis 136 countries 66 banking 51 financial 50 banks 43 bahrain 38 challenges 28 limited 28 international 27 conventional 26 central 21 growth 21 investors 21 markets 21 shari 21 oic 20 accounting 18 finance 18 internationalization 18

DOCUMENT KEY POINTS

these new financial firms were established in the emerging market of the middle east to meet the demand of investors and borrowers who are motivated by profit maximization based on the islamic law shari a
ifis offer a wide range of islamic financial innovations starting from the simple contract of profita sharing agreement mudaraba which is similar to time deposit in conventional banks to issuing islamic bonds sukuk and derivatives

secondly it will present a model discussing the two types of challenges before ifis internationalization challenges inside the islamic countries such as the limited recognition of investors to ifis activities the limited contribution of ifis to the country s economy and the limited customer service

zaher and hassan provide a comparative study on the salient features of islamic banking supervisory system in countries explaining the lack of regulatory framework in ifis which poses a great challenge on ifis to uniform their standards and policies and mandate them on all ifis regardless their countries
what is islamic financing unlike the conventional banking system the islamic banking system can be defined as a faitha based system of financial management which derives its principles from the islamic shari a

on the contrary the conventional banking system does not reflect the changes in fair market value of the investment instead the bank assumes the loss alone resulting in disequilibrium between the real value of assets and liabilities and ending by negative net worth of the bank haron
this argument is not totally correct because according to the modern economic theory and analysis islamic banking is based on equitya based system not on the debta based system which is the base of conventional banking system khan

the reason behind this growth in bahrain is the lack of natural resources in the country which motivated bahrain government to nourish the islamic banking industry and make it as one of the main resources of income
during the last three decades ifis have increased substantially in the middle east and north africa mena countries and went further to the far east and europe

from the perspective of conventional banking the success of ifis can be gauged by the rush among the conventional banks to open their own islamic windows not only inside the islamic world but in the rest of the world such as citibank abn amro hsbc bnp paribas and bank of america
this new tool offers a source of funding based on the profita sharing concept between ifis and investors shifting the risks from the bank side as in the case of traditional bonds to be on a shared basis between the bank and the investors

the factors behind the growth of ifis several factors had contributed to the growth of ifis such as the economical growth of gcc countries as a result of the oil discovery and the establishment of the organization of petroleum exporting countries opec moore

thirdly the limited capital of ifis compared with the total capital of the financial institutions in any country leads to marginal recognition by the central banks and enforces the ifis to accommodate with the existing rules which might not be compliant with islamic shari a ala omar and abdela haq
a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a insert figure about here a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a challenges inside the islamic countries since the conventional banking system is widely spread inside as well as outside the islamic countries for decades it gains the clients trust especially if it is well regulated and actively contributed to the economy

the first element of the islamic supervisory network is aaoifi which was established in for the purpose of issuing standards in accounting auditing governance and shari a for ifis in accordance with international financial reporting standards ifrs thomas cox and kraty

despite the significant growth of the above regulators they still have some limitations which make the investors reluctant to trust ifis in the same way they trust the conventional financial fir miss for instance aaoifi standards are mandated or used as guidelines only in six countries bahrain sudan malaysia qatar saudi arabia and dubai out of the countries of oic

according to the human development index hdi for the year brunei was ranked at and bahrain murabaha contract means buying an asset for cash and selling it immediately on credit
limited economic contribution although the money and capital markets of oic are still considered as emerging markets ifis are restricted by shari a regulations to effectively take part in those markets

challenges outside the islamic countries on the global scale oic member countries face an economic challenge where the gdp of all member countries together is less than of the gdp of usa and does even reach of the gdp of usa and japan ahmad et al
it applies not only to the reala time clearing and settlement in money and capital markets but also to interneta based offerings and automated teller machines atms which are not fully implemented in ifis due to their cost and procedures

this distance between the two parties have been increased due to the media and the different attacks by some terrorists who distorted the image of islam in the cultural consciousness of nona musli miss therefore ifis face great challenge in reshaping this imbalance and bridging this gap between the differing ways of knowing and being
for instance treatment of leasing ijara in islamic banking system is recognized as normal leasing instead of mortgage which changes the concept of ijara from purchasing the asset by the bank and leasing it to customers to a normal lease of real estate

framework of solutions on the internal level the oic member countries need to provide support to primary and secondary markets to enhance the contribution of ifis
thus this type of disagreement leads to confusion in the ifis global strategy and makes it harder for western regulators to recognize understand and work with this sector clode and elliott

some banks ie jordan islamic bank and qatar islamic bank treat investment accounts that are based on mudaraba profit sharing as obligations while others al rajhi banking and investment and shamil bank of bahrain treat the same accounts as fiduciary investments and accordingly reported them as offa balance sheet accounts ahmed

the first program is in accounting and auditing of ifis and the second in shari a supervisory on the external level although there are differences in cultures customs and traditions between the east and the west effective dialogue should take place based on the following guidelines first different civilizations complement each other and lead to integration rather than conflict
therefore it is essential for ifis to establish a unified framework to standardize practices in order to be recognized globally such as the generally accepted accounting principles gaap which cover all the standards of auditing accounting and financial products in a systematic way moore

internally the investors still rely on the conventional banking system because the current number of ifis is not large enough to meet the need of oic member countries the contribution of ifis in money and capital markets is restricted by ssb and the customer service inside the ifis is still premature to attract new clients
to accelerate the process of acceptance islamic scholars need to unify their ratings methodology to be introduced effectively to the international market

paper presented at the th conference of iamot international association for management of technology in washington dc
european perceptions of islamic banking london institute of islamic banking and insurance a diamond d

islamic banking in theory and practice the experience of bangladesh
culture s consequences comparing values behaviors institutions and organizations across nations nd ed

table albaraka banking group branches year of country subsidiary name establishment branches employees algeria banque albaraka d algerie bahrain aa albaraka islamic bank ba al amin bank egypt the egyptian saudi finance bank jordan jordan islamic bank lebanon albaraka bank lebanon pakistan albaraka islamic bank s
africa albaraka bank ltd south africa sudan albaraka bank sudan tunisia bank ela tamweel ala tunisi ala saudi turkey albaraka turk participation bank total source albaraka banking group prospectus p

i declare that a c i have sincerely endeavored to produce a paper of outstanding academic quality a c i have produced this paper myself without any outside assistance except from the people and documents that i quote a c i have not copied and or pasted this paper or parts of it from other papers or documents available on the internet or elsewhere except where i have explicitly stated so a c i have not submitted this paper or major parts of it to another seminar or class either at the university of st
gallen or elsewhere and i will not do so in the future a c i may use parts of this paper for my doctoral dissertation

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DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\islamic banking

KeyWords

islamic banks banking financial finance investment conventional institutions funds risk financing deposits assets services management international countries equity profit products

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Number of Pages

27

Published Date

2007-11-29 09:08:56

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Internationalization of Islamic Financial Institutions by

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Top 20 FREQUENT WORDS

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