ISLAMIC BANKING

Islamic Banking and Finance: on its way to Globalization

Table of Contents

1. INTRODUCTION3

1.1 Background3

1.2. Objectives:4

1.3. Principal questions5

1.4. Data to be used5

1.5. Software needs5

1.6. Principal techniques:5

1.7 Significance of the Study6

2. LITERATURE REVIEW8

Islamic Banking Concepts and Paradigm31

Corporate Governance in Banking43

3. METHODOLOGY48

4. ANALYSIS AND RESULTS50

4.1: Capital risk in banking50

4.2: Risk to mudarabah depositors53

4.3: Risk and reward under profit-loss sharing principle: rate ofROMD and ROE55

4.4: Profit distribution to the8. mudarabah depositors and shareholders58

5. CONCLUSION60

6. REFERENCES61

1. Introduction

1.1 Background

Islamic banking is one of the emerging fields in the global financial market, growing at a very fast pace all around the world. Banking and development is one of the emerging fields in the financial global market; the pace at which it is growing all over the world is indeed phenomenal. Saudi Arabia's economy has been a conservative one as can be seen from history, the banking sector has been a protected one by the government and its economy, however, development in this field has not passed it untouched despite that. With the induction of Saudi Arabia into WTO, its financial and banking sector has seen a tremendous boost in the past few years. Take the recent examples of introduction of financial portfolios that are consumer oriented as well as business oriented, development and introduction of new products/services, expansion of distribution channels, a lot of banks offering Islamic Banking options and the opening up of the banking and insurance sector to foreign investors.

With an increasing number of cultural minorities in the West, and the growing importance of emerging markets, banks need to pay more attention to cultural differences. Traditional banks that want to continue doing business with Muslims in the future should change radically, since certain common bank transactions are illegal for Muslims. Examples are speculative transactions or interest-based transactions. In the past, Muslims had no alternative for traditional banks. With the appearance of Islamic banks, Muslims now have that alternative.

This study will focus on the theory of Islamic banking, how it has been perceived, how it has developed and found its acceptance in Saudi Arabia. This research will also analyse the theoretical foundations of Islamic banking and its practice in Saudi Arabia, examine the similarities and differences between the structure and practices of Islamic banking and the existing standard banking offering by the banks present in Saudi Arabia. It will also identify the problems and challenges facing banking, both standard banking and Islamic banking in Saudi Arabia. Also how Islamic banking is helping to stabilise the present financial crisis in the world and how other countries are willing to accept and practice it.

 

1.2. Objectives:

The following are the objectives of this research:

To know the reason of the rise of the Islamic banking movement.

How is Islamic banking in practice and what are the implication.

Has the west accepted the Islamic banking system?

1.3. Principal questions

Below given are the main questions to be addressed:

How has Islamic banking helped the crisis?

Is the future secure for Islamic banking?

How Islamic Banking has making its way through Globalization?

Are the banks in Saudi Arabia and other Arab ...