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GROWTH AND MARKET SHARE OF ISLAMIC
BANKING IN NON-MUSLIMS COUNTRIES
A REPORT
SUBMITTED TO DEPARTMENT OF BUSINESS ADMINISTRATION
FEDERAL URDU UNIVERSITY KARACHI
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR
THE DEGREE OF MASTER IN BUSINESS ADMINISTRATION
BY M U H A M M A D M U N E E B K H A N
Enrolment No: MBA/E/760/10 Seat no: 1008563
SUBMITTED TO SIR Abdul Aziz
DEPARTMENT OF BUSINESS ADMINISTRATION FEDERAL URDU UNIVERSITY, KARACHI.
id10558022 pdfMachine by Broadgun Software - a great PDF writer! - a great PDF creator! - http://www.pdfmachine.com http://www.broadgun.com
Table of contents
S E R I A L TITTLE OF CONTENTS PAGE
N O NO
Executive summary --
1.0 Introduction 01
1.2.1 Verses prohibited interest in the holly Quran 04
1.3 Historical background 06
1.3.1 When interest free banking remained an idea 06
1.3.2 When interest free banking become reality 07
1.4 Statement of the problem 08
1.5 Objective of the study 09
1.6 Hypothesis of the study 10
1.7 Significance of the study 11
1.8 Scope and limitation of study 12
1.9 Definition of term 12
C HAP TER NO 2
2.0 Factors which appeals Muslims and non Muslims 13
towards Islamic banking in non Muslims countries
2.1 Religious factors 15
2.1.1 Interest free banking 15
2.1.2 Banking system based on Islamic tenets 16
2.1.3 Limpidity and trust 16
Acknowledgement -
CHAPTER NO 1
Interest free banking 1.2 03
2.2.1 Financial stability of IB,s in recent economic crises 17 2.2.2 Reputation of Islamic banking 18
2.2.3 Islamic banking emerging as a new industry 18
Saturation of conventional banking market
2.2.7 Asset based financing
Personal and psychological factors
Neighbors and family has a stronger influence on
customer decision Situational factors
2.5.4 Friendly staff 23
2.2.4 Islamic banking versatile product 18
2.2.4.1 Islamic banking vs conventional banking products 18
2.2.5 Concept of partnership by sharing profit and loss 20
2.2.6
International standard and consistency in
accounting rules of IB
Awareness of IB
Advice of friends
2.3.1
2.3.2
2.3.3
21
22
2.3.4
2.4
22
23
2.5.1 Free chequing services
2.5.2 Adequate drive in services 23
2.5.3 Accurate bank statement
CHAPTER NO 3
CHAPTER NO 4
4.0 Methodology 39
4.1 Research design 39
Sources of data 40
Method of data collection 40
4.2
4.3
Analytical procedures 41 4.4
CHAPTER NO 5
5.0 Data analysis and discussion 42
5.1 Empirical analysis 49
CHAPTER NO 6
6.0 Conclusion 66
CHAPTER NO 7
7.0 Graphs and tables 69
CHAPTER NO 8
8.0 References 75
TABLES
TA BLE LI ST O F TA BLE PAGE
NO NO
TABLE 2.1 Islamic Banking Vs Conventional Banking Products 18
51 53
Regression analysis summary output 53
ANOVA 54
United states population and Islamic banking growth
rate
56
Correlation 58
Regr ession Analysis Summary Output 60
ANOVA 59
TABLE5. 11 Correlation
TABLE5. 12
TABLE5.13 ANOVA 64
TABLE 5.1
TABLE 5.2
TABLE 5.3
TABLE 5.4
TABLE 5.5 TABLE 5.6
TABLE 5.7
TABLE 5.8
TABLE 5.9
63
Muslims Population In Non Muslims Countries (In
2009 Est.)
England population and Islamic banking growth rate
Correlation
TABLE5.10 Japan population and Islamic banking growth rate 61
GRAPHS
Graph 5.5 Japan population and Islamic banking growth rate 62
Graph 5.6 Scatter diagram 62
Graph 7.2 Islamic banking growth rate of UK 70
Graph 7.4 Islamic banking growth rate of USA 72
Graph 7.6 Islamic banking growth rate of Japan 74
Graph 5.1 England population and Islamic banking growth rate 52
L I S T O F G R A P H S
GRAPH
NO
PAGE
NO
Graph 5.2 Scatter diagram
United states population and Islamic banking growth rate 57
Graph 5.4 Scatter diagram
Graph 7.1 Population of UK 69
Graph 7.3 Population of USA
71
Graph 7.5 Islamic banking growth rate of Japan
73
A K N O W L E D G E M E N T
All praise to almighty ALLAH, who deserve all, praise alone. It�s only his blessing which enabled us to reach this apex level of knowledge. Or help us for finalizing this thesis. From the beginning it was clear to us�this is not about us or what we can do, rather this is about what God wants from us to do and how He will enable us to do it.
This thesis owes its existence to the help, support, and inspiration of many people. In the first place, we would like to express our sincere appreciation and gratitude to our teacher Mr. Abdul Aziz for his support and encouragement during the thesis's work. His help, guidelines and acknowledgement lead us to make it possible. He has provided for an optimum working environment. His uncompromising quest for excellence significantly shapes everyone.
we are tempted to individually thank all of our friends but as the list might be long and for fear we might omit someone, we will simply and genuinely say: Thank you to you allfor your love, care and trust For their constant presence and care and instant moral support. we cannot finish without acknowledging how eternally grateful and we are to The One, The Everlasting, The All Determiner, The Trustee, The Dependable and The Protecting Friend that guides us, teaches us to be patient and to never give up.
IS LAM IC BAN KI NG IN NO N MUS LIM COUN TR IES
E X E C U T I V E S U M M A R Y
Interest is the back bone of conventional banking without which they never
subsist whereas it is not in the case of Islamic banking. Islamic banking is exceedingly
swelling not only in Muslims but also in non Muslims countries. As the people get
awareness of Islamic banking system they abundantly come towards Islamic banks.
This study focuses on the growth and market share of Islamic banking in non Muslims
countries where a preponderance Muslim population is living. This study also
highlights the Muslims population growth rate and its relation with growth rate of
Islamic banking in non Muslims countries furthermore its help to find out ratiocinate
of its rapid growth in these countries. It also focuses to find out the factors which have
prominently stabilized Islamic banking even in the crisis specifically in those
countries. Also find out the factor allure the people towards the Islamic banking. The
primary step for entering in any non Muslim country for an Islamic bank is a thorough
research about the Muslims population in that particular country and analyzing the
trend of population. They must studies the population statistics of Muslims in the
country of interest.
The factors of invigorating growth determine by generation of hypothesis that
there are one main factor enlisted due to which the growth and market share
increasing in non Muslims countries day by day.
The factor is growth of Muslims population in non Muslims countries. But
that is not only single factor there are many other factor which contribute in enhancing
the growth rate of IB in non Muslims countries. In our study all others factor remained
constant. These factors may be religious, socio economic, situational, service and
other personal and physiological factor. These factors are further classified. This basal
research study is descriptive type and exploration of the study had propelled out
through different secondary sources. Main source of data accumulation was Literature
reviews, Books, web browsing, News paper and Articles on Islamic banking. The
study capacitates us to understand the growth and marketing share of Islamic banking
in non Muslims countries. Finally this study enables us to find out the relation
between population growth rate and
IS LAM IC BAN KI NG IN NO N MUS LIM COUN TR IES
growth rate of IB and factors which contribute in enhancing growth rate of IB in non
Muslims countries.
With the help of correlation we find out that in UK, USA and Japan there is
positive relationship between Muslim population and Islamic banking growth, if
other factors remained constant which might be effect on the growth rate of Islamic
banking industry.
The results of regression analysis show the impact of Muslim population in
growth rate and with the help of derived equation we are able to forecast the growth
rate of Islamic banking in that particulars country but remained other all factors
constant which might effect on the growth rate of Islamic banking.
The actual impact on other factor could not be found because of limitation of
the sources and time. The researcher not able to reach or interact with the customer of
Islamic banks in non Muslim countries so the other factor would not measure there
magnitude in contributing to growth is not known due to the above reason.
The value of t stat is greater than 1.96 in all cases. In all countries t value
greater than 1.96 shows the acceptation of hypothesis.
The results may vary because there are many impregnable factors which have
a profound impact on the growth rate of Islamic banking in non Muslims countries
and these factors conduce strongly in enhancing the growth rate of IB in non Muslims
countries. In our study all these factors which have substantive influence in the
growth rate of IB remains constant.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
1
Chapter 1
1. INTRODUCTION
Islamic banking is a banking system that is based on the principles or rules of
Islamic law (also known as Sharia, or Shariah) and guided by Islamic economics. A
banking system observed the principles lay down by Islamic Shariah. The Islamic laws
also called Shariah Islamiliah. That is the system which is consistent with Islamic law.
As the name of Islamic banking comes, the concept of interest free banking comes into
minds of people. Mostly people explain Islamic banking as an interest free banking
only but interest free banking is the narrow concept. Islamic banking is not based only
on the prohibitions of the interest but it also based on the fair ethical practices. Islamic
banking the most general term is expected not only to avoid interest based transactions
prohibited in the Islamic Shariah, but also to avoid unethical practices and participle
activity in achieving the goals.
Islamic law or principles simply require that performance of capital should also be
considered which rewarding the capital interest is called RIBA in QURAN.
The prohibitions of a risk free return( interest/ RIBA) and permission of trading
as enshrined in the verse 2;275 of the holly QURAN makes the financial activities in
an Islamic setup real and backed with ability to case value additional objective of an
Islamic economy.
There are two basic principles behind Islamic banking are the sharing of profit
and loss significantly the prohibition of the collection payment of interest. Collecting
interest, writing about interest, calculating interest is not permitted under Islamic law.
In the recent time invigorating growth in Islamic banking has been observed in Muslim
and non-Muslim countries. The Islamic baking industry is now worth at that time
almost an estimated US$ 1 trillions and is widely considered to be one of the fastest
growing sectors in the world of finance. Even in the recent global economic crisis
Islamic banking shows the stability & strength. Islamic banking give positive impact
on global economic even in crises, that thanks to strict regulations administered by
Islamic law or Shariah. (Blank, jonah, 1998).
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
2
Islamic banking has also been defined by the state bank of Pakistan as,
�It is an Islamic economic system is harmony with Islamic ethics and value
guided by good governance & risk management rules fully laid down by Islamic law�
Islamic banking strictly based on Islamic tenets and Islamic economics rules
lay down by Islamic Shariah. Any unethical practice & unethical activity get the
banking system out of Islamic banking or it will not considered as a part of Islamic
banking.
Islamic banking has grown by 10-15 percent per year over past decade. There
are currently more then 300 Islamic financial institutions spread over 51 countries and
over the past decade the Islamic banking industry showing the rapid growth and many
new financial institutions are growing very fast. Islamic banking industry has enjoying
the growth rate of 10-15 percent per year. That trend is expected to continue. (Sole,
Juan, 2007).
According to study 100 largest Islamic banks has reported on annual growth
rate of 26.7 percent. The market share of Islamic banking is also expected to increase
by 15% annually. (source find).
In non Muslim countries the recent example of the rapid growth of Islamic
banking can be elaborated by the fact that in the United States mainly in California,
New York, & Michigan, Islamic finance has also grown rapidly. According to
estimation there are six million Muslims in the united states & about one third of the
1.8 million households desire Islamic financing, especially for home mortgages, US$
300 million revenue was generated by Islamic financial institution by Islamic
financing in gore & approximately $ 450 million in 2005. Including $300 million is
Islamic mortgages (Norris Kim, 2005).
According to one prediction that if the Islamic bank grow with the same rapid
speed they will control 40-50 percent of all Muslim saving in the world by 2009/10,
while the population of the Muslim in 200 calculated 1.4 billion. (zaher &
hassan,2001).
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
3
Islamic banking has undergone an emanation in size & significance in an
orotund number of countries throughout the world (sundaravajan & Luca Errico
2002).
A rapid growth of Islamic banking operation has been observed in recent time
not only in different countries but also in different areas of finance (E-Gamal, 2006).
The rapid growth of Islamic banking can imagine with the fact that the growth
in the Islamic banking is 20 percent annually over the past few years to an estimated
$500 billion. That show that Islamic financial are need top Sharia scholars &
competition for top Sharia scholars with financial knowledge is stiff. There are 150
scholars who are globally accepted in the finance world said by Rashid siddiqui,
director of the Dow Jones Islamic market index �about 20 of them are the
rock-and-roll, stars.
Islamic scholars are becoming consultants for world class players like deutsche
bank which started Sharia complaint metal fund credit Suisse. (Power Carla, 2007).
When the name of Islamic banking come the concept of interest free banking
come into the minds of people. Interest is prohibited strictly in QURAN.
1.2 Interest Free Banking
Interest is the back bone of conventional banking system with and which they
never survive or their main source of revenue is interest. While in Islamic banking
system �interest (RIBA)�is harram & completely banned. While in Islamic banking
system �interest (RIBA)�is harram & completely banned. The literal meaning of
interest or Al-RIBA as it is used in the Arabic language means to excess or increase. In
the Islamic terminology interest means effortless profit or that profit which comes free
from compensation or that extra earning obtained that is free of exchange. Hazrat Shah
Waliullah Dehlvi a great scholar and leader has given a very concise and precise
definition of interest. He says,
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
4
"Riba` is a loan with the condition that the borrower will return to the lender
more than and better than the quantity borrowed."
Islamic banking means the institutions that provide the people both individual
and businessman various financial products in conformity to Islamic religious
practices. In Islamic dogma any sort of either payment and receipt of interest (RIBA) at
a fixed or predetermined rate is prohibit.
There is also prohibition of financing the capital in gambling business alcohol
trade and pork. (Vishal dugar, 2007).
Islamic banking is strictly based of the Shariah rules which are described by the
HOLLY QURAN. In conventional banking system interest use as a tool to attract more
customers but in Islamic banking interest is strictly prohibited. The prohibition of
interest (RIBA) is come in different places in the holly QURAN.
1.2.1 Verses Prohibited Interest In the Holly
Quran
~ Those who eat Riba (usury) will not stand (on the Day of Resurrection)
except like the standing of a person beaten by Shaitan (Satan) leading him to
insanity. That is because they say: "Trading is only like Riba (usury)," whereas
Allah has permitted trading and forbidden Riba (usury). So whosoever receives an
admonition from his Lord and stops eating Riba (usury) shall not be punished for
the past; his case is for Allah (to judge); but whoever returns (to Riba (usury)),
such are the dwellers of the Fire -they will
abide therein.
(Al-Baqara,Chapter#2,Verse#275)
Allah will destroy Riba (usury) and will give increase for Sadaqat
(deeds of charity, alms, etc.) And Allah likes not the disbelievers, sinners.
(Al-Baqara, Chapter #2, Verse #276)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
5
� Those who believe, and do deeds of righteousness, and establish
regular prayers and regular charity, will have their reward with their Lord: on
them shall be no fear, nor shall they grieve.
(Al-Baqara, Chapter #2, Verse #277)
� you who believe! Be afraid of Allah and give up what remains (due to
you) from Riba (usury) (from now onward), if you are (really) believers. (Al-Baqara,
Chapter #2, Verse #278
� If ye do it not, Take notice of war from God and His Apostle: But if ye
turn back, ye shall have your capital sums: Deal not unjustly, and ye shall not be dealt
with unjustly.
(Al-Baqara, Chapter #2, Verse #279)
� If the debtor is in a dificulty, grant him time till it is easy for him to
repay. But if ye remit it by way of charity, that is best for you if ye only knew.
(Al-Baqara, Chapter #2, Verse #280)
� And fear the Day when ye shall be brought back to God. Then shall
every soul be paid what it earned, and none shall be dealt with unjustly. (Al-Baqara,
Chapter #2, Verse #281)
� O you who believe! Eat not Riba (usury) doubled and multiplied,
but fear Allah that you may be successful.
( Aal-e-Imran, Chapter #3, Verse #130)
� And their taking of Riba (usury) though they were forbidden from
taking it and their devouring of mens substance wrongfully (bribery, etc.). And We
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
6
have prepared for the disbelievers among them a painful torment.
( An-Nisa, Chapter #4, Verse #161)
1.3 HISTORICAL BACKGROUND
With the passage of time as the world become developed more & more the
socio economic forces demanding more involved in national economic & financial
activities. People need the banks & avoiding the interaction with the banks became
impossible. So people rapidly interact with banks to fulfill their business or personal
day to day needs. Different banks established in a very short time of Spain and many
foreign banks operated in different countries. With in short period the network of
banking system expanded through out the world. They are interest based banks.
Different individuals & businessman need to make transactions with these
bank if they like or not. People tremendously comes towards banks & making a huge
transaction with these local & interest based foreign banks the issue of interest is rise.
This state of affairs drew the attention & concern of Muslim intellectuals become
interest (RIBA) is haram in Islam. Then the story of interest free or Islamic banking
starts. Shortly describe the origin of Islamic banking and the people who contribute
most of their efforts.
According to (Ghafoor, Abdul A.L.M, 1995) the history of interest free banking
divided into two parts.
First part: when interest free banking remained an idea.
Second part: when interest free banking becomes reality.
1.3.1 When Interest Free Banking Remained an
Idea
As the popular saying is that necessity is the mother of inventions so in the similar
means when the idea of interest free banking seems to be very recent origin. The
earliest reorganizations of baking system based on profit & loss sharing rather then
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
7
interest is found in anwar qureshi (1946), naiem siddiqi (1948) and Mahmud Ahmed
(1952) in late forties the emphasis on profit & loss sharing more elaborated exposition
given then by mawdudi in 1950. (Siddiqi, Muhammad Najatullah 1961).
Muhammad hamidullah�s 1994, 1995, 1957 and 1962 writes abundantly about
the evil of interest in the commercial bank & proposed the concept of mudarahabha
profit & loss sharing.
After that working in the next two decade interest free banking became popular
& attracted more attentions and working on interest free banking is start more
potentially.
Another sophisticated set of works emerged in the late sixties and early
seventies by Abdullah al-araby (1967), najatullah siddiqi (1961, 1969) all najjar (1971
&) Baqir al sadr (1961-1974) were the main contributors.
After the great contributions of scholars & Muslim economists in early
seventies may institutional involvement has been seen. The involvement gives the
result that confers of the finance minister of the Islamic countries held in Karachi 1970.
An Egyptian study 1972 shows that first international conference on Islamic
economics in MECCA in 1976. There conferees very helpful & with the involvement
of institutions & governments led to application of theory to practice and result is
originated in the form of first interest bank. The Islamic developed bank an
inter-governmental bank established in 1975, was born due to there involvement &
efforts. (Ghafoor, Abdul A.L.M, 1995).
1.3.2 When Interest Free Banking Become
Reality
Previous step show the working & efforts happening on the interest free banking. And
known in this step interest free banking become a reality and may interest free banks
established in the result of effort describe in previous step. This idea changes into
reality with the existence of first Islamic bank. Dubai Islamic bank was set up in 1975
by a group of business man from different countries. It was first private sector interest
free bank. Later on two more Islamic banks founded in 1977 under
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
8
the name of Faisal Islamic bank in Egypt & Sudan. (Ghafoor, Abdul A.L.M, 1995).
But the first Islamic banking practice was undertaken in Egypt owed to Ahmed
EI Najjar who took blooming step a establishing a profit & loss sharing saving bank. In
the Egyptian town of Mit Ghamr in 1963. At the end of 1969 there were nine such
banks in country (ready 1981).
These banks engaged in profit & loss sharing business not engaged in interest
based transactions (siddiqui 1988).
The first saving bank Mit-Ghamr in Egypt established in 1963 was very
popular & proposed initially and then closed down for various reasons (Wilson, 1984).
Same interest free Islamic banks have tried before on small scale but never
survived one banking Malaysia in mid forties & another in Pakistan in late fifteen
never survived.
After ten years since the establishment of the first private sector bank in Dubai
which was said to be interest free bank more than 50 interest free banks have come into
being. But all of there are in Muslim countries. There are some in Western Europe as
well In Denmark, Luxembourg, Switzerland and UK. Most of the banks established in
1983(11) and 1984(13) respectively. The numbers have become declined considerably
in the following years (Ahmed, Ausaf, 1 994).
So with the above reference we imagine that Islamic banking is growing very
rapidly not only in Muslim countries but also in non Muslim countries.
1.4 Statement of the Problem
Islamic banking is a weather new phenomenon the recent crises of
conventional banking system increased the needs on stable economic system or
banking system.
Islamic banking system is gaining both importance and growth in world. In
Islamic world it is growing with a rapid pace and annual market share is shooting all
the time but the point of interest is lies in the fact that Islamic banking is also growing
with prominent rate in non Muslim countries. Therefore our study focuses
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
9
on the growth on Islamic banking in non Muslim countries. Our problem statement is
that to
�Investigate the relation between population growth in non Muslim countries
and the growth rate of Islamic banking �
Our study will also highlight the certain other potential factor contributing in
growth rate of Islamic banking.
1.5 Objective of the Study
The main objective of study is to explore the growth and making share of
Islamic banking in non Muslim countries. The purpose of study also elaborated the
reason of rapid growth of Islamic banking in non Muslim countries or in other words it
describes the factors which motivate the people to adopt Islamic banking. The main
factor which we analyze in this study is growth of Islamic banking due to the growth of
Muslims population in these countries.
There are many other factors which urging the people towards Islamic banking
but the study found the relationship between the Islamic banking growth rate and
Muslims population. These factors may include religious factors, crux economic factor,
personal and psychological factor, situational factor and service factors. But the main
objective of the study is to highlight the main appealing factor which urged the people
of non Muslim countries towards Islamic banking. And meanwhile this study gives the
level of relation of two variables Islamic banking growth and Muslims population in
these countries.
Our objective of study focus on
1. To find out the growth of Islamic banking in non Muslim countries.
2. To find out the reason of rapid growth of Islamic banking in non Muslim countries.
3. To find out the marketing share of Islamic banking in non Muslim countries.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
10
4. Highlight the attractiveness of IB in non Muslim countries.
5. The study helps us also to find out the Islamic banking consistent growth and
stability in the recent economic crises or the factors which have prominently
stabilized Islamic banking even in crises.
6. This study also elaborated the level of acceptance of Shariah regarding
Islamic banking in non Muslim countries.
7. Study will provide us a better understanding of IB.
8. Find out the trend or relation between the Muslim population growth and
Islamic banking growth. And elaborated that there is any relation between
them if relation exits than it is positive or not.
The objective of study to broad this study not only enable us to find the factors
which motivate the people of non Muslim countries towards Islamic banking. The
study not only elaborated the factor regarding the Muslim customer but also elaborate
the factors which given sufficient consideration by non Muslim countries or the factors
which motivate the non Muslim customers.
1.6 Hypothesis of the Study
The factors of invigorating growth determine by generation of hypothesis that
there are one main factor enlisted due to which the growth and market share increasing
in non Muslims countries day by day.
The factor is increasing the population of Muslims in non Muslims countries.
There are many other factors which motivate people to opt Islamic banking. These
factors disunite into religious, socio economic and other personal and physiological,
situational and service factors.
These factors are further classified. The religious motivating factors may be:
Interest free banking, banking system based on Islamic tenets, limpidity & trust,
existing of Shariah advisory board. The crux economic factors which motivate the
peoples towards Islamic banking or a reason of rapid growth of
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
11
Islamic banking are: financial stability of IB�s in recent economic crisis, Market
reputation of Islamic Banking which is a new trend in the market, Islamic Banking
emerging as a new industry, Asset based financing, Saturation of conventional banking
market, concept of partner by profit and loss sharing basis. The personal and
psychological factors may include, long term confidence of people because of
international standard and consistency in accounting rules of IB, a lot much awareness
of IB, advice of friends, neighbors and family members has a stronger influence on
customer decision. The situational factor may include, convenient location, waiting
line, depositing and withdrawing money, long transaction and etc. The service factor
may include free chequing services, adequate drive in services, accurate bank
statement and friendly staff.
Hypothesis prove that increasing Muslims population in these countries
increase the growth and market share of Islamic banking in non Muslims countries or
not.
Ho {Rapid growth is being observed of adopting IB in non Muslims countries
due to increasing Muslims population in these countries or not} OR
Ho {preponderance Muslim population plays significant role in the rapid
growth and increasing market share of IB in non Muslims countries or not} And
alternative hypothesis is
H1 {Rapid growth is being not observed of IB in non Muslims countries due to
increasing Muslims population in these countries}
OR
H1 {preponderance Muslim population not plays significant role in the rapid
growth and increasing market share of IB in non Muslims countries}
1.7 Significance of the Study
This study is very for significant for checking or analyzing the growth trend in
Islamic banking industry. Although Islamic banking industry consistently growing.
But this study has importance with respect to growth of IB in non Muslim
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
12
countries. The result of study may contribute to find out the trend that due to increase
in Muslims population the Islamic banking also increase but there are certain others
motivating factors which motivate the people towards the Islamic banking. The study
also gives a list of motivating factors with the level of significance.
The Islamic banks of non Muslim country also the IB industry of Muslim
countries get benefit from this study to implement or improve the factors which
motivating more the people towards Islamic banking . With the help of study analyze
that which factor motivates the people towards Islamic banking. The significance of
study is that we get informed about the growth rate is IB in non Muslim countries and
market share of IB in non Muslim countries. The significance of study is that with the
help of regression analysis we able to predict the growth rate of Islamic banking with
respect to population growth. The study able us to easily analyze the future trend of IB
in any non Muslim countries.
1.8 Scope and Limitation of Study
The study covers the few non Muslim countries and analysis the growth rate
and market share of Islamic banking in these countries. The limitation of study is that
this study only analyzes the trend of Islamic banking growth rate and population
growth rate of previous three to five years. The limitation of study is also that there is
many other factors which contributing in the growth rate of IB.
The main weakness of this study is that we are not able to find the ranking of
these other factors which contributing in rapid growth of IB in these countries because
No interaction has been made with customers or people of non Muslim countries.
Secondary data get sufficient information about growth rate and market share of IB in
non Muslim countries. Due to no interaction with the customers & people of non
Muslim countries, given conclusion about the ranking of motivational factor is only
based on literature review so it may be vary.
1.9 Definition of Term
IB refers to Islamic banking, IB,s refers to Islamic banking system. RIBA refers to interest, HARRAM refers to prohibit in Islam,
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
13
Chapter 2
2.0 FACTORS WHICH APPEALS
MUSLIMS AND NON MUSLIMS
TOWARDS ISLAMIC BANKING IN NON
MUSLIMS COUNTRIES.
Islamic banking industry is in recent time growing very fast. The importance
of Islamic banking has no ignorance in this era; Islamic banking industry grows with
rapid pace. There are different factors to opt Islamic banking some factor discuss here
which appeals the Muslim and non Muslim people towards the Islamic banking. These
factors may include religious factor, socio economic factor, personal and
psychological, service and situational factors and many others.
They are further classifying into different categories.
1. The religious motivating factors may be interest free banking, banking
system based on Islamic tenets, limpidity and trust, existing of Shariah
advisory board.
2. The crux economic factors which motivate the people towards Islamic
banking or a reason of a rapid growth of Islamic banking are financial
stability of IB�s in recent economic crises, market reputation of Islamic
banking which is a new trend in the market, Islamic banking emerging
as a new industry, Islamic banking
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
14
versatile product, concept of partnership by sharing profit and loss,
saturation of conventional banking market and asset based financing.
3. The personal and psychological factors may include, long term
confidence of people because of international standard and consistency
in accounting rules of IB, a lot much awareness of IB, advice of friends,
neighbors and family members has a stronger influence on customer
decision.
4. The situational factor may include, convenient location, waiting line,
depositing and withdrawing money, long transaction and etc.
5. The service factor may include free chequing services, adequate drive
in services, accurate bank statement and friendly staff.
How ever the first one is more concern with Muslim while the other one with
both the Muslims and non Muslims. But according to recent study by (erol and
el-bdour, 1989) indicated that Muslim patronized Islamic banks not so much because
of the religious factor, but more because of the return they would receive from their
investment
(Eat al, 1990) says that the customer in Islamic countries also did not different
between the conventional and Islamic banking services which they offer.
The two factor analyze by (regall, 1980) are service factor and situational
factor but his study stated that both factors not shown the importance in influencing the
customer behavior in his or her selection of a bank.
There are different studies which carried out to analyze the behavior of
customer that which factors appeals the both Muslim and non Muslim customer�s not
only Islamic banking but also towards conventional banking.
In Singapore (Anderson at al, 1976) and (tan and chua, 1986) finds that some
person choose the bank on advice of friends, neighbors and family members has a
stronger influence on customer decision compare with other variable in selecting
financial institutions. These factors realize in the category of personal and
psychological factors. In the similar manner (laroche et al, 1986) found certain
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
15
factors which is related to service factors. They were investigating these factors on the
experiment on 140 Canadian households. They found that the primary choice was
friendliness of staff followed by ours of operation, size of waiting line, convenience of
location, efficiency of personal speed of processing item, parking facilities and
accessibility, availability of credit bilingualism of staff and interest on savings.
(Javalgi et al, 1989) conducted a study in the USA using analytical hierarchy
process to determine the bank selection criteria and reported that following are the
important factors which motivated the people to select bank include safety of one
funds to be the main factor followed by paying highest interest rates on saving,
location, reputation, availability of loans, low interest rates on loan, ease of qualifying
for current account by maintaining a minimum balance and lastly list the Saturday
banking.
2.1 RELIGIOUS FACTORS
Religious factor may include the following factors.
2.1.1 Interest free banking
2.1.2 Banking system based on Islamic tenets
2.1.2 Limpidity and trust
2.1.4 Existing of Shariah advisory board
2.1.1 Interest Free Banking
Interest free banking is the most important religious factor. Some time when
the name of Islamic banking comes the concept of interest free banking comes into the
minds of peoples. Most of Islamic bank use interest free banking as a main theme to
promote their banks. Interest is called RIBA in HOLLY QURAN. The literal meaning
of interest or Al-RIBA as it is used in the Arabic language means to excess or increase.
In the Islamic terminology interest means effortless profit or that profit which comes
free from compensation or that extra earning obtained that is free of exchange. Hazrat
Shah Waliullah Dehlvi a great scholar and leader has given a very concise and precise
definition of interest. He says,
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
16
"Riba` is a loan with the condition that the borrower will return to the lender
more than and better than the quantity borrowed."
So interest free banking is prohibited in Islam. Islamic banking offers different
products based on profit and loss sharing.
2.1.2 Banking System Based On Islamic Tenets
This factor also belongs to religious factor. Banking system based on Islamic
tenets refers to the system which is based on Islamic laws and rules. The people are
motivated to opt Islamic banking because the Islamic banking system based on Islamic
rules.
2.1.3 Limpidity and Trust
Islamic banking system is clear and unambiguous banking system which
attracts the people to opt this financial system. People also have faith and conviction
on Islam which is a distinct reason for them to adopt Islamic banking system. This
point is also related to previous one, the people limpidity and trust is very high because
the Islamic banking system is based on Islamic tenets, here limpidity refers to
transparency in all the functions of Islamic banking and trust refers to confidence of
people on Islamic banking. Due to transparency in the function of Islamic banking
trust built on Islamic banking and people motivate towards IB.
2.1.4 Shariah Advisory Board
The Shariah board is a key element of the structure of an Islamic financial
institution, carrying the responsibility of ensuring that all products and services
offered by that institution are fully compliant with the principles of Shariah law.
Shariah Advisory Board provides advise and guidance on prudential
regulations, guidelines, modes of financing, and model agreements for Islamic
industry, but the central bank issues instructions though in case of differences in
perspectives on Shariah matters the advisory boards notified by central bank is
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
17
final; Shariah Advisor, meeting central bank fit and proper criteria, approve products
and give guidance on legal and tax matters etc.; and a mechanism for Shariah Audit
System which inspects the Shariah compliance of all bank operations. Shariah
Advisory Board has Shariah scholars but also industry representatives.
Shariah advisory board consists of different Islamic scholars which provide the
guidelines to bank and help them in making their functions smooth and according to
Islamic rules. People confidence built because of Shariah advisory board because
mostly it consist on popular religious scholars
2.2 ECONOMIC FACTORS
Economic factor may include following factors.
2.2.1 financial stability of IB�s in recent economic crises
2.2.1.1 market reputation of Islamic banking which is a new trend in the market
2.2.2 Islamic banking emerging as a new industry
2.2.3 Islamic banking versatile product
2.2.4 concept of partnership by sharing profit and loss
2.2.5 saturation of conventional banking market
2.2.6 asset based financing
2.2.1 Financial Stability of IB�S In Recent
Economic Crises
World is facing the blossoming economic crises in the recent time. Many
banks industries and institution are going to bankrupt because of recent economic
crises but Islamic banking shows a great strength in facing these crisis. Islamic
banking industry not only faces these crises by strength but also support the world
economy to some extent. Due to this stability the people confidence edifice on Islamic
banking and the rapidly come towards IB system
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
18
2.2.2 Reputation of Islamic Banking
Another factor which motivates or appeals the people towards IB is Islamic
banking reputation. At that time Islamic bank shows great strength, stability and
consistency. Islamic banking industry grows at the rate of 15 to 20 percent per annum.
In last 5 years more than 50 new Islamic institutions established due to high reputation
of IB people opt the Islamic banking.
2.2.3 Islamic Banking Emerging As a New
Industry
Now in this era Islamic banking become emerging as a new industry with the
asset of more than US$ 1 trillion. The worth, reputation of IB and its stability in crisis
not only compel the individual to switch from conventional banking but also compel
the investor to come towards IB.
2.2.4 Islamic Banking Versatile Product
Islamic banks have variety of versatile product they have alternative of each and
every product of conventional banking products. IB products are more attractive then
the conventional banking products and they also claim that these products are
according to Islamic principles due to this reason more people opt Islamic banking.
Following are the list which gives us the idea that Islamic banking have
versatile product and each product become a alternative of conventional banking
product so people have no need to go towards conventional banking.
2.2.4.1 Islamic Banking Vs Conventional
Banking Products
(Table 2.1)
particulars Conventional banking Islamic banking
Rate of return Interest Wadiah (token/appreciation)
Lending rate BLR IFR (Islamic financial rate)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
19
conclusion Both banking system have the same rate, regardless the term used.
particulars Conventional banking Islamic banking
Deposit
account
Saving accounts Wadiah account
(safe keeping)
Mudharabah
account
(profit sharing)
Return interest Hibah � token or
gift in monetary
term
Profit sharing based in
IPR (indicative profit
rate)
conclusion All 3 types of saving account have the similar rate of return (interest
rate, hibah) i.e. they all �pay� the same
Particulars Conventional banking Islamic banking
Investment account Fixed deposit account Mudharabah account
(profit sharing)
Return interest Profit sharing based in IPR
(indicative profit rate)
conclusion Both type of investment account have the similar rate of return i.e.
they all �pay� the same
Particulars Conventional banking Islamic banking
Mortgage Fixed rate Fixed rate
(leasing arrangement)
Return Variable rate Bai bithaman ajil
(deferred payment sale)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
20
conclusion Generally the cost of loan under both the banking system is very
similar, however, unlike conventional loan, additional payment to
Islamic mortgage will not resulted in lowering the total loan cost-
the loan already fixed.
Particulars Conventional banking Islamic banking
Personal loan Interest rate Bai al-inah
(sell and buy back)
2.2.5 Concept of Partnership by Sharing Profit
And Loss
In Islamic banking interest is completely banned so most of product are
Islamic banking based on a profit and loss sharing due to profit and loss sharing
concept the sense of partnership occurs and more people are attracted towards IB.
2.2.6 Saturation of Conventional Banking
Market
Every product has its peak time after that time they become decline with the
passage of time. In the similar manner the conventional banking market is fully
saturated or overcrowded. Due to saturation of conventional banking market people
were confused to choose the bank. Due to this reason many people divert towards IB.
Because it is emerges as a new industry.
2.2.7 Asset Based Financing
Assets based financing the secure moo0d of financing. in which loans are
secured by the guarantee of assets. A specialized method of providing structured
working capital and term loans that are secured by accounts receivable, inventory,
machinery, equipment and/or real estate. This type of funding is great for startup
companies, refinancing existing loans, financing growth, mergers and acquisitions.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
21
2.3 PERSONAL AND PSYCHOLOGICAL FACTORS
Personal and psychological factors may include the following aspects.
2.3.1 Long term confidence of people because of international standard and consistency in accounting rules of IB
2.3.2 A lot much awareness of IB 2.3.3
Advice of friends
2.3.4 Neighbors and family members have a stronger influence on customer decision.
2.3.1 International Standard and Consistency in
Accounting Rules of IB
Islamic banking industry has consistent international standard and also having
consistency in accounting rules. Due to this reason people confidence built on IB.
There are two institutions which regulate the policies of IB and maintain the
international standard in their rules and procedure. Then institution working on
international level & keeping up to date the rules & procedure of accounting & other.
Institutions include
1. The accounting & auditing organization for Islamic financial institution
(AAOIFI) which issues internationally recognized Shariah standard on
accounting, auditing& governance issues.
2. The Islamic financial service board (IFSB) which issues standards for the
effective supervision & regulation of Islamic financial institution.
2.3.2 Awareness of IB
Islamic banking now a day is very quite common. At that time most of people
unaware about the operation, function and procedure of IB. IB promote themselves by
launching the awareness program on TV and by using other media. As a people with
IB they never hesitate in selecting IB as their bank
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
22
2.3.3 Advice of Friends
Another most important personal factor is the advice of the friends. Most of the
people select their bank on advice friends when some person wants to open account
most of time they get advice from friends.
2.3.4 Neighbors and Family Has a Stronger
Influence on Customer Decision
Another personal factor which influences the customer is the advice from
neighbors and family. They are stronger influence on customer decision then the
advice of friends. This is also an important factor of selecting a bank.
2.4 SITUATIONAL FACTORS
Situational factor includes the following things.
2.4.1 Convenient location
2.4.2 Waiting line
2.4.3 Depositing and withdrawing money
2.4.4 Long transaction and etc.
2.4.1 Convenient Location
Most of peoples select the bank due to its convenient location irrespective of
that it is Islamic or conventional bank. Convenient location refers to bank in that place
where customer approach every time easily without facing difficulties.
2.4.2 Waiting Line
Waiting line refers to that the bank is never overcrowded, having a long
waiting line for clearing a cheque paying utility bills or for the other operational
activities
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
23
2.4.3 Depositing and Withdrawing Money
Another situational factor is that people select a bank where easy deposit and
withdrawing service is available without any charges.
2.4.4 Loan Transactions
Loan transactions refers to that, people select that bank which easily
guaranteed the loan with low rate of interest.
2.5 SERVICE FACTORS
Service factor may include the following factor.
2.5.1 Free chequing services
2.5.2 Adequate drive in services
2.5.3 Accurate bank statement
2.5.4 Friendly staff.
2.5.1 Free Chequing Services
People give preference to that bank which offer free chequing service without
deducting any amount while clearing the cheque.
2.5.2 Adequate Drive in Services
The bank which gives the adequate sophisticated and proper services people
prefer that bank.
2.5.3 Accurate Bank Statement
Accurate bank statement refers to that, bank issue the statement having no
error.
2.5.4 Friendly Staff
Most of the people attract towards banks because of its friendly staff. The
customers get the family environment
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
24
Chapter 3
3.0 LITERATURE REVIEW
Islamic banking industry is now growing very rapidly in recent decade. Islamic
banking system not only gains importance in Muslim countries but also in non Muslim
countries.
When any Islamic banks decide to operate in any non Muslims country they
must analyze the population statistics of that particular country. If there is
preponderance Muslims population in that country than Islamic banks take decision to
enter in that country. They also analyze the different trends of Muslims population in
particular country that the population of Muslims is increasing in that focused country
day by day or declining due to any reason such as Muslims migrate from that country
to other.(Sole,jaun,2007)
(Sole juan, 2007)stated that the Islamic banking not only expanding in Muslim
countries or countries where Muslim in majority in population but also in other
countries where Muslims are in minority such as united kingdom & Japan similarly
more non Muslim countries like India Kyrgyz republic and Syria have recently
guaranteed licenser for Islamic banking activities.
(Schmith scott, 2005) elaborated that Islamic banking grows with the rate of 15
to 20 percent. In last five years Islamic banking industry having estimated $270
billions assets controlled by more then 300 Islamic banks in various
countries.(Schmith, scott, 2005) studied & find that the largest markets for Islamic
finance, included turkey, Indonesia, Saudi Arabia united states of America and France,
the growing market which grow very rapidly in recent years are Malaysia, Bahrain the
united Arab emirates, Indonesia and Pakistan. That is very positive sign for Islamic
banking sector that some estimate suggesting that within eight to ten years Islamic
banks save the half the saving of 15 billions Muslims.
(Mustak parker, 2004) stated that Islamic banks attract towards Britain because
the preponderance population of Muslims living in the Europe and it is gradually
increasing so it is a green signal for Islamic banking industry to operate in UK.(Ali
Jasim, 2008) the member of Bahrain parliament stated that the Islamic
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
25
banking sector is very large. As of Jan, 2008 300 Islamic financial institutions operated
in 75 countries managing some 500 billion.
(Wallace by Klaus-peter Gushurst, Ivan de souzo, vanilla, 2009) said that the
primary step for entering in any non Muslim country for an Islamic bank is a thorough
research about the Muslims population in that particular country and analyzing the
trend of population. They must studies the population statistics of Muslims in the
country of interest. And also elaborated that one of the fastest growing industry in two
global financial services industry is Islamic banking they have strong demand on both
the individual & corporate sides. Now in recent time the total value of Islamic assets
now reached US$500 Billion & the numbers of institutions offering the Islamic
finance services are multiplying with the passage of time only in last three years more
then 50 new Islamic financial institutions have opened offering Islamic financial
services.
(Ali Jasim, 2008) stated that Islamic banking have growing demand in non
Muslim countries. They gave the example of United Kingdom. The Islamic bank of
Britain (IBB) established in 2004 offers various financial products complained with
Sharia. They further suggested that UK government is contemplating issuing Sukuk &
inform that, for the facility of Muslim community France is seeking to get a share of
Islamic finance.
(Phillips Melanie 2009) suggest that The primary step for entering in any non
Muslim country for an Islamic bank is a thorough research about the Muslims
population in that particular country and analyzing the trend of population. They must
studies the population statistics of Muslims in the country of interest. Britain�s Islamic
banking sector is now bigger than that of Pakistan report by international services
London. The study stated that among all the western countries UK has the largest
number of banks for Muslims. United Kingdom now at that time has fully Sharia
compliant or in other words full flagged Islamic banks. Providing various kind of
product which prohibit interest payments and investment in alcohol or gambling firms
in accordance with Sharia law and there are many others leading institutions who open
Islamic window or subsidiary firm for Muslim clients. The number of institutions 17 in
which include Barclays, RBS and Lloyds banking group
(K Grose Thomas, 2008) elaborated that the rapid boom of Islamic banking is
providing a crescent shaped silver of good news for the city, London�s
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
26
beleaguered financial district. Thomas K Grove suggested that London become the
main hub of Islamic banking outside the Middle East. Development in Islamic banking
sector is encouraged by the Britain�s labor government which laid out the welcome
mat to Sharia- compliant banks several years ago. They think that this is the way of
serving the Muslims population or it�s the right the Muslims to do there financial
transaction according to their religious prospective. Mckanzie the director of
economics at international financial services London stated that government see it as
another way to draw business to London to bring investor to the UK.
(K Grose Thomas, 2008) reported that the blue ocean is one of many European
companies which take the benefits from a surrey in Islamic financing that pushing
Sharia compliant banking into mainstream & extending in appeal to non Muslim. The
author gives the reason that the Islamic sector growth come at a time when western
banking system caught is liquidity crisis Blue Ocean took comfort in fact that BLME
drawn on the petrodollars surplus of Persian Gulf oil producers the chief financial
officers Tariq Aslam say �the liquidity was there� the editor of Islamic banker.
(Mushtaq Parker 2006).
(Norris Kim 2005) give a comprehensive views that in the United States,
particularly in California, New York, and Michigan. Islamic finance has grown very
rapidly. In United States estimated sex million Muslim out of six million about 1.8
million household desire Islamic financing especially for home mortgages. They also
elaborated that as the Muslims population increases the demand for Islamic banking
increase side by side.
The rapid growth of Islamic finance has helped to diversify markets &
institutional structure. Mostly diversify the market & institutions structure in oil rich
Muslim countries but also in countries with large Muslim minorities. Islamic banks
banking system operate in various Muslims countries which adopted new Islamic
Sharia principles ( Iran, Pakistan & Sudan) with both Islamic & conventional banks in
developed countries side by side with conventional banks (Karbhari, Yusuf, Naser,
Kamal & Shahi Zerria).
(Sole, Juan, 2007) suggested that there are certain factor which enhance the
growth rate of IB in non Muslims countries. The rapid expansion of the Islamic finance
industry that was started in 1970 was not accompanied by creation of internationally
recognized accounting rule of initial stage but gradually their new products.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
27
The rapid expansion of Islamic banking started for 1970. People confidence
edifice on Islamic banking because of its own international recognized accounting
rules. After the establishment of two internationally recognized institution the growth
of Islamic banking became more fast.
Following are the name of institutes.
1. The accounting & auditing organization for Islamic financial institution
(AAOIFI) which issues internationally recognized Shariah standard on
accounting, auditing& governance issues.
2. The Islamic financial service board (IFSB) which issues standards for the
effective supervision & regulation of Islamic financial institution (Sole, Juan,
2007).
Islamic banking industry is growing rapidly because many multilateral
institutions have been recently created to provide assistance to government &
supervisory agencies to help them understand Islamic banking & issue standard & best
practice guidelines for the industry. The institution includes IMF, IFSB, AAOIFI &
Islamic development bank. In addition the authorities should engage in industry to
provide guide line & assistance to industry for the sake of its promotion (Sole, Juan,
2007).
(Ali jasim, 2008) in his article suggested three challenges for the Islamic banking in
non Muslims countries. These challenges includes
1. Developing short term product to absorbs demand to help develop a
secondary market.
2. Lack of Sharia scholars with knowledge of conventional and Islamic finance.
3. Third challenge deals with ensuring available of qualified human resource
meeting the requirement of as ever growing industry.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
28
These are the obstacles of fastest growing Islamic banking industry.
Like ali jasim (Wallece by Klaus peter, gushurst ivan de souza, venessa, 2009)
also stated the challenge facing by the Islamic financial institutions. These challenges
may be Lack of product differentiation the inherent complexity of Islamic banking
operations and observe of universal standard governing what initiatives are admissible
under Islamic law or Sharia.
One another author describe some challenges to Islamic banking industry.
They suggested that Islamic financial market establish its position to several markets.
In a short period of time Islamic banking grow in several markets. But its expedition
spread growth ultimately its character�s will depend on how it confronts several key
challenges including, The general acceptance of Islamic finance, regulatory &
soundness compatibility obstacles to innovations & other important burrier as such as
edifies economics of scale & training professionals in intricacies of Islamic financial
product. (Ainly M, 2007).(Greenless Donald, 2005) the oil prices also effect on the
product or growth of Islamic banking more recently a second resurgence in oil prices
an increase in variety of Sharia compliant product.
The estimation was made by Thomas k Grose (2008) that Islamic banking
sector is growing at a rate of 10 to 15 % a year and total assets are estimated from 500
billion to trillion boast (K-Grose Thomas, 2008).
(Mustak parker, 2004) identified some interesting global indicators which
underline the dynamism of the current Islamic finance market. They suggested that the
Muslims population is growing very fast is all over the world so for meeting the
demands of these Muslims Islamic banks rapidly expanding in non muslims countries.
In recent time due to demand of Islamic banking in west many of the banking majors
including HSBC, Merrill lynch, citigroup, Morgan Stanly, societe generale and
standard chartered have started a long term association with Islamic banking because
of fulfillment the requirement of their middle east clients.
(Mustak parker, 2004) There are various factors which attract the people
towards the Islamic banking. Islamic banking industry grows rapidly not only in
Muslim countries but also in non Muslim countries. In UK the Islamic banking
industry get a boost when in august 2004. The FSA authority accept the Islamic bank
of Britain (IBB) this authorization make the Islamic bank of Britain the first stand
alone Islamic bank in UK.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
29
The writer give an example that experience in Malaysia has shown that Islamic
banking is not only for the Muslims but also for anyone interested in ethical or profit &
loss sharing banking. In Malaysia 70% non Muslim Chinese customers use the Islamic
banking financial services (Mustak parker, 2004)
Mustak parker elaborates the market share of Islamic banking deposits.
1. Islamic banking deposits are 10.4% of total banking sector deposits in 2003.
2. Islamic banking assets are 9.7% of total assets of banking industry.
3. Islamic banking finance are 10.3% of total banking industry finance.
4. In monitory term as compare to 2002 the assets which was RM82, 1 96m
5. Total Islamic banking deposit as compare to 2002 increase by 13% which
were RM60,212M
6. Total Islamic financing increasing 8.24% in 2003 as compare to 2002 which
as RM48.615M (peter muster 2004)
The modern commercial banking system gain importance in Europe especially
in the United Kingdom. The basic philosophical roots of system revolve around the
basic principle of capital certainly for deposits. For implementing there rules the
central bank used its power of supervision & central to make the functioning of banks
smooth. All banks must be following the rules of central bank. Those Islamic bank
which are wishing to operate in a non Muslim countries have many difficulties in
following there rules. These difficulties in operating non Muslim countries may be
certainly of capital, return, supervisions & central & tax regulation. (Rad, 1991).
The conventional banks give guarantee the capital and rule of return, which is
Islamic banking system working on the principle of profit & loss sharing & cannot
give any fixed rule of return on deposits. Mostly Islamic banks never give a guarantee
of capital either, because if there is loss facing by the bank they distribute and deduct
the capital.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
30
(Sir Leigh Pemberton, 1991) the governor of the bank of England told the Arab
banker�s association in London that,
� If allowing who essentially difered banking system to operate in parallel it is
important not to risk misleading & confusing the general public.
� A central feature of the banking system of the United Kingdom as enshrined in
the legal framework is capital certainty for depositors. It is the most important
feature which distinguished the banking sector from the other segments of the
financial system;
� Islamic banking is a perfectly acceptable mode of financing but it does not
fall within the definition of what constitutes banking in the UK;
� The Bank of England is not legally able to authorise under the Banking Act,
an institution which does not take deposits as defined under that Act;
� The Islamic facilities might be provided within other areas of the financial
system without using a banking name.
In the some manner because of certainty in return on capital some comments
say by (Mr. charls Schotte, 1995) the US Treasury department specialist in regulatory
issues has remarks.
Thum word says in UK.
�There has never been an application for an Islamic establishment to set up
either as a bank or as anything else. So there is no precedent to guide us. Any
institution that wishes to use the word �bank� in its title has to guarantee at least a zero
rate of interest -- and even that might contravene Islamic laws.�
(Steele F, 1984) The other issue arise that the supervision & control by the
central bank because the central bank supervise its schedule bank & control them. This
issue mainly relates to liquidity requirement & adequacy of capital A financial advisor
stated that �the bank of England faces a great difficulty in putting value on the assets of
an Islamic institution under the 1979 act which wanted to operate as a bank in the UK.
The conventional or traditional banking system has much of its fixed assets in fixed
interest instrument and it is very easy to value.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
31
The author gives one example which we quoted in his words.
If they are British Government instruments they will have a quoted market
value; and there are recognized methods for valuing traditional banking assets when
they become non-productive. But it is very dificult indeed to value an Islamic asset
such as a share in a joint venture; and the Bank of England would have to send a team
of experienced accountants into every Islamic bank operating in the UK as a bank
under the 1979 Act, to try to put a proper and cautious value on its assets.
As we discuss the growth of Islamic banking the issue of supervision & control
is very important. Because Islamic banking never give a fixed rate of return so one
financial analyst said that.
Even if a method could be found for assessing the risks to calculate the capital
necessary, little comfort could be taken from the profitability which is usually relied
upon to cover day-to-day losses arising from the bank�s business, because a
substantial part of an Islamic bank�s portfolio is venture capital without any
guaranteed return. ( Suratgar D, 1984).
Another most important aspect of operating Islamic bank in non Muslim
country is tax procedure in non Muslim countries because interest is the biggest
income. In addition in trade financing there are little transfers twice one from seller to
bank and then from bank to buyer.
Then due to twice taxation on account decreasing the profit of ventures so in
this regard the director of international Islamic bank Denmark says.
There could be potential dangers for the international system, where the failure
of such an institution could bring with it the failure of other associated institutions, or
of all the Western banking institutions which come closely tied to with such an
operation. (Karsten I, 1982).
(Muhammad ridza) a lawyer stated that there is rising demand for Sharia
compliant investment from an estimated 1.6 billion Muslim world wide and also
estimation shows that the Islamic assets are set to his US 1.4 trillion by 2010� and it is
also estimated that the Islamic financial system will soon be managing
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
32
approximately 9 percent of world economy� by showing the Muslims population in the
world they shows the potential market size for the Islamic banking industry. (Professor
Abdullah saeed) stated that mostly non Muslim is interested in various form of ethical
investment which provide by the Islamic banking. The Islamic banking market is
growing very rapidly not only in Muslim countries but through out the world. The
author urged that Islamic banking grow rapidly over the past few years and it is
expected to continue to exhibit robust growth for the future. The main reason of growth
of Islamic banking is the retail banking customers who were finding the opportunities
to invest according to their personal beliefs. In many countries government is on the
bank of Islamic banking to provide support such in case of Malaysia. (Booz &
Company)
The writer gives the information that Islamic asset grown very rapidly in the
past five years. The rater of growth is between 15-20% per annum. In this manner
Islamic banking is one of the fastest growing sectors in the global financial services
industry. The growth in Islamic banking industry is not only seed in retail &
commercial alone. But they have been exponential growth in the assets management
sides and he Shariah compliant funds in rapidly increasing in recent years. In the
parallel of that Islamic capital market have showed a wave of innovation over the past
few years. There are many instruments of Islamic banking which have strength in
market but the most notable instrument that has engaged has been sukuk. In the period
2002-2007 US$ 85 billion in funds were raised through sukuk(Booz &
company).Aazim mohiuddin elaborated in his article that Islamic banking industry is
the sector which is least affected by the global financial crisis. Islamic banking
industry faces only little trouble only after this crisis had snowballed into a recession in
developed economic affecting growth prospects of Pakistan & other developing
countries.
According to latest state bank report Islamic banking industry overcome easily
on there problem and know most of the indications are showing a reversion towards
the usual high growth trend. This report also showed some fact & figure that the asset
of Islamic banking in overall banking industry grew from 3.4 in June 2007 to 5.1
percent in June 2009. in term of value these assets increases 97 percent from Rs. 159
billion to Rs 313 billion total deposits jumped 120 percent from Rs 108 billion or 3.1
percent of the banking industry to Rs. 238 billion or 5.2 percent not only this but also
the financing & investment rise from 90 billion to Rs.195
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
33
billion that show a very rapid growth in finances & investment is about 117 percent.
The financing & investment share of Islamic bank in overall banking industry
is group up from 2.6 to 4.2 percent in last two years.Mohiuddin azim also stated that
there is three factors or things which helped in this rapid growth of Islamic bank.
1. IB had a narrow bone in June 2007. It is said by the dead of large local Islamic
banks.
2. Islamic banking has a man appeal
3. Islamic banking has same inbuilt characteristics that offer a better cushion
against man-made crises.
Among the all above three characteristics the third one is most important and
unique features of Islamic financing do protect banks from the elements of man made
crises in all but evident Mohiuddin Aazim also gives a comprehensive comparative
review of Islamic banking with conventional banks. Top 100 Islamic
Islamic bank
The assets of top 100 Islamic banks Grew 66%. 580 billion in 2008 from 350
billion in 2007.
Conventional banks
The assets of 100 commercial banks in Asia (the region that was not in the
centre of the financial crises) posted only 13.4 percent growths. According to
international media global Islamic banking is set to grow up to 30 percent in 2009.
Dand Vicary Abdullah stated in his article that he is very impressed by some
points of Islamic development bank president Dr. Ahmed
Mohammad Ali address.
Dr. Ahmed Mohamed Ali the president of Islamic development bank in his
address identified that 70% of the Islamic finance industry is commercial banking &
that there was a need to diversify into area like investment banking, venture capital
small and medium sized enterprises and specialist financing. According to his opinion
not to much concentrate only on commercial banking but must
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
34
diversified. His opinion was or conclusion was �more diversity equals more
sustainability�
In his address the second thing in which they focused on emphasis is the
regulatory and accounting standards of Islamic banking industry. He felt that the
regulatory & accounting standard must be revisited and revised at system level both
macro and micro in order to meet future demands. Dr. ahmed Mohamed ali also
suggested that building integrated stability would provide a firewall against further
systemic shocks.
Thirdly they give suggestion about knowledge service and products. They
knowledge with creativity and innovation and proposed that knowledge based growth
was a key dimension that needed attention for him �Islamic finance equal value
creation�
Lastly he suggested that �innovation equal growth� that is the most important
aspect that if you are innovative then your must grow. You must be innovative or make
innovation in services, product and other function. Then you must grow. He also
cautioned that innovation must create not destroy; value and that new Islamic financial
products must demonstrate both value and efficiency to the market place.
This was indeed food for thought as well as a call to action.
At the end the president of Islamic development bank Dr. Ahmed Mohamed ali
wish that at that time we must take the steps to take the Islamic finance into the next
level.
Islamic banking facing a number of challenges despite of all there challenges
typical of a new and emerging industry, the prospects for growth of Islamic finance are
promising but rests and building an effective system for Islamic finance. (Dr Akhter,
shamshad Dr Akhtar shamshad says that due to increase in interest on Islamic finances.
Raising the investment in Islamic finance and resulted in phenomenal growth in
Islamic finance business. They also said that interest in this discipline has already
extended beyond Muslim and Islamic countries to non-Muslim population and
jurisdictions and non Islamic financial institutions
Further elaborated that the Muslims are attract towards the Islamic banks
because the avoidance of forbidden investment (harram products) interest rule and
speculative structures prohibited in Islamic jurisprudence and Islamic finance
emphasis on equitable financial system.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
35
In 14th world Islamic banking conference held in Bahrain 9-10 December
2007. Some silent key drives are elaborated which enhance the efficiency and
competitiveness of Islamic finance include.
1. Financial engineering and innovation.
2. Global financial centers and their regulators support for Islamic finance
industry.
3. Standard governance and prudential regulation and supervisory guidance
with required tweaking regulations to properly identify and assign proper
weights for new and different types of risks associated with the special and
unique characteristics of Islamic finance business.
4. Development and adoption of simple standard and cost affective legal
frameworks for contracts associated with the new and hybrid products.
5. Flexible and practical application and enforcement of Shariah principles and
injections and its acceptability by public.
Dr Akhter Shamshad assets that at that time Islamic finance now seems to be
reality and it is as the way to be institutionalized. Islamic finance have different levels
in different countries not only in Muslims countries but under the western or other non
Muslim world selectively & cautionary positioning to invest in this system. Islamic
finance system has great potential to meet the financial gaps & requirements of
development and society at large and its demand would be robust going beyond
religious grounds. Mean this industry now at that time growing very rapidly
irrespective of religious ground in Muslim but also in non Muslim countries.
Akhtar Shamshad (2007) in closing keynote address in town university,
Washington it is said that Islamic finance is spread across 70 countries and rapidly
expanding in other countries. It has grown to almost a trillion industries. Islamic
finance growing very fast reached an trillion dollar industry but despite all there
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
36
thing it is still a niche market in the overall global financial industry, but the future of
industry is quite bright because in future they may be fulfill the demand of 1.4 billion
Muslim population.
In the global scenario the level of growth, interest & motivation for industry is
varies. The growth in gulf cooperation council has been exceptional with Bahrain
emerging as main hub adopting and implementing Islamic finance education. Islamic
finance has exceptional growth not only in Muslim countries but also in some western
country they grow very rapidly. Islamic finance is grow rapidly in London that now
provide policy and tax incentives to promote Islamic finance industry to attract funds
from high net worth client. Such kind of motivation & interest seem in many global
banks which are world class players such as HSBC, standard chartered, deutsche bank,
city bank etc. they set special hubs to structure Islamic finance products.
Akhtar Shamshad said in his speech that the motivational and driving factor of
this industry vary across the world. These factors change country by country, nation by
nation. Akhter Shamshad elaborated that what is the thing that build one confidence in
large investment by financial industry across main hubs GCC/Middle east south east
and south Asia, for building once confidence and attracting more people towards
Islamic bank we make infrastructure development in this industry through
1. Issue of holistic banking license or opening of special window or creation of
hubs/ dedicated Islamic asset management funds, private equity fund and
hedge funds. Accompanied by Dow Islamic Index to which all such
transaction subscribe too are large.
2. Secondly most of people unaware from Islamic banking industry & its
versatile product. Develop Shariah knowledge and understanding and
engagement of Shariah advisors and scholars which together and providing
required consensus.
3. Development of Islamic standard which edifices the people confidence on
Islamic banking such as development of Islamic financial supervisory
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
37
board and according and auditing organization for Islamic institutions
(AAOIFI) and international Islamic financial market (IIFM).
These agencies helped develop and initiate implementation of Islamic
prudential regulatory, according and auditing frame works and inspections and
supervision of financial institutions
These efforts can build the confidence of people and Islamic banking industry
grows with a rapid pace not only in Muslim countries but also in non Muslim
countries.
According to one market survey it is confirm that the potential from retail
housing and project finance and innovation happens in there market is significant and
augurs well for economic and financial services development Islamic banks have
registration double digit growth in retail market. They penetrate very rapidly where
personal banking solution has been structured well and where information technology
is used to offer online ATM and telephone.
It�s often said that Islam is not just a religion, but a way of life and commerce is
a big part of that life. The way many Muslims manage their money is, for them, part of
being a practicing Muslim.
There are over half a million Muslims in Canada, a population which has
increased 128 per cent from 1991-2001 according to Statistics Canada. As a growing
Muslim population is looking for financial solutions that work with their religious
beliefs, Islamic banking is becoming more popular in Western countries. (Nisha Patel
and Jason Satur, 2008).
An estimated 15�20 million of them are Muslims. And while the country�s
population is largely diminishing, Russia�s Muslim population is on the increase. It
has grown by around 40 per cent since 1989, due to high birth rates in the Muslim
community and continued immigration from the Caucasus and Central Asia. Some
analysts project Muslims to become one-fifth of the country�s overall population by
2020.Although the Arab world considers Russia a potentially emerging market with
regard to Islamic finance, there is still a lot of apprehension when it comes to investing
capital in it. �There are many hitches and complications.� (New horizon. Global
perspective on Islamic banking & Insurance, 2007)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
38
(Taipai times, 2006)Japan is looking to become the first major industrialized
nation to issue Islamic bonds in hopes of attracting money from oil-rich Muslim
countries, a bank official said yesterday.
Islamic financial practices ban the payment or receipt of interest or any
transactions that include alcoholic beverages or gambling, which are banned by the
Quran.
"The bank is studying the possible issuance of the bond with Malaysia," said
Hiromi Inukai, a spokeswoman of the government-backed Japan Bank for
International Cooperation (JBIC).
In Canada, the Muslim community has been steadily increasing and is
estimated to have reached over 750,000 people in 2007. Despite this growth, there are
very few Canadian financial institutions that offer Sharia-compliant products and
services. (Michael Hsu, 2007)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
39
Chapter 4
4.0 METHODOLOGY
The emergence of Islamic banking industry has observed a dramatic shift in the
perception of people towards Islamic banking. Especially in non Muslims countries
Islamic banking seems to have great potential to grow and compete the orthodox
interest based banking. When any Islamic banks decide to operate in any non Muslims
country they must analyze the population statistics of that particular country. If there is
preponderance Muslims population in that country than Islamic banks take decision to
enter in that particular country. This study aimed to finding the relation between two
factors the Muslims population and Islamic banking growth rate in non Muslims
countries by supposing all other factors which have impact on growth rate of IB,
constant. There are many other factors which contribute in growth rate of IB and
urging people to opt Islamic banking in non Muslims countries. The study propelled
out through secondary data resources. The study find the relation between the Muslims
population and growth rate of IB in non Muslims countries by analyzing the last five
years Muslims population trend and growth rate of IB in these countries. Different
Statistical contraption will be applied to interpret the results which show the relation
between them.
4.1 Research Design
The basal research study would be descriptive and co-relational type and
exploration of the study will be propelled through different secondary provenience. In
order to go for the proposed study, data were collected through different sources. In this
study we try to find out the relation between two variable the Muslims population and
growth rate of IB in non Muslims countries. Identify relation between these two
variables by using different statistical tools. In our study we have taken two variable x
and y. where x represent Muslim population in non Muslim countries and y stands for
Islamic banking growth rate. In this study x
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
40
variable is the population growth is independent variable while the y Islamic banking
growth is dependent variable.
The independent variable x (Muslims population in non Muslims countries) is
in million, and the dependent variable y (Islamic banking growth rate in non Muslims
countries) is in percent.
In order to find out the relation between these two variables we use two
statistical tools the correlation and regression analysis. Correlation represents the
relation between the two variables while regressions express the growth trend with
respect to Muslims population.
4.2 Sources of Data
Our main provenience of data collection is secondary data resources such as
Literature reviews, Books, Web browsing, News papers and Articles about the Islamic
banking growth and Muslims population are also main source of data accumulation,
and reviewing. This data use to educe the information about the rapid growth of
Islamic banking in non Muslims countries. We collect the 5 years Muslims population
and growth rate of Islamic banking in non Muslims countries by different secondary
resources.
4.3 Method of DataCollection/Sampling
Sampling is most important in any kind of research weather it�s qualitative or
quantitative. Our basal study is quantitative type study. Quantitative research seeks
explanatory laws. Quantitative research generates statistics and measures what it
assumes to be a static reality in hopes of developing universal laws.
For data collection the sampling technique use for this study is cluster sampling.
The sampling helps to estimates population parameters. All the non Muslim countries
are our population of study. Out of all the non Muslims countries we choose or 3 non
Muslim countries for study the growth rate and market share of Islamic banking in
these countries. The size of sample is very stubby because in some non Muslims
countries IB�s still unacquainted and in some countries the population of Muslims is
very stunted. Cluster sampling is justified here because homogeneity between the
clusters in term of population characteristics. Population
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
41
of Muslims community in one non Muslim country shows the similarities with the
Muslim community of other non Muslim country.
In cluster sampling we divide the population in to subgroups which are called
clusters we try to maintain homogeneity between subgroup and heterogeneity within
subgroups. In our study we have divided the Muslim population residing in the non
Muslim countries in to various clusters and selected three of them randomly for the
study. The reason for selecting this sampling is that we have obtained homogeneity
between clusters which have proven to provide us with accurate data.
The cluster sampling is also economic and easy to adopt. Unavailability of data
and limitations of resources led us to select this appropriate type of sampling.
4.4 Analytical Procedures
For analyzing the relation that there is positive or negative relation between the
Muslims population and growth rate of IB in non Muslims countries we use the two
statistical tools correlation and regression.
In our study we have taken two variable x and y. where x represent Muslim
population in non Muslim countries and y stands for Islamic banking growth rate. In
this study x variable is the population growth is independent variable while the y
Islamic banking growth is dependent variable.
The independent variable x (Muslims population in non Muslims countries) is
in million, and the dependent variable y (Islamic banking growth rate in non Muslims
countries) is in percent.
Correlation represents the relation between the two variables while regressions
express the growth trend with respect to Muslims population. By finding out the
regression equation we able to forecast the growth rate of IB non Muslims countries if
other factors remain constant.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
42
Chapter 5
5.0 DATA ANALYSIS AND
DISCUSSION
Islamic banking industry is blossoming at the rapid rate all over the world. It is
engulfing not Muslims countries but taking also root in non Muslims countries and
appealing Muslims community with profound impact on their socio economic order of
lives. This impact is consequent of many possible factors. As Islamic banking based
on interest free mechanism hence its may appealing to Muslims on the other hand
conventional banking is pillared on interest without which they cannot subsist. Islamic
banking is exceedingly swelling not only in Muslims but also in non Muslims
countries. As the people get awareness of Islamic banking system they abundantly
come towards Islamic banks.
When any Islamic banks decide to operate in any non Muslims country they
must analyze the population statistics of that particular country. If there is
preponderance Muslims population in that country than Islamic banks take decision to
enter in that country. They also analyze the different trends of Muslims population in
particular country that the population of Muslims is increasing in that focused country
day by day or declining due to any reason such as Muslims migrate from that country
to other. After understanding these thing we are able to state that population is
important factor which must be considering by the Islamic banks while they want to
operate in any non Muslim country. There is increasing trend of Muslims population
in the non Muslims countries. Due to which that particular market is very attractive for
the Islamic banking industry.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
43
The following table illustrates the potential market size in mainland Europe
and other countries for an Islamic bank, as well as highlights the potential for Islamic
banking in these countries
(Table 5.1)
MUSLIMS POPULATION IN NON MUSLIMS COUNTRIES (in 2009 EST)
COUNTRY TOTAL
POPULATION IN
2009 Est.
MUSLIM
PERCENTAGE
(%) OF TOTAL
POPULATION
PERCENTAGE
(%) OF
WORLD
MUSLIM
POPULATION
ENGLAND 2,527,000 2.7 0.1
USA 2,545,000 0.8 0.2
CANADA 8,97,000 2.0 0
AUSTRALIA 3,65,000 4.2 0
FRANCE 3,554,000 6 0.2
GERMANY 4,026,000 5 0.3
ISRAEL 1,194,000 16.7 0.1
SWEDEN 1,49,000 2 0
DENMARK 88000 2.0 0
CHINA 21,667,000 1..6 1.4
AUSTRIA 353,000 4.2 0
RUSSIA 16,482,000 11.7 1.0
INDIA 160,945,000 13.4 10.3
Source: http://en.wikipedia.org/wiki/List_of_countries_by_Muslim_population
The above population shows that there is sufficient market for Islamic
banking in many non Muslims countries. The exceedingly growing population of
Muslims in non Muslim countries attracts the Islamic banking industry in these
countries. In this study researcher consider that growing population of Muslims in
these countries is the main factor of Islamic banking growth while consider all other
factors constant. This study shows the relation
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
44
between the Islamic banking growth and population growth in non Muslims countries.
Because there are many other factor which motivate the people to opt Islamic banking
and contributing in enhancing the growth rate of IB in these countries.
The literature have shown that there is a gradual increase in the growth rate of
Islamic banking in non Muslims countries on the other hand Muslims population also
experiencing an increase. This incremental in growth rate of Islamic banking could be
due to increase of Muslims population in non Muslims countries.
The rapid growth of Islamic banking in non Muslims countries is suggesting
that Islamic banking system is proving to be an alternative to conventional banking
system. The data shows the strong relation between population growth and growth of
Islamic banking. The literature has also revealed that population is not a single factor
which are involved in enhancing growth rate of IB in non Muslims countries. These
factors could be appealing to Muslim community to a great extent. They also entice the
non Muslims as towards the IB because the stability of IB in recent crises.
The factors which have profound impact on growth rate, other than population
can be classified into five categories. These factors are contributing in the growth rate
of Islamic banking. They also enhance the growth rate of IB in non Muslims countries
as the literature review revealed. There are many other factors which motivate people
to opt Islamic banking. These factors disunite into religious, socio economic and other
personal and physiological, situational and service factors.
These factors are further classified.
1. The religious motivational factors may be interest free banking, banking
system based on Islamic tenets, limpidity and trust, existing of Shariah
advisory board.
2. The crux economic factors which motivate the people towards Islamic banking
or a reason of a rapid growth of Islamic banking are financial stability of IB�s
in recent economic crises, market reputation of Islamic banking which is a new
trend in the market, Islamic banking emerging as a
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
45
new industry, Islamic banking versatile product, concept of partnership by
sharing profit and loss, saturation of conventional banking market and asset
based financing.
3. The personal and psychological factors may include, long term confidence of
people because of international standard and consistency in accounting rules of
IB, a lot much awareness of IB, advice of friends, neighbors and family
members has a stronger influence on customer decision.
4. The situational factor may include, convenient location, waiting line,
depositing and withdrawing money, long transaction and etc.
5. The service factor may include free chequing services, adequate drive in
services, accurate bank statement and friendly staff.
These are some other factors which also contribute to enhance the growth rate of IB to
some extent. How ever the first one is more concern with Muslims while the other one
with both the Muslims and non Muslims. Due to no interaction made with the
customers and people of non Muslims countries, we are unable to give sufficient
ranking to these factors that which factor is more appealing in motivating the people of
these countries towards IB.
The literature shows that there are five motivational factors in which religious
factor is more appealing for the Muslims customer. The Muslims population is
increasing day by day and they prefer the religion. The religious factor is one of the
important factors which motivate more Muslims towards IB. In religious factor there is
more division of this factor.
As the literature review suggest the most important religious factor is interest
free banking. Because when the name of Islamic banking comes the concept of Interest
free banking comes into the minds of people. Interest is prohibiting in Islam and it is
completely banned. Most of the people in non Muslims countries are more concerned
with religion due to this reason interest free banking is the most important sub factor of
religious factor which is given preference by the Muslims people. On the contrary
interest free banking is the
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
46
factor which de motivates the non Muslims customers towards IB because they prefer
the interest as the literature suggested.
Non Muslims customers prefer that particular banks which offers the high
interest rate. Interest rate is very important for non Muslims customers and many of the
conventional banks try to compete each other by offering high interest rate. They try to
attract the customer by offering high interest rate. Many conventional banks offer high
interest rate on deposits and minimum interest rates on loan for catching the customer.
But Islamic banking is not granting the fixed rate of interest. Because interest is
prohibit and completely banned. So this factor has two aspects once in the form of
stronger motivator for Muslims in attracting towards Islamic banking while on the
other hand it is the stronger de motivator for the non Muslims customers.
The second sub factor of the religious factor is, banking system based on
Islamic tenets. All of the Islamic banking industry base on Islamic rules and principles.
Due to this factor more people comes towards IB. Because they realize that every
activity and each transaction is based on Islamic tenets.
Third religious factor is limpidity and trust. Islamic banking purely based on
Islamic tenets people have more satisfaction and trust on Islamic banking specially
Muslims customer they feel satisfaction and having trust that Islamic banking must
follows the Islamic Shariah. People have faith and conviction on Islam which is
distinct reason for them to adopt Islamic banking system.
This point is also related with previous sub religious factor, the people
limpidity and trust is very high because the Islamic banking system based on Islamic
tenets.
One of the important religious factors is the existing of Shariah board. They
also are urging the people toward Islamic banking because the Shariah board is key
element in the structure of Islamic banking. The Shariah board consist on top Shariah
scholars a carrying the responsibility of ensuring that all products and services offered
by these institutions are fully complained with the principle of Shariah laws. They
provide advice and guidance as prudential regulation guideline mode of financing and
model agreement for Islamic industry. When these top Shariah scholars become the
member of Islamic bank Shariah board the more people come towards IB because of
people trust on these top Shariah scholars. This is important factor which motivate the
people and this factor also contribute in
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
47
enhancing the growth rate of IB. due to importance of this factor many world class
players such as royal bank Dutch bank and other who take the assistance of top Shariah
scholars and opening Islamic banking windows for attracting the people as literature
review suggested.
The second motivating factor shows by the literature, which attract the people
towards IB is the crux economic factor. This factor is not only concerned with Muslim
customers but also concerned with the non Muslim customers as well.
One of the economic factors is the financial stability of IB�s in recent economic
crisis. Due to this stability people get the sense that Islamic banking has very strong
muscles and also have very standardized rules and regulations and this sense urge the
people not only Muslim but also the non Muslim towards Islamic banking. The non
Muslims are more concerned with that factors due to this reason that there money is
saved and not loose due to financial crisis at the people fund sink in other financial
institutions due to these recent economic crisis.
The next economic factor is the reputation of Islamic banking. People give
more preference to institute or thing which has goodwill in the minds of people. In
recent era Islamic banking have a sophisticated reputation because it is the new trend
in the market.
One of the economic factor is versatility in the product of Islamic banking
which they are offering. They offer specialized product on the basis of people needs or
by analyzing the needs of people. Islamic banking system has all the substitute product
of those which is offering by conventional banking. Due to this reason Islamic banking
system become proving to a suitable alternative of conventional banking system. One
of the most versatile product of Islamic banking system is that IB offered the leasing of
old cast which are not offering by conventional banking system. This is the unique
product of Islamic banking system, the comparison of Islamic banking system product
with conventional banking product given in chapter 2 named factor which appeal
Muslim and non Muslim towards Islamic banking in non Muslim countries which
shows the Islamic banking product as the strong substitute of each conventional
banking product.
Another economic factor suggested by literature reviews which urge the people
towards Islamic banking system is the sense of partnership by sharing profit and loss.
Some time this factor de motivate the non Muslim customers because they want only
share the profit and not willing to share the loss. The Muslim
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
48
people motivate because in Islam the business of profit and loss sharing is allowed but
non Muslim just think about the profit they have no concerned with the loss sharing.
Muslim people get the sense of partnership by sharing profit and loss.
The next economic factor due to which the people opt Islamic banking are the
saturation of conventional banking market as the literature shows. In the recent time
there is a large number of conventional bank enter in the market and open their
branches due to this the conventional banking industry become saturated. This
saturation of conventional banking industry divert people towards Islamic banking
because it emerging as a new industry having a high reputation and showing stability
in the recent economic crises. This factor not only appealing Muslim but also non
Muslim customer as well.
Asset based financing is also an economic factor which attract both the Muslim
and non Muslim towards IB and contribute in enhancing the growth rate of Islamic
banking system.
We are trying to prove that Muslim population growth rate plays significant
role in increasing the growth rate of Islamic banking industry. But Islamic banking not
only grows due to this reason there are certain other factor which increase the growth
of Islamic banking industry.
The third factor which plays a significant role is personal and psychological
factor. First personal and psychological factor is long term confidence of people build
on Islamic banking because of its international standard and consistency in accounting
rules. People feel confidence and never hesitate to come towards IB a lot much
awareness created in non Muslims countries about Islamic banking and people get
aware with IB and opt Islamic banking generously.
One of the personal factors involved the advice of friend. People get advice
from friends when they want to choose a bank for opening an account. Not only friends
advice influence the decision of selecting a bank but also neighbors and family
members have a strong influence on customers decision so that factor also contribute
in increasing the growth of IB to some extent.
There are some other situational factors which people consider while choosing
the bank. Situational factor include convenient location some people only consider the
bank which is on convenient location irrespective of banking system whether it is
conventional or Islamic. Some other situational factors may include depositing and
withdrawing money, waiting line and long term transaction some
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
49
people consider this factor as an important factor. Due to this Islamic banking try to
improve situational factor to attract more people.
Another factor which people consider while selecting the bank is service factor.
Service factor is also important some people leave one bank only due to the reason that
they never provide the good services. Services include free checqing service; adequate
drive in service, accurate bank statement service, family staff and many more, online
fund transfer facility.
These are the factors which also contribute in increasing the growth rate of
Islamic banking irrespective of population growth.
The primary step for entering in any non Muslim country for an Islamic bank is
a thorough research about the Muslims population in that particular country and
analyzing the trend of population. They must study the population statistics of
Muslims in the country of interest.
Our study aimed to finding a relation between population growth of Muslims in
non Muslims countries and growth rate of Islamic banking in these countries remains
other all factor which contribute in growth of IB is constant.
5.1 Empirical Analysis
In our study we selected three non Muslims countries including UK, USA and
Japan. The basal study propelled through by taking the population of Muslims in these
non Muslims countries and the growth rate of Islamic banking in proposed countries,
and focused was to describe and explain the growth rate of Islamic bank in terms of
population growth of Muslim community in these countries. Or in other words find out
the relation between these two, Muslims population in non Muslims countries and
Islamic banking growth rate in proposed countries remaining other factor which
contribute in enhancing the growth rate of IB is constant. Literature review elaborated
that the preliminary step for any Islamic bank for operating in a non Muslim countries
is to analyze the population of Muslims in that focused countries. They study the
various trend of Muslims population in that particular country and also study that at
what proportion the Muslims population increase in that country or that might be
declining due to any reason. After studying these things an Islamic bank enable to enter
in a particular non Muslim country for its
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
50
operation. In order to prove the hypothesis that there is positive or negative relation
between population growth and growth rate of Islamic banking we dissect the trend of
Muslims population and growth rate of Islamic banking.
In our study we have taken two variable x and y. where x represent Muslim
population in non Muslim countries and y stands for Islamic banking growth rate. In
this study x variable is the population growth is independent variable while the y
Islamic banking growth is dependent variable.
The independent variable x (Muslims population in non Muslims countries) is
in million, and the dependent variable y (Islamic banking growth rate in non Muslims
countries) is in percent.
In order to find out the relation between these two variables we use two
statistical tools the correlation and regression analysis. Correlation represents the
relation between the two variables while regressions express the growth trend with
respect to Muslims population.
When two quantities are so related that the fluctuations in the one are is
sympathy with fluctuations in the other, so that an increase or decrease one is found in
connection with increase or decrease of the other (or inversely), the quantities are said
to be correlated and correlation is said to be simple in case of two variables.
In other words correlation measures the degree of interdependence between
two variables.
Correlation may be direct or positive if an increase, or decrease in the values of
one set is associated with increase or decrease of the other set. If the increase or
decrease is associated with decrease or increase of the other and correlation is said to
be inverse or negative.
Regression help us to find out the equation, with the help of that equation we
predict the future growth rate of Islamic banking in that particular country.
T test use for taking the decision that we accept the hypothesis or reject which
we generated.
ENGLAND
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
52
(Table 5.2)
E NGL A ND
2007 2.327 5.5
The result shows that there is a constant increase in Muslims population and
growth rate of IB. In 2004 the Muslims population in UK was 1.087 million while
Islamic banking growth rate was 1.8%. In 2005 the Muslims population in UK was
2.017 million while Islamic banking growth rate was 2.9%. In 2006 the Muslims
population in UK was 2.142 million while Islamic banking growth rate was 4.2%. In
2007 the Muslims population in UK was 2.327 million while Islamic banking growth
rate was 5.5%. In the next year 2008 the Muslims population in UK was 2.422 million
while Islamic banking growth rate was 7.8%.there is gradual increase in population as
well as in Islamic banking growth rate but this increase in growth rate of IB in not only
due to increase in Muslims population there are certain other factors which we
supposed constant.
2004 1.087
ISLAMIC BANKING
GROWTH RATE
(in %) y
MUSLIMS POPULATION
GROWTH (In Million)
X
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
53
(Graph 5.1)
The graph shows the Muslims population in million in UK and Islamic
banking growth rate in percent.
SCATTER DIAGRAM
(Graph 5.2)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
54
Empirical and mathematical result has shown that there is positive relationship
of 89% between Muslim population and Islamic banking growth in UK if other factor
remained constant which might be effect the growth rate of IB. Correlation shows a
very strong relation ship but this relation may vary because there are many factors
which effects on the growth of IB in non Muslims countries which we assumed
constant.
(Table 5.4)
REGRESSION ANALYSIS SUMMARY OUTPUT
Regression statistics
Multiple R 0.825490911
R Square 0.681435244
Adjusted R Square 0.5 75246992
Standard Error 1.521899521
Observations 5
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
55
(Table 5.5)
df
ANOVA
ss Ms F Significance F
Regression 1 14.86346555 14.8634655 6.4172376 0.085182984
resiual 3 6.948534455 2.31617815
Total 4 21.812
coefficients Standard error T stat
Intercept -2. 781131489 2.930693707 -0.948966957
X variable
1
3.612371931 1.425996301 2.533226719
In order to find out relation we use regression analyzing technique in which y
is dependent variable which shows growth rate of IB in percentage while the other
variable x is the independent variable which shows the population growth in million.
By using regression we find the equation of Y on X
Y = a + b x
Where:
Y= dependent variable (growth rate of IB in percentage)
X= independent variable (Muslims population growth in million)
a=intercept
b=coefficient of x variable 1
We get by putting values in equation
Y= a + b x
Y= -2.78+3.61 (x)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
56
This is the regression equation between these two variable supposed that if
there is 1 (one) million increase in Muslims population and x represents the
population then
Y= -2.78+3.61(x)
Y= -2.78+3.61(1)
Y= -2.78+3.61
Y= 0.83
The results show that if there is 1 (one) million increase in population that the
growth rate is increase by 0.83%. But population growth rate is not the single factor
which contribute in growth rate of IB there are some other factors which also
contribute an impact on growth rate the other factor have proven to have profound
impact on growth rate.
The actual impact on other factor could not be found because of limitation of
the sources and time. The researcher not able to reach or interact with the customer of
Islamic banks in non Muslim countries so the other factor would not measure there
magnitude in contributing to growth is not known due to the above reason.
With the help of regression equation we can forecast the growth rate of Islamic
banking in non Muslim countries simply substituting the value of x variable which
represent the Muslim population in million. By putting the value of X (Muslims
population) we forecast the growth rate of IB in UK if other factors remained constant.
This growth rate may vary because of other factor which we are unable to locate.
T test
T test use for taking the decision that we accept the hypothesis or reject which
we generated .The t test shows that the value of t is greater than 1.96.The value of t in
case of UK is 2.53 which is greater than 1.96 so we accept the hypothesis that
preponderance Muslim population plays significant role in the rapid growth and
increasing market share of IB in non Muslims countries.
57
UNITED STATES OF AMERICA
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
58
(Table 5.6)
UNITED STATE OF AMERICA
YEAR MUSLIMS POPULATION
GROWTH (In Million)
ISLAMIC BANKING
GROWTH RATE (in %)
x y
2004 1.101 1.5
2005 1.502 1.9
2006 1.912 2.6
2007 2.125 4.3
2008 2.345 5.5
The result shows that there is a constant increase in Muslims population and
growth rate of IB in USA. In 2004 the Muslims population in USA was 1.101 million
while Islamic banking growth rate was 1.5 %. In 2005 the Muslims population in USA
was 1.502 million while Islamic banking growth rate was 1.9%. In 2006 the Muslims
population in USA was 1.912 million while Islamic banking growth rate was 2.6%. In
2007 the Muslims population in USA was 2.125 million while Islamic banking growth
rate was 4.3%. In the next year 2008 the Muslims population in USA was 2.345
million while Islamic banking growth rate was 5.5%.there is gradual increase in
population as well as in Islamic banking growth rate but this increase in growth rate of
IB in not only due to increase in Muslims population there are certain other factors
which we assumed constant.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
59
(Graph 5.3)
The graph shows the Muslims population in million in USA and Islamic
banking growth rate in percent.
SCATTER DIAGRAM
(Graph 5.4)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
60
(Table 5.7)
CORRELATION
Column 2 0.925898 1
Empirical and mathematical result has shown that there is positive relationship
of 92% between Muslim population and Islamic banking growth in USA if other
factor remained constant. Correlation shows a very strong relation ship but this
relation may vary because there are many factors which effects on the growth of IB in
non Muslims countries which we assumed constant.
(Table 5.8)
REGRESSION ANALYSIS SUMMAR Y OUTPUT
Regression statistics
Multiple R 0.. 925898266
R Square 0.85728 7598
Adjusted R Square 0.80971679 7
Standard Error 0.737447892
Observations 5
\
CORRELATION
Column 1
1
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
61
(Table 5.9)
ANOVA
df ss Ms F Significance F
Regression 1 9.80051182 9.80051182 18.02129
0.02394359
residual 3 1.63148817 0.54382939
Total 4 11.432
coefficients Standard error T stat
Intercept -2.486708693 1.370430208 -1.81454603
X variable
1
3.142297548 0.740208838 4.245149997
In order to find out relation we use regression analyzing technique in which y
is dependent variable which growth rate of IB in percentage while the other variable x
is the independent variable which shows the population growth in million.
By using regression we find the equation of Y on X
Y = a + b x
Where:
Y= dependent variable (growth rate of IB in percentage)
X= independent variable (Muslims population growth in million)
a=intercept
b=coefficient of x variable 1
We get by putting values in equation
Y= a + b x
Y= -2.49 + 3.14 (x)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
62
This is the regression equation between these two variable supposed that if
there is 1 (one) million increase in Muslims population and x represents the
population then
Y= -2.49 + 3.14 (x)
Y= -2.49 + 3.14 (1)
Y= -2.49 + 3.14
Y= 0.65
The results show that if there is 1 million increase in population that the growth
rate is increase by 0.65%. But population growth rate is not the single factor which
contribute in growth rate there are some other factors which also contribute an impact
on growth rate the other factor have proven to have profound impact on growth rate.
The actual impact on other factor could not be found because of limitation of
the sources and time. The researcher not able to reach or interact with the customer of
Islamic banking in non Muslim countries so the other factor would not measure there
magnitude in contributing to growth is not known due to the above reason.
With the help of regression equation we can forecast the growth rate of Islamic
banking in non Muslim countries. Simply substituting the value of x variable which
represent the Muslim population in million. By putting the value of X (Muslims
population) we forecast the growth rate of IB in USA if other factors remained
constant. This growth rate may vary because of other factor which we are unable to
locate.
T test
The t test shows that the value of t is greater than 1.96.The value of t in case of
USA is 4.24 which is greater than 1.96 so we accept the hypothesis that preponderance
Muslim population plays significant role in the rapid growth and increasing market
share of IB in non Muslims countries
JAPAN
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
64
(Table 5.10)
JAPAN
YEAR MUSLIMS POPULATION
GROWTH (In Million)
x
ISLAMIC BANKING
GROWTH RATE (in %)
y
2006 0.78 0.7
2007 0.98 1.6
2008 1.301 3.54
In Japan the Muslim community has been steadily increasing and is estimated
to have reached over 980,000 people in 2007. Despite this growth, there are very few
Japanese financial institutions that offer Sharia-compliant products and services.
In Japan there is no full flagged Islamic bank but the huge amount of
transaction made through Islamic windows and large investment is made by Kuwaiti
investors make the Islamic industry going forward.
The result shows that there is a constant increase in Muslims population and
growth rate of IB. In 2006 the Muslims population in Japan was 0.78 million while
Islamic banking growth rate was 0.7 %. In 2007 the Muslims population in Japan was
0.98 million while Islamic banking growth rate was 1.6%. In 2008 the Muslims
population in Japan 1.301 million, and Islamic banking growth rate was 3.54%.
There is gradual increase in population as well as in Islamic banking growth
rate but this increase in growth rate of IB in not only due to increase in Muslims
population there are certain other factors which we supposed constant.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
65
(Graph 5.5)
The graph shows the Muslims population in million in Japan and Islamic
banking growth rate in percent.
SCATTER DIAGRAM
(Graph 5.6)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
66
Empirical and mathematical result has shown that there is positive relationship
of 99% between Muslim population and Islamic banking growth in Japan if other
factor remained constant. Correlation shows a very strong relation ship but this
relation may vary because there are many factors which effects on the growth of IB in
non Muslims countries which we assumed constant.
(Table 5.12)
REGRESSION ANALYSIS SUMMARY OUTPUT
Regression statistics
Multiple R 0.997184
R Square 0.9943 76026
Adjusted R Square 0.988752052
Standard Error 0.15392913 1
Observations 3
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
67
(Table 5.13)
Total 4.213066667
coefficients Standard error T stat
Intercept -3.671884666 0.431787514 -8.503915809
X variable 1 5.506584122 0.41412229 13.29700007
In order to find out relation we use regression analyzing technique in which y
is dependent variable which growth rate of IB in percentage while the other variable x
is the independent variable which shows the population growth in million.
By using regression we find the equation of Y on X
Y = a + b x
Where:
Y= dependent variable (growth rate of IB in percentage)
X= independent variable (Muslims population growth in million)
a=intercept
b=coefficient of x variable 1
We get by putting values in equation
Y= a + b x
Y= -3.67 + 5.5 (x)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
68
This is the regression equation between these two variable supposed that if
there is 1 million increase in Muslims population and x represents the population then
Y= -3.67 + 5.5 (x)
Y= -3.67 + 5.5 (1)
Y= -3.67 + 5.5
Y= 1.83
The results show that if there is 1 (one) million increase in population that the
growth rate is increase by 1.83%. But population growth rate is not the single factor
which contribute in growth rate there are some other factors which also contribute an
impact on growth rate the other factor have proven to have profound impact on growth
rate. The may vary due to the impact of other factors which we are unable to find.
The actual impact on other factor could not be found because of limitation of
the sources and time. The researcher not able to reach or interact with the customer of
Islamic banking in non Muslim countries so the other factor would not measure there
magnitude in contributing to growth is not known due to the above reason.
With the help of regression equation we can forecast the growth rate of Islamic
banking in non Muslim countries. Simply substituting the value of x variable which
represent the Muslim population in million. By putting the value of X (Muslims
population) we forecast the growth rate of IB in Japan if other factors remained
constant. This growth rate may vary because of other factor which we are unable to
locate.
T test
The t test shows that the value of t is greater than 1.96.The value of t in case of
Japan is 13.29 which is greater than 1.96 so we accept the hypothesis that
preponderance Muslim population plays significant role in the rapid growth and
increasing market share of IB in non Muslims countries.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
69
Chapter 6
6.0 CONCLUSION
The prime interest of our study is to probe the growth rate of Islamic banking in
non Muslim countries. Before join to the area of interest the exploration of study was
made which demonstrate that when ever any Islamic bank intense interest to enter into
a non Muslim country it undertake a thorough research about the Muslim population
and see the potential growth chances of bank there. They analyze the population
statistics of Muslim community in the interested country.
The primary step for entering in any non Muslim country for an Islamic bank is
a thorough research about the Muslims population in that particular country and
analyzing the trend of population. They must studies the population statistics of
Muslims in the country of interest.
Our study aimed at finding the relation between population growth of Muslim
in non Muslim countries and growth rate of Islamic banking for our study we use two
statistical tools to find out the relation between two variables. First Muslim population
in non Muslim countries being the independent variable and second is the growth rate
of Islamic banking as the dependent variable with the help of correlation and
regression analysis. The correlation represents the relation between the two variables
while regression expresses the future prediction and IB growth trend with respect of
Muslims population.
The results have shown that in UK there is positive relationship of 89%
between Muslim population and Islamic banking growth if other factors remained
constant which might be effect on the growth rate of Islamic banking industry. And the
results of regression analysis show that if there are one million increases in Muslim
population of UK than the growth rate is increase by 0.83%.with the help of t test we
are able to predict the future growth rate of Islamic banking in that particular countries
if all others factor remain constant which might effect on growth rate of IB. But
population growth rate is not the single factor contribution
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
70
in growth rate there are some other factors which also contribute impact on growth rate
the other factor have proven to have profound impact on growth rate.
The results have shown that in USA there is positive relationship of 92%
between Muslim population and Islamic banking growth if other factor remained
constant. And the results of regression analysis show that if there are one million
increases in Muslim population of USA than the growth rate is increase by 0.65%. But
population growth rate is not the single factor contribution in growth rate there are
some other factors which also contribute impact on growth rate the other factor have
proven to have profound impact on growth rate.
At last the results have shown that in Japan there is positive relationship of
99% between Muslim population and Islamic banking growth if other factor remained
constant. And the results of regression analysis show that if there are one million
increases in Muslim population of Japan than the growth rate is increase by 1.83%.
But population growth rate is not the single factor contribution in growth rate there are
some other factors which also contribute impact on growth rate the other factor have
proven to have profound impact on growth rate.
The actual impact on other factor could not be found because of limitation of
the sources and time. The researcher not able to reach or interact with the customer of
Islamic banks in non Muslim countries so the other factor would not measure there
magnitude in contributing to growth is not known due to the above reason.
The result shows the positive relation between two variable Muslims
population and Islamic banking growth rate in non Muslims countries. With the help of
regression analysis we analyze the change in growth rate of IB due to change in
Muslims population but the results may vary because there are many strong factors
which have a profound impact on the growth rate of Islamic banking in non Muslims
countries and these factors contribute strongly in enhancing the growth rate of IB in
non Muslims countries. In our study all these factors which have substantial influence
in the growth rate of IB remains constant. The value of t stat is greater than 1.96 in all
cases. In England t stat value 2.53, in USA t stat value 4.24, and in Japan t stat value is
13.29.In all countries t value greater than 1.96 shows the acceptation of hypothesis.
With the help of t stat we accept the hypothesis that Rapid growth is being observed of
adopting IB in non Muslims
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
71
countries due to increasing Muslims population in these countries if all others factors
remain constant.
At the end we conclude that when any Islamic banks decide to maneuver in any
non Muslims country they must dissect the population statistics of that particular
country. If there is preponderance Muslims population in that country than Islamic
banks take decision to enter in that country. They also sieve through the different
trends of Muslims population in particular country that the population of Muslims is
increasing in that focused country day by day or declining due to any reason.
The results may vary because there are many impregnable factors which have a
profound impact on the growth rate of Islamic banking in non Muslims countries and
these factors conduce strongly in enhancing the growth rate of IB in non Muslims
countries. In our study all these factors which have substantive influence in the growth
rate of IB remains constant.
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
72
Chapter 7
7.0 GR A P H S
Muslims population growth in UK (in million)
MUSLIMS POPULATION
GROWTH (In Million) X
1.087 2.017 2.142 2.327 2.422
(Graph 7.1)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
73
Islamic banking growth rate in UK (in %)
(Graph 7.2)
ISLAMIC BANKING GROWTH RATE (in %)
y
1.8 2.9
4.2 5.5
7.8
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
74
Muslims population growth in USA (in
million)
MUSLIMS POPULATION
GROWTH (In Million) x
1.101 1.502 1.912 2.125 2.345
(Graph 7.3)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
75
Islamic banking growth rate in USA (in %)
(Graph 7.4)
ISLAMIC BANKING GROWTH RATE (in %)
y
1.5
1.9 2.6 4.3
5.5
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
76
Muslims population growth in Japan (in
million)
MUSLIMS POPULATION
GROWTH (In Million) x
0.78 0.98
1.301 (Graph 7.5)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
77
Islamic banking growth rate in Japan (in %)
ISLAMIC BANKING GROWTH RATE (in %)
y
1.6 3.54
(Graph 7.6)
IS LAM IC BAN K IN G IN NO N MU S L IM CO U N T R IE S
78
Chapter 8
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Recommended