Islamic Banks in Saudi Arabia & Basel II Applications

BY

ACKNOWLEDGEMENT

I would initially consider to convey my whole hearted appreciation to the person who had supervised me throughout this study. Next, I would also take this opportunity to give thanks to all those people, who had thouroughly supported me, throughout the passage of conducting this study, which include all my colleagues, friends, along with my family members. Conducting this study, would not have been possible without the kind of support all these individuals have provided me with.

DECLARATION

I [type your full first names & surname here], declare that his study and the entire material that has been presented in this study is an individual effort, without acquiring any kind of aid. Furhtermore, I also declare that its my personal effort and that this study has not been published before. Moreover, it contains elements of my own thought and opinion on this particular area of study and in no way, represents any sort of idea of my University.

Signature:

Dated:

ABSTRACT

The dissertation provides an overview of the Islamic Banking industry which has grown tremendously over the past couple of decades and the concepts behind the norms of Islamic Banking. Moreover, the paper provides a brief summary about the regulations and the practice of Islamic Banking and Finance in the Muslim World. Furthermore, the Paper also sheds light on the governance issues that are present in order to regulate Islamic Banks with respect to Basel II Capital Adequacy Accord, and how banks specifically in Saudi Arabia applies the standards and practices prescribed by Basel II Accord in order to tackle the problems of Capital Adequacy and Governance.

TABLE OF CONTENTS

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

CHAPTER 1: INTRODUCTION1

1.1 Background of the topic1

1.2 Statement of the Problem2

1.3 Overview of the Problem2

1.4 Purpose of the Study3

1.5 An investigation of the study3

1.6 Research Questions4

1.7 Scope and Limitations4

CHAPTER 2: LITERATURE REVIEW5

2.1 Overview of the Saudi Arabian Economy and Stock Market5

2.2 Overview of the Islamic Mutual Funds5

2.3 History of Islamic Mutual Funds6

2.4 Permission in Islamic Finance8

2.5 The Shariah Law Effect on Islamic Mutual Funds11

2.6 The Islamic Finance Industry13

2.7 Origins and Evolution17

2.8 Islamic Banking in Practice20

2.9 Global Governance Literature27

2.10 Concepts in Global Governance Theory30

2.11 International Soft Law and the Basel Accords32

2.12 Controversies of Global Governance Reflected in the Basel Process35

CHAPTER 3: METHODOLOGY36

3.1 Description of the Research Methodology36

3.2 Obstacles for Islamic Banks in Saudi Arabia in Adopting Basel II38

3.3 Financial Capital Adequacy for Islamic Banks40

3.4 Other Recommendations for Capital Adequacy Ratio Calculations42

CHAPTER 4: DISCUSSION AND ANALYSIS45

4.1 Description of the Analysis Method45

CHAPTER 5: CONCLUSION52

5.1 Overall summary of the dissertation52

5.2 The overall importance of the research54

REFERENCES55

CHAPTER 1: INTRODUCTION

1.1 Background of the topic

Islamic banking is a prohibition-based industry based on Shariah rules that prohibit transactions involving riba (a fixed rate of return), gharar (uncertainty or speculation) and sin sectors such as alcohol, pornography and gambling. The core prohibitions on interest are an outcome of the general belief that it is unjust to earn income without assuming risk (Chapra, 1992). So unless a depositor assumes some of the risk inherent in investing her funds she ...