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FBS-PT3

F O R M

Faculty of Business Studies

TMA Cover Sheet

Lebanon Branch

□ Second First Semester 2010 - 2011 Academic Year

2 □ 1 TMA No. T306B Course No.

I. Student Information (to be completed by the student) Jamal Fouad Jurdi Student Name

215 Section No. 080869 Student No.

[email protected]; [email protected]; [email protected] E-Mail

I hereby certify that the work presented in this TMA is my own and is not copied from 30 / 12/ 2010 Date of

SubmissionJamal Fouad Jurdi Signature

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ARAB OPEN UNIVERSITY

FACULTY OF BUSINESS STUDIES

Lebanon Branch

T306. Managing Complexity: a systems approach

Islamic Banking

Final Project Presented by

Student Name: Ms. Jamal Fouad Jurdi

To

Supervisor: Dr. Saher El-Annan

“Fall 2010”

Jamal Fouad Jurdi _080869_T306B_TMA02 _Dr. Saher El Annan_Section 215_Fall 2010

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Table of contents:

Introduction: Islamic Banking definition

Description of Islamic Banking growth

History of Islamic Banking

Tutor Report: Reveal the aims and interests of discussing Islamic Banking Subject

Engaging with the project

Immersing myself in the project

Diagrams to elaborate: Spray Diagram, System Map, Influence Diagram

and Rich Picture.

Client Report: Summary of the situation and a letter addressed to H. E. BDL Governor

Project Log: Weekly Summary of proceeding with the project.

References

This is the methodology I used to analyze my project of Islamic Banking Growth. It may not be

strict to the formal requirements but I adopted my own methodology to discuss my project and

meet the needs of discussion and clarification.


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Islamic Banking is growing fast and the conventional banks start offering Islamic

Accounts.

This is a system of shared risks and profits that could present a model for future financial

services.

Islamic banks today are spreading everywhere involving different locations, different kinds and

sects of people who are uncertain about the nature of these banks. This messy spread of Sharia

compliance or Islamic finance seeks a modern and progressive alternative to failed conventional

banking systems in the west starting 2008 because their financial system has proved so far to be

a model of honesty and transparency. Sharia-Compliant banks have nothing to do with Islamic

Sharia Law which stimulates confusion and mistrust to most people.

Islamic banks are dedicated to promoting goals that would be acquainted with equity, moderation

and social justice. Their financial system spins around discreet lending , minimizing risk, sharing

profits and short selling of stocks. The system do not encourage debts and do not cope with

organizations that their balance sheet is more than a third of which is a debt, i.e all banks are

banned since investments in enterprises is considered unethical by the Islamic system such as

weapon factories and Casinos. The most well-known feature of Sharia-compliant banks is the

prohibition of interest, i.e. making money out of money. They do not permit charging interest on

their loans instead they lease the property to the homeowner who ends up paying rental fees until

the ownership is transferred. However, the rental fees seem alike to interest payments. The

homeowner ends up paying more to pay off Islamic mortgages than conservative products, their

ethical investment is called “piety premium”.

Islamic financiers consider the relationship with clients is based on sharing risk and sharing

rewards from the financing and ethical investments .The returns depend on the amount of profit

from each transaction.

The Islamic finance is growing faster at an average of 15% to 20% per year; it started with one

institution in 1975 and increased to become around 300 institutions operating in more than 75

countries in the world. (Hasan, M. 2008).


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If we make environmental analysis to the Islamic banking in United Arab Emirates, we find that

The UAE banking system is made of 53 banks, 23 local (national) banks, 22 foreign banks and 6

GCC banks. 27of them have their Head offices in the city of Dubai and 320 branches are located

across this emirate (1).

A major financial crisis which has no precedent in complexity, scale and speed of propagation is

affecting the world economy since 2007. A liquidity crisis in the USA has triggered it, and it has

been caused by the overvaluation of assets.

In 2009, and despite the crisis, the banking sector in the UAE continued to grow.

Assets/liabilities reached AED 1.5 Trillion (+4.2%), total deposits grew to AED 980 Billion

(+6.4%) and total loans and advances grew to AED 1, 01 Trillion (+ 4.1%)(1).

The world economy outlook for 2010 is better than in 2009. There has been a rally by equity

markets, though grow rates remain lower than previously. It is expected that the economies of

Asia and the Middle East will grow at higher rates than advanced economies. The former have

many points in their favor – natural resources and monetary reserves in abundance, populations

that are young and dynamic, a consumer demand that is growing, and in areas like transport,

energy, healthcare, water and education. Overall, there has been an improvement of the balance

sheets of corporate and households compared to previous years.

UAE banks have also improved their situation. According to the UAE Central Bank report, this

provides UAE banks with a solid base of capital and reserves, boosting their adequacy ratio. This

will allow the banks to withstand a rise in bad debt or a new economic downturn (2).

However, as Heng Swee Keat(3) said in his speech at the 2009 World Islamic Bank Conference

(WIBC), sentiments remain volatile and investors react sharply to bad news. This makes Islamic

finance especially relevant since it strongly emphasizes supporting real economic activities in

trade, investment and the growth of productive capacities.

New technologies in communication and information have affected intensely the banking and

financial industry. On the one hand, they have made safer and more efficient the traditional

channels (ATMs, Call Centers and Telephone banking) offered by traditional banks. On the other

hand, these new technologies have allowed creating, developing and delivering innovative

products like Internet banking, mobile banking, etc. that are building new relationships between


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banks and customers. As a result of these technological advances, marketing managers can

enhance the quality of their Customer database and Database Marketing activities.

“This graph reveals the growth of Islamic Banks within one year” (Daily Star, 2008)

Popularity of Islamic banking is increasing worldwide, especially among the Muslims, for its

interest-free nature. Many western banks, including those in the US and Europe, have already

adopted the idea of Islamic banking to net Muslim customers. Bangladesh first launched such

banking system in 1983.


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Islamic Banking (1) started in the UAE with the incorporation of Dubai Islamic Bank, back in

1975. The number of Islamic banks stands now at 8 with 219 branches. Islamic banks correspond

to 16% of total assets/liabilities of the total banking system.

The assets of Islamic banks (5) combined have grown in 2009 at 14%, compared with only 3% for

conventional banks assets. The market share of Islamic banks in the UAE banking assets has

consequently grown from 18 % in 2008 to 20% in 2009.

The assets of Islamic banks (1) combined have grown in 2009 three times more than the

conventional banks assets. As consistency, the market share of Islamic banks in the UAE

banking assets has risen from 18 % in 2008 to 20% in 2009.

Islamic banks provide Shari’a-compliant products and services to Muslim and non-Muslim

customers alike. So what is the difference between the Islamic Banking services and

Conventional banking, both serve different sects of people not only Muslims or Christians.

In Lebanon, the commercial banks do not provide loans to Casinos or night clubs or those who

trade with weapons just like Islamic Banks, so what the real difference is between them. The

name of Islamic Bank make people think that it is bank just for Muslims while it serves the

whole community. This is a mess since the whole community is uncertain about the difference

between Islamic and Commercial banks, they only know that instead of naming the interest by its

name they call it profit sharing, sharing risk and other technical terms. The difference is in the

technique they use in their banking system but why they are spreading faster and faster as a

result of failure of commercial banking sector in response to the international financial crisis.

If we take some examples of Islamic banks in the United Arab Emirates , we can see that

Emirates Islamic Bank (IEB) (6), launched in 2004, is a subsidiary of Emirates Bank International

PJSC, Dubai (the “Group Holding Company”) and Emirates Bank International is a subsidiary of

Emirates NBD Company. EIB listed at Dubai Financial Market. EIB’s Vision (6): to be the

leading provider of high standard Shari'a compliant innovative financial products, offering

quality service and superior value for its customers, shareholders, employees and the community.

EIB’s Mission (6): to provide innovative & high standard financial products & services governed

by Islamic Shari'a provisions to enrich society.


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EIB offers retail banking products and services that represent 70% of its activities and also offers

corporate banking services, including contract finance, project finance, cash management, and

business banking services. EIB has given a lot of effort expanding its network to reach a total of

31 branches and has opened its own Call Center in 2009. Ebrahim Fayez Al Shamsi, CEO, EIB (6), said: “We want to ensure that our products and services are always easily accessible to the

customers.

A competitive analysis to EIB . Other banks provide Islamic services, they are operating in UAE

and their headquarters is based in Dubai as per the table below:

Emirates Islamic Bank (EIB) (6)

Dubai Islamic Bank (DIB) (14)

Noor Islamic Bank (NIB) (15)

HSBC AMANAH (16)

Year of establishment

2004 1975 2007 1998

Operating branches in UAE

31 59 15 24

Numbers of ATMs by bank

64 327 90 163

Bank Mission Providing innovative & high standard financial products & services governed by Islamic Shari'a provision to enrich the society

We are proud to be the first Islamic Bank worldwide that has translated true Islamic economic principals into practice, out of firm belief in the need of mankind for an economic

Our goal is to be the most recognized Islamic banking brand, by being the largest, global financial institution in its field, targeting different segments and

Improving the lives of our customers worldwide by providing them with the highest quality Islamic banking solutions

http://www.alislami.ae/en/index.htm

http://www.noorislamicbank.ae/ae/english/index.aspx

http://www.hsbc.com/


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system based on the final Revelation. By partnering with our customers in halal earnings, employing best business practices, the latest financial services technologies and placing our trust in Allah.

meeting the challenging requirements of our partners

Awards -"Best Islamic Home Finance" award by CPI Financial 2009 -Top Islamic Bank Award by Ethos Consultancy 2008

"Best Islamic Bank in the UAE" 5th year consecutive on Annual Islamic Finance 2010

-Best Investment Bank and Best CSR Program at Middle East Banking Awards2010

-One of the Top 20 Performers in the UAE by Newsweek Magazine2009

-Best New Islamic Bank by Islamic Finance Forum 2008

- Best International Islamic Bank by the Euromoney Magazine in Islamic Finance Award 2010

Home finance

-Smart Home : Based on Murabaha (customer pay fix amount monthly) -Home Lease : Based on Ijarah (the customer pay different amount monthly depends on the rent market, maximum 25 year

-Istisna: for construction of property (up to 10 year with 25% down payment)

-Murabaha : selling back the property with profit (down payment minimum 50% up to 5 years)

Home finance is provided up to 25 years and up to 10 millions, their price is 8.25% for ready property and 8.50% for under construction property,

They are providing only one type of home finance based on Ijarah Shari’a concept with profit starting from 6.25% per annum with maximum of 25


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lease period) -Home Invest: Based on Musharaka Ijarah (the Bank will buy a share of the property and lease it back to customer)

-Diminishing Musharaka : Cash-out financing where the Bank buy share in your existing property (bank maximum share 50%

Up to 10 years)

-Ijarah : Lease to customer with the option to buy (down payment minimum 50% up to 10 years)

years lease period

Auto Finance Intaleq: Fix competitive rate, up to 6 years, Free account and free preapproved credit card

Al Islami Car Finance: competitive profit rate, up to 6 years

-Speed up plan: Pay less now & more lately, up to 4 years.

- Speed down plan: Pay more now & less later up to 5 years.

- Standard Murabaha: profit rate new car 4.25%, for used 5.25% and up to 5 years.

Amanah Vehicle finance Murabaha: competitive rate, up to 5 years.

Credit Card - Classic card Annual Fees (AF) AED 100, Monthly fees (MF)AED 125.

-Al Islami Visa Classic & Gold:

Global Acceptability: Accepted at over 27 million outlets

All available in Classic, Gold and Platinum

-Shams: make a minimum payment and

Classic And Gold Credit Card:

Accepted at over 32 million outlets


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- Classic Plus card Annual fees AED 150,Monthly fees AED 200

- Gold card – AF AED 200, MF 275

- Gold Plus card - AF AED250, MF AED 350

- Platinum Card – AF AED 300, MF AED550

- Platinum Plus Card – AF AED 350, MF AED 900

worldwide, 80% cash withdrawal limit, free from 'Riba' or interest and any other un-Islamic charges like over limit fees.

-Infinity Card: for privilege account and only by invitation.

revolve the credit to the following months

- Nujoom: is a fixed Fee Cards pay a fixed monthly fee with no annual fee and no profit rate.

-Qamar: just pay an annual fee repayment period of up to 51 days.

worldwide, grace period of up to 50 days on and cash advances of up to 40% credit limit.

Competitive advantage

Focusing on expanding in UAE, Turnaround time.

Leader in the market, seek innovation and cost effective services and products, customer centric and (Wajaha) tailor-made banking solution

Focusing on been innovative especially in their online banking system.

Global access for customer without compromising the Shari’a principals

This table information gathered from the Banks website

http://www.emiratesislamicbank.ae

http://www.dib.ae

http://www.noorbank.com

http://www.hsbcamanah.com/

“Table of analysis between different Islamic Banks operating in the UAE”

http://www.emiratesislamicbank.ae/


http://www.dib.ae/

http://www.noorbank.com/





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So as we can see that Islamic banks provide loans for all people from different sects and instead

of charging interest, they take a profit or what they name as Murabaha: For example, profit rate

for a new car 4.25%, for used 5.25% and up to 5 years credit. However, commercial banks today

are also offering competitive interest rates for purchasing a new car or for personal loans up to 7

years credit. Also if we take the types of credit cards that Islamic banks provide, we can see that

they are almost the same as Islamic banks Gold VISA Card, Infinity Card, etc….


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The most advanced in Islamic banking is Dubai Islamic Bank (DIB) by far the leader in the

market. It was the first Islamic bank in the Dubai and has being operating for 35 years. This has

allowed the bank to gain the experience needed to maintain its position.

DIB possess heritage and value and at the same time it provides modern Islamic finance

solutions and practices. DIB focus on innovation, particularly with banking system technology.

In March 2010 DIB was named as the top performance bank in UAE in the latest Yougov Sirage

(Research Company) study (7), which confirmed how consumers perceive the bank and its

services. As per the latest survey conducted recently by Synovate global market research

company (8), DIB is one of three banks who enjoy the most loyal customers of various sects not

only Muslims in the UAE When Synovate evaluated the brand equity (by measuring awareness

levels and the strength of the banks relationship with its customers) DIB have the highest rating.

This confirms DIB’s strong effort towards maintaining close relationships with customers and

providing high quality products and services, as well as a very effective CRM strategy.

Based on the information gathered we believe DIB made it challenging for EIB to compete with.

According to EIB’s mission statement, the bank is focusing on providing high quality services

but is unable to achieve a level even close to DIB.

HSBC Amanah who has positioned themselves as the global Islamic bank with their products

and services across the following countries Asia, Europe, Middle East and America. Although

this bank enjoys the benefits of being global, it suffers from low customer retention rate as per

Synovate research result (8). HSBC Amanah is losing market share because of its own barriers,

mainly long waiting time response to customers, poor choice of branch locations and unattractive

interest rates.

Noor Islamic Bank (NIB) is a relatively new bank in the Islamic banking market. They are

looking to become global and they have started with a representative office in Tunisia. Their

main focus is on being innovative and making their customers their first priority. As an example,

they were in 2008 the first bank in the Middle East who has a branch that opens 24 hours a day, 7

days a week (9). This was recognized by the Islamic forum, which awarded NIB the prize of Best

New Islamic Bank in 2008 by Islamic Finance Forum (15). NIB has proven that customers are its

priority.


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As per Synovate research (8) both DIB & NIB are strongly associated with interest free banking

in compliance with Shari’a law, which means that customers perceived these two banks as being

providers of true Islamic services and products. This is a proof that there are Islamic banks that

do not provide true Islamic services to customers; instead, they pretend compliance to Sharia to

attract more customers from Muslim sects.

Now when we look into Emirates Islamic Bank (EIB), they are focusing on expanding within the

UAE, so lately they have been opening new branches across the country. They are trying to

provide high quality customer service but their effort is still not comparable with DIB and NIB.

For finance products, EIB was awarded “The Best Islamic Home Finance” from the CPI

Financial (4). We highlighted this product to compare with the other banks since it is perceived as

the EIB strongest product.

EIB have a blend of marketing mix to recognize what their customers want and to fulfill them

just according to their choice. They alter their marketing mix in response with the macro

environment when needed. They seek sustainable relationships with customers and sustainable

development strategy Such marketing mix exists in commercial banks as well as in other

financial institutions.

1. Product: With a wide range of Shari’a compliant product and services, EIB promises to

provide a solution for all banking needs of their customers. We are working on “Garhoud

Branch” for this study, and at that particular branch they offer the following products(6),

Intaleq Car Finance: a package offered to make purchasing a car easy and hassle-free. It allows

customers to pay in easy, manageable installments with a fixed and competitive rate. Plus, they

also offer financing for new and used vehicles combined with flexible payment plans up to six

years. Such services are found in commercial banks that offer car loans up to 7 years credit

1. Manzili Home Finance: a package offers the perfect solution to the customers all home

finance needs. Based on customers financial capabilities and personal requirement,

Manzili came up with three unique home finance solutions:

• Manzili SmartHome

• Manzili HomeLease

• Manzili HomeInvest


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2. Credit Cards: EIB offers different types of credit cards according to their customers

need:

• Skywards Emirates Islamic Bank Credit Cards

• Classic/Classic Plus Credit Cards

• Gold/Gold Plus Credit Cards

• Platinum/Platinum Plus Credit Cards

• Visa Infinite

3. General Banking: to manage day-to-day finances they have Current Account,

Investments Savings Account, Investment Time Deposit Account, “Flexi” Investment

Term Deposit and “Super” Saving Account.

Besides other branches of EIB offer some other products also, such as: ETHMAR Priority

Banking, Al Reem Ladies Banking, EMTALIK Personal Finance, Small and Medium

Enterprises (SME) and Al-Hesn Takaful[3].

2. Price: EIB doesn’t have any particular pricing policy, but they monitor profitability of the

bank and intra-borrowing rate provided by the central bank while defining the price. Pricing for

different products are as follows (6),

1. Intaleq Car Finance

• Finance amounts up to AED 350,000

• Zero down payment option

• Competitive profit rates

• Flexible repayment periods of up to 72months

2. Manzili Home Finance

• Manzili SmartHome: Finance amount up to AED 3.0 million

• Manzili HomeLease: Finance amount up to AED 3.0 million

• Manzili HomeInvest: Finance amount up to AED 3.0 million

Other products have different types of pricing subject to specific terms and conditions.

Therefore, there are no standards to use due to the absence of central bank to regulate Islamic

banking sector and their work.

3. Place: Through their network of branches within the UAE, and conveniently located ATMs,

Cash and Cheque deposit machines they endeavor to make banking more convenient and


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efficient. EIB has total 31 branches on UAE including a branch designed only for ladies

(Jumeirah Villa Branch) and total 64 ATM booths on different points to facilitate customers with

their transactions. (6) Recently (16-06-2010) EIB announced the opening of “EIB TAWASAL”- a

24/7 call center in Sharjah, to cater to an increased demand for its services in the UAE. (6) This

will provide access to greater levels of personalized customer support 24-hours, seven days a

week. EIB’s customer service agents will attend to accounts and credit card based inquiries,

provide information on products and services, as well as attend to customer inquiries and

requests.

4. Promotion: EIB has some promotional strategies through which they communicate the

benefits and values of their products and services to their target customers. They provide

advertisements on newspapers and on Websites. Sometimes they sponsor different social or

sports events to promote the bank. If a customer accesses their official website, at first he will

see an advertisement, which shows information about the Skywards EIB credit cards. From this

summer, they are promoting the Skywards EIB credit cards. This offering is an outcome of

collaboration between EIB and Emirates Airlines award winning frequent flyer program

Skywards. The special reward provided by this card is that, if customers spend 1 Dirham on their

cards they can earn 1 Skywards Mile. They can exchange their Skywards Miles for outstanding

travel offers ranging from reward tickets and upgrades to hotel discounts, leisure and lifestyle

rewards and more. This credit card is accepted globally at more then 22 million locations

worldwide, in 130 countries. (6)


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5. People: EIB consists of a coordinated and experienced management team and employees to

serve the customers with high quality service. As they do Islamic banking and provide Shari’a

compliant product and services, to monitor their activities they have a Shari’a board comprising

several prestigious scholars of Islamic Law.

6. Process: EIB provides prompt services in their branches, all the departments work together to

keep coordination with each other’s objectives. Besides in branch service, they have developed a

wide range of alternate banking channels to help their customers to perform a wide range of

transactions at anytime and from anywhere. (11) With a large network of ATMs, Cash and

Cheque deposit machines, EIB gives their customers the convenience of cash withdrawal, instant

cash deposit, transfer of funds between their (customers) accounts, cheque deposit, make

donation and utility bill payments as well as requests for statements and cheque books. (11) Their

mobile banking informs customers of any activity on their accounts and/or credit cards. These

alerts will be messaged to the customers on their mobile. (11) EIB provides online banking

service. Customers can access their account details, they can also transfer funds within the UAE

or abroad. Through phone banking service, customers can obtain instant information on their

accounts and credit cards. EIB doesn’t have any customer feedback counter, whereas their major

competitor Dubai Islamic Bank has a customer feedback counter, where customers can simply

write their feedback on a piece of paper and drop it on the feedback box.

7. Physical evidence: The interior and exterior of the bank is well decorated and equipped with

necessary technological equipments and also well furnished to make the customers feel more


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comfortable. Just after the entrance there is a waiting area, in front of which there is a coupon

machine. Customers need to collect a coupon to get served according to their serial number. So

EIB is well organized to serve their customers promptly. Besides customer waiting area there is

teller area and customer service department.

They always ensure the efficacy and effectiveness of their banking system through their

customer relationship management. Relationship marketing aims to build mutually satisfying

long-term relationships with key constituents in order to earn and retain their business” (12) EIB

uses CRM as a tool drive profitability, cut costs and reduce risks. Because of recession

acquisition of new customers has dropped, so they repeatedly focus on the existing clients and

providing high levels of service to retain them. They have CRM departments under each branch,

which are mostly decentralized. Segmentation is done with for Home-Loan, Auto-loan, credit

cards.

After this analysis, we can realize that the work of Islamic Banks is similar to the work of

commercial banks but they differ in the terms they use for the sake of Sharia compliance.

The spread of Sharia Compliant banks with no added value to the commercial bank services is

really a mess especially in absence of the regulation authority at federal level in applying Shari'a

law in the Islamic banking sector. There is no Central bank for Islamic banking that would define

common objectives and interests of all Islamic banking institutions. The presence of such central

bank would also regulate short-term and long-term investment, act to rescue failing Islamic

financial institutes, and set up a common market for investment. Moreover, the Islamic banking

industry does not operate independently from international markets, and so it is not immune to

international financial fluctuations. This crisis which has weakened banks reputation has also

affected Islamic Bank’s reputation. And more particularly, in real state financial market, so

Islamic banks were affected by the financial crisis just like commercial banks, what is the added

value if I am a client of an Islamic bank and not a commercial bank?

Islamic versus Conventional Banking Islamic legal concepts (Shari'a) are the foundation of Islamic Banking. Sharia’a defines financial

and banking practices in the following way:


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1. It is prohibited to extend a predetermined payment over and above the actual amount of

the principal.

2. Profits or losses arising out of the enterprise that the money has financed must be shared

by the Bank.

3. It is not acceptable to make money from money.

4. Uncertainty, Risk or Speculation (Gharar) is also prohibited.

5. No investments in practices or products that are forbidden are allowed.

Because the principles applied by Islamic banking are different to those of conventional banking,

as a result the resulting practices are also different. For instance, the interest-based commercial

banking system puts all the pressure on the borrower to pay back his loan, with the agreed

interest, regardless of the success or failure of his venture.


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The growth of Islamic Banking (4) from 2003 to 2008 has been fabulous with an annual

rate of 15% and a volume of $ 1 trillion (US$1,000 billion) which is five times higher than in

2003. Islamic banking and finance is now one of the world’s fastest-growing economic sectors

that comprise more than 400 institutions with assets. The recent financial crisis has affected the

entire Banking Industry and Islamic banking is not an exception but that crisis hasn’t stopped the

expansion of Islamic Banking in the last years.

The way the crisis has touched Islamic Banking is singular. For the Islamic monetary system

based on Shari'a concepts, money itself has no value. Loans, derivatives, hedge funds are haram

(forbidden). Islamic Banks do not speculate and so are closer to the real economy.

To get an Islamic bank account is very easy because most countries today have Islamic bank

sector. HSBC started Islamic accounts in 2003 with five branches and today they have two

thousand branches designed for Muslims but anyone can use them if they need, this confirms the

idea that Islamic Banks are not for Muslims only. They are competing with commercial banks

since they offer identical services but they name them in ways that comply with Islamic Sharia.

The Islamic banking sector is surprisingly welcoming a new world although there are obstacles

especially in determining what is or isn’t Sharia-compliant. Each central bank has its own Sharia

advisory boards consisting of senior Islamic scholars and one board’s interpretation of Sharia

compliance is not necessarily the same as other Islamic banks, therefore, there are no

standardization of rules and regulations across the Islamic banking sector.

According to Dan Taylor, head of banking at the accountancy giant BDO Stoy Hayward, the

Islamic system of involving securities to be backed by assets implies that the use of

collateralized debt commitments or CDOs would not have been allowed by Sharia-compliant

institutions.


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Islamic revivalism in the 20th century has led to different trends of thoughts within Islam among

which are the Modernism and the Neo-revivalism. This means that there are two interpretations

of RIBA in ISLAM: the Neo-revivalism considers charging interest is RIBA and called for its

abolition whereas the modernists argue that not all forms of interest are considered as RIBA but

only the interest that is regarded as unreasonable or unjust. (Abdallah, S. , 1996) .

The proponents of Islamic banking sector believes that interest is RIBA and it is not

permitted by the Islamic Sharia. This is accepted and followed by the traditional Islamic

schools of law i.e. by the neo-revivalists who assert that RIBA interpretation as provided in

FIQH is the proper interpretation. This means that any increase charged on loan transactions

is RIBA. The modernists question the validity of this interpretation of RIBA as interest and

the performance of these Islamic financial institutions. According to Abdallah Saeed, the

prohibition of RIBA is perceived as exploitation of the economically disadvantaged in the

community by the relatively wealthy. This exploitation may not be found in modern bank

interest. He believes that the traditional interpretation of RIBA which was accepted by neo-

revivalists faces undefeatable obstacles in today’s financial and economic environment

because it is not totally carried out or morally justifiable. The modernists have approached

RIBA prohibition in terms of QUR’ANIC spirit (143) that prohibited RIBA because of

humanitarian and moral considerations and not legalistic ones (142). This implies that

interest is not permitted on consumption loans provided to poor people who should not be

exploited by asking them to pay interest charges in spite of their poverty. The production

loans that bring financial returns should be charged interest fees and such interest should not

be considered as RIBA or exploitative.


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Islamic Banking is here to stay. It is a practical, feasible and elastic alternative. The spread of

Sharia finance if not Sharia law seems inevitable. The question remains : what is going to

happen to the commercial banks all over the world if the Islamic banks are competing them

aggressively by providing similar services pretending that they are working according to the

Sharia for the sake of attracting all Muslim clients as well as non-Muslims?

If the financial crisis invaded commercial banks partially, Islamic Banks are going to affect

their existence very soon. So what’s next? Islamic banks increase the discrimination between

sects.

Based on the analysis above,

I would like to address the below letter to the Lebanese Central Bank ,


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December 30-2010

Central Bank of Lebanon

H.E. the Governor, Mr. Salemeh

Beirut-Lebanon,

Dear Mr. Salameh ,

I would like to thank you for providing the AOU the opportunity to participate in the training

program of the previous year. I was one of the selected students by the esteemed AOU. I was

really impressed by the training sessions we had. One of these sessions included a lecture

about Islamic Banking sector and its growth everywhere. This encouraged me to make my

final project about this Subject “Islamic Banking”.

After analyzing the growth of Islamic banking sector in UAE, I would like to draw your

attention that Lebanon’s banking sector is good and we do have commercial banks and few

Islamic banks in Lebanon such as Bank Al BARAKA, Bank SADIRAT Iran, Islamic Bank of

Beirut, etc… and we don’t need more especially that the work of Islamic banks is not strict to

the Sharia. Therefore, we don’t need to have Islamic banks everywhere in Lebanon because

they are competing with the commercial banks by providing identical services with different

technical names. So commercial banks don’t need increased competition from similar

banking sectors. Licenses for more Islamic banks in Lebanon would lead the commercial

banks to fall in the eyes of the public especially that Lebanon is a small country and majority

of its sects are Muslims.

Thank you for reading my letter,

Best regards,

Ms. Jamal Jurdi


27

LOG Project

Project Name: Islamic Banking in UAE

Starting Date: December 1st, 2010.

Target End Date: December 29, 2010.

Week Date Performed Action List

Week 1

1- 15 December

I started to work seriously on my final project. Gathering

information from different people such as bank managers,

referred to Mr. Walid Barakat, the manager of Islamic

Bank in Dubaii

Week 2

16- 23 December

I asked my Tutor if I am working correctly and whether

Islamic banking is a good subject to continue with, he

gave me his constructive feedback as usual.

Week 3

23- 30 December

I completed all the details, refined my project to be ready

to submit it on Thursday December 30, 2010 morning.


28

References:

• (1). Mr Sultan Bin Nasser Al-Suwaide, Governor of Central Bank of the UAE. Annual World Islamic Banking Conference .Singapore 14-15 June 2010

• (2) http://www.centralbank.ae/en/pdf/reports/CBUAE-Annual-2009-English.pdf

• (3) Mr Heng Swee Keat, Managing Director of the Monetary Authority of Singapore. Annual World Islamic Banking Conference. Bahrain. 7 December 2009

• (4) http://gulfnews.com/business/banking/emirates-islamic-bank-profits-leap-68-in-2008-1.51720

• (5) EIB annual report 2009. CEO’s message

• (6) http://www.emiratesislamicbank.ae

• (7) AmeInfo: http://www.ameinfo.com/227437.html , June 2010

• (8) AmeInfo: http://www.ameinfo.com/229215.html , June 2010,

• (9) AmeInfo: http://www.ameinfo.com/155383.html , June 2010

• (10) AmeInfo

http://www.ameinfo.com/news/Company_News/E/Emirates_Bank_Group/Emirates_Isla

mic_Bank__EIB_/more2.html ,June 2010

• (11) EIB brochures

• (12) Kotler, P. & Keller, L., 2009, Marketing Management, 13th Edition, Pearson Education Inc.

• (13) Harrison, P, & Gray, C, 2010 ‘The ethical and policy implications of profiling

'vulnerable' customers’, International Journal of Consumer Studies, vol.34, no. 4, pp

437-442

• (14) http://www.dib.ae , June 2010

• (15) http://www.noorbank.com , June 2010

• (16) http://www.hsbcamanah.com/ , June 2010

• The Daily Star, 2009, “Islamic Banking shines” (online) available at:

http://www.centralbank.ae/en/pdf/reports/CBUAE-Annual-2009-English.pdf

http://gulfnews.com/business/banking/emirates-islamic-bank-profits-leap-68-in-2008-1.51720

http://gulfnews.com/business/banking/emirates-islamic-bank-profits-leap-68-in-2008-1.51720


http://www.ameinfo.com/227437.html



http://www.ameinfo.com/news/Company_News/E/Emirates_Bank_Group/Emirates_Islamic_Bank__EIB_/more2.html

http://www.ameinfo.com/news/Company_News/E/Emirates_Bank_Group/Emirates_Islamic_Bank__EIB_/more2.html

http://www.dib.ae/




29

http://www.thedailystar.net/newDesign/news-details.php?nid=70217

• Saeed, A. , 1996, “Islamic Banking and Interest: a study of the prohibition of RIBA and its contemporary interpretation”, Leiden Brill, ISBN 90 04 10565 4 170pp

http://www.thedailystar.net/newDesign/news-details.php?nid=70217

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