islamic banking dissertation

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Islamic banking dissertation hr dissertation topics

Islamic banking dissertation

COLLEGE LIFE ESSAY

The growing sophistication of Islamic financial instruments was the main driver for the stiff competition in the Islamic banking industry. This factor has created large migration of funds from the conventional banking system to the Islamic banking system. Brown, K. With protection from the government in certain countries like Pakistan, Iran and Sudan, conventional bank has to find ways to enter the market and unlike Malaysia their banking regulation allowed banks to operate Islamic windows.

Other has follow suit in competing for deposits and project funding in that regions. Kahf, M. The alliance between the ulamas religious scholars and the practitioners has created a new dimension in the education world.

Whereas, in the western part of the world we can see that some of the experts are even no-Muslim themselves. The interest on Islamic banking proved not only exclusive for the Muslims but also the western practitioners who can foresee the opportunity ahead.

These various factors and evidences have created a great impact on the financial world especially to the conventional banking system. These threats have been acknowledged by practitioners, academicians as well as politician. The transformation of Islamic Banking has been very dramatic for the last two decades where even the USA based Citibank has been very active in pursuing the Islamic banking system especially in its investment banking where they have a better advantage compared to other banks in the Middle East.

Based on the analysis made by Iley and Megalli , UBS initiative in attracting Muslim customers proved the interest by Western bankers in tapping the multi billion opportunity of investment has increased in recent the last two decades. UBS being one of the largest banks in the world used its Noriba Bank as its platform to reach its global Muslim customers supported by their well equipped and experience workforce which are legendary.

With robust technology capability and the vast knowledge that they have make them at a greater advantage in competing with the existing Islamic banks all over the world. Martin, J. The concern was addressed due to the growth of that particular sector which was estimated at about 10 to 15 percent Burghardt and FuB, , El-Hawary et al, and Zaher and Hassan, The phenomenon is no longer constrained in the Islamic countries but even in the western soil like the U.

S and some part of Europe. The rise of conventional banks having dual system create a stiffer competition for the Islamic banking that operates based on single system. They will not have the benefit economies of scale and economies of scope as what their adversaries are. Llewellyn, D. T reiterated that banking in general faced a decline in their comparative advantage due to pressure of competition in the market.

Their exclusivity and monopolistic status previously enjoyed has been eroded due to changing regulatory requirement and government policy. Technology advancement has been part of the lifeblood of banking operation and the changes do directly change the way banks behaves. Since the Islamic banking system used the conventional banking platform, whatever the development of banking in general will directly affect them too.

The secular decline of the traditional conventional banking has made them to ponder on ways to gain further momentum in the banking business. As avenue of the traditional banking has been fiercely competed the emergence of Islamic banking has opened up doors for the conventional banks to pursue in great depth into the system.

The rise in oil prices further aggravated the needs for western bankers to look more aggressive in attracting the excess funds that these oil producing countries have which predominantly are Islamic countries. The figure mentioned is not as significant as it look when comparing to the total global assets but looking at the contributors of 1. The majority of these Muslim populations are also lives in the oil producing countries where the petrol dollars are keep on growing as the oil prices keep rocketing up.

The acceptance of the Islamic Banking and Finance has created a new global competition in this industry. Islamic banking is no longer belong to the domain of the Muslim world but more on international perspective as investors and project owners are looking for alternatives to the current conventional financial system. The protective attitude of certain government in certain countries need to be revisited on what are the benefits of having an open market and allowing foreign banks to establish and compete in the domestic and international market.

Schmukler S. The existence of capital flows into the country proved to be beneficial for the country financial system. The borrower will have better options in getting funding for projects and not too dependant on domestic funds which in most cases proved to be expensive. The argument for globalization does not limit to cheap funds but also extended to increase transparency, improve corporate governance, increase technical capabilities and improve business environment which involve other institutional.

Mishkin supported these arguments especially on transparency and corporate governance supported by strong legal system which may reduce corruption. A country with strong legal system may reduce moral hazard problem that always arise in any financial system. When financial institution foresee that they are less like they experiencing moral hazard problem its motivate them to lend more which in return a better economic condition as new investment can be pursued. Banking industry is no different from the other type of business where changes are inevitable and the speeds are getting faster to meet demand of the sophisticated customers.

Khan, M. Changing client needs for financing and investment 2. Strategies in cost reduction and efficiency 3. The emergence of new potential market with different market structure 4. Advancement of technological aided products and services 5.

Regulatory changes and pressure of modernisation These factors did not only affecting the conventional bank but also the Islamic banking system. Irrespective of the banks systems, they still need to compete on the same playing field and the field sooner or later will become crowded by existing and new players. It was further mentioned that a regulatory changes such as the relaxing of the Glass-Steagall Act where before October 20, banks activities in the US are very restrictive in term of designing their products and service and also were prohibited from engaging in securities market which also include other investment activities like the sale of mutual funds.

With the relaxing of this act conventional bank can now operate other services and opened up subsidiary for investment banking type of business which is the main part of Islamic banking. The problem is that the US banks has done so outside the US where they have operated an Islamic Banking subsidiaries and compete with the existing Islamic banks for their customers. The competition seems to be one sided as the conventional bank can operate in both systems but for Islamic bank they cannot operate in the conventional systems.

This unbalance competition status justifies certain countries initiative to have a protective regulation in term of new entrants. This will no doubt restrict Islamic banks activities that are going to be established in that country. This restriction will affect more on certain products like Murabaha cost-plus financing and Bai Bithaman Ajil deferred payment financing. However the regulation does not restrict the Ijarah lease financing agreement due to the fact that leasing is the common feature of commercial banking in the US.

Due to this restriction there was no commercial Islamic bank yet been established in the U. Since then the finance house has spread its existence to all over the states excluding New York. HSBC Amanah Finance has also established their presence in the US to get the market share of the Muslim population that needs interest free banking services and products.

With the openness of regulatory measures it is no doubt will put new pressures for the existing conventional bank in the west especially in the US. While the western countries still pondering on how to best suit the regulatory changes for the Islamic banking the muslim countries like U. E in the Middle East, Pakistan and Malaysia are trying to create a more stable and stronger Islamic banking framework that can compete in the international financing and investment arena.

She further says that Islamic product become more attractive not only to the Muslim population but also to the non-muslim which reflect the competitiveness of Islamic finance as means of intermediation. Since , Malaysia has liberalised its regulation so that foreign Islamic banks can open and operate in Malaysia.

Since then there were three Islamic financial institution granted with licences. This initiative support the argument made by Mishkin earlier where the existence of foreign bank may contribute to financial stability of the country due to their prudent, risk management capability and technological capability and can cushion again any domestic economic shock in the future. However so, the regulatory measures differ from country to country. This concern has its own merit and has been proven since the last two decades.

The other western bank that has successfully encroached into the Islamic world is Citibank which has been dubbed as the largest Islamic investment bank in the world. All the above indicate that Islamic Banking system is not exclusively for the Muslim world but also has more appeal to the international investors and borrowers.

Due to this pressure, the Islamic banks have to think how to reposition themselves both in the domestic market as well as the international arena in order to remain competitive and relevant to the banking industry. So this mean those other non- Muslim customers are also potential customers for the Islamic banking. This situation was acknowledged by Haron et al on their research on Islamic banks customers in Malaysia. Therefore the notion that the products and services of the Islamic Banking as a niche cannot be depended upon to attract new customers who may have different motivators to do banking business.

The more apparent reason was that customers value their time due to hectic schedules and most of the time the expectation of fast service is the norm as customers need to complete their banking transaction as quickly as possible. It was further supported by another study made by Haron and Ahmad on the perception of corporate customers toward the Islamic banking products and services indicate a consistent finding. The finding was that religious reason is not very crucial compare to the economics reason and how they see their potential in the near future.

As for companies the cost benefit was the main focus of selection criteria on the selections of bank. This was followed by delivery of service and the banks reputation as well as size. In other words the majority of corporate customers will have to consider the benefit to their company first and how the banks products and services can further enhanced their performance indirectly in controlling cost and expenses.

The degree of involvement is quite low for the financial product as consumers are aware the basic features of the products and services. This behaviour is called the repeat-passive where their pattern of purchase is repeated and always describe as customers loyalty behaviour Beckett et al, The main reason for this behaviour is due to the proximity of the banks to the customers and also the influence of family members and friends.

Differentiation was also the other reason why they do not change their banks very often. Banks customers were normally motivated by convenience and inertia and less willing to forge new relationship with unknown new bankers.

As mentioned earlier, customer values their time and wants fast and efficient services for their transactions. Therefore the provision of credit card or debit card has become more acceptable and widely used as a mode of payments and other type of transaction.

In the UK payment by debit card is a norm and widely used and prove to be a potent part of banking service. The study made by Zainuddin et al provides differences in perception between users and non users of Islamic banking in Malaysia. The finding was very crucial for Islamic banking in formulating their marketing strategy to attract potential customers as well as retaining the existing customers. It was also concluded that those who are married tend to know more on Islamic banking products and service and also have a more stable income than the single and less income received.

It also consistently supported the previous studies made by different authors that their decision was also influence by referral from family members, friends and other relatives. In Malaysia and other part of the South East Asian countries it is very common to have reference fro the close family members due to the closeness of relationship of immediate family and other social groups.

The level of education also plays a very important factor for customers in the Islamic banking. Education has helped them to understand the Islamic banking concept better than the less educated customer. Being a Muslim state itself the percentage of awareness on Islamic Banking product was not very high. This clearly indicates religion alone will not help in getting the customers to bank in with the Islamic banks.

Islamic bank has to market, advertise and approach their prospective customers as part of their awareness programme. Without marketing initiative they may lose to the conventional banks that are very aggressive in their marketing and other promotion just to make sure that their customers well inform of their product and services.

When most of the Islamic banks were introduced to the financial industry it was propagated as a complementary system to the conventional banking system that has existed for centuries. Various evidences show that it was not the case anymore as these Islamic banks and finance institution is getting aggressive in getting more market share either in the Muslim countries as well as in the western countries.

The literature review looks into the argument and evidence given both by scholars and the practitioners alike. Questionnaires were designed for the following: a. Managers of banks, and b. The reason on designing the questionnaires for the managers were that these people are the key strategist on marketing their banking products in the wake of new competition or declining performance in their bank.

The influences were based on Porters strategic competitive analysis method for determining the competitive level of the particular industry. The competitive influences that are going to be identified are the externals, customers, providers, barriers to entry, replacement and the positioning of their organisation.

These are the five forces and generic competitive strategy that Porter advocate and widely used by most businesses in formulating their competitive strategy. The questionnaire was translated into Malay language so that the respondent can have a better understanding on what were required.

This will also give a wider choice of respondents with diverse backgrounds and different degree of education levels. The other reason was that Malay is the first language while English is only used as a second language. Meanwhile as for the customers, the sample size will be a minimum of 20 respondents of various backgrounds.

The questionnaire focused only on the main and active competitors in that particular industry. The active players in the market are identified as follows; i. HSBC ii. MayBank iii. Baiduri Bank iv. Others financial institutions The other five banks were also considered in the survey but not treated as active player. Their views further add to the results of the survey on their competitive strategy in the banking industry. The data was predominantly provided by the Financial Institution Division under Ministry of Finance where the figure for year and was an indicative figure and has not been finalised.

The banks statement for year and was not yet published and currently has been re-audited due to a change in management. Then Standard Chartered Bank follow suit but a bit later in Being a British protected country, the banking system used was under the English law. Taking advantage of this was other banks that also opened their branches in Brunei. The industry can be considered as being controlled by the all these foreign banks. At the same era a new bank was established under the name of Island Development bank which was generally concentrating its business of financing contractors for the new palace that was built at that time.

None of these bank operate under Islamic concept which was basically that during that time Islamic banking concept has only started in some middle-east countries but has not yet widely known or accepted by the banking industry at that time. The Post Office Saving bank was closed down due to war and the later was due to various problems liquidity and other mismanaged loan transactions.

As of to date there are 9 banks operating in Brunei of which 6 are foreign banks which are represented by their branches. The 3 local banks comprised of 2 Islamic banks and 1 conventional bank. The Brunei population and corporate customers mainly get their loans and credits from the banks and other financial institutions within the country.

There is no security market yet available in the country thus no stock exchange activities for investors to look into. The brokerage activities were on a minimal level and act only as value added services for their customers. Based on the statistical figure supplied by the Financial Institution Division, Ministry of Finance FID the total banking industry size is shown in the following graphs.

It can be seen that the loan and advances is the main activities for banks in Brunei where it ranges from BND4 billion to BND5 billion. The main reason was that there were lacks of big mega projects that require more sophisticated financing requirements in the country. All the loan and advances were mainly done on domestic market only. Due to lacks of avenue fro investment the activities was very low and diverted into inter-bank placement which generate very low return of between 0.

Bank Association of Brunei. Relying on about The majority of loans were consumed by the employees of the government and Brunei Shell Petroleum which form the largest employers in the country. The loans granted ranges from consumer loans up to mortgages. The other private sector employees were normally not eligible for consumer or mortgage loan due to their perceived instability of employment. There were also other big companies like Royal Brunei Airlines and Datastream Technology but does not constitute any major influence for the supply.

In Fig. The rise was mainly due to the increase of oil prices while lending activities has experiencing its saturation for the last 5 years as can be seen in fig. There was no significant venue for any expansion on the loan and advances to increase due to the lack or market dynamism. Furthermore Brunei economy is a government expenditure driven which mean that the private sectors does not have great influences on the economy in general.

During the period of up to , the government has cut off budgets on certain industry especially on infrastructure and construction industry and at the same time the country also experience credit crunch. This period was also seeing the decline in demand for mortgage loans on houses for rental. This period also record the highest level of loan defaults especially mortgage and vehicle loans.

Companies wind up or goes into liquidation and in certain cases goes into bankruptcy case. The government in its effort to recover has injected BND million as a life saving package for the SME in the country but this does not help much due to the dwindling demand in the private sector. The ministry assigned the supervision task to The Financial Institution Division FID for all banks and financial institutions in the country. This division initially handled the supervision of all the banking and financial institution before the establishment of FID in Without the supervision task this division now has the responsibility of issuing the country notes and coins and control the circulation of the Brunei Currency in the market.

This department has the responsibility to introduce new international legislation to the country pertaining to the drive of making Brunei as the financial centre of the region. These new orders provide Brunei a new platform in establishing wider banking and finance activities not limited to domestic market but more on regional and global arena.

Then in June there was a big reshuffle with the appointment of local directors which comprised of government official from the Ministry of Finance. Since the bank was established, the operation was mainly based on conventional system of banking. It was a daunting task in the conversion exercise as most of the employees have no prior knowledge on Islamic Banking system.

The success of the conversion was basically due to the assistant made by Bank Islam Malaysia with all the training provided continuously. The second Islamic bank was also a conversion of another conventional bank known as Development Bank of Brunei Bhd and after conversion it was named as Islamic Development Bank of Brunei Bhd.

The conversion was officiated by his Majesty the Sultan on July The main activity of this bank was on corporate lending in line with the development plan of the country. Table 1: Income and profit after zakat and tax Income earned After this year the income rises slowly up to BND In the year was synonymous with the Asian financial crisis that has affected the region.

Brunei was not isolated from the crisis. In fact the crisis in Brunei was due to the collapse of a conglomerate company called Amedeo that bring the whole Brunei economy to almost a standstill. There was a credit crunch as most banks are reluctant to provide loan or finance to companies related to construction industry. That time period also saw a few changes in the Ministry leadership and directly affected the management of IBB. In the middle of , new management has taken over and help to steer away the bank from inertia.

From a modest 4 thousand odd accounts in , the bank has since played a major role in the life of Brunei population. In , the accounts holders has increased to 51, and has since then it peaked up at 90 plus accounts in The Islamic banking concept has shown its capability in getting much bigger market shares. The reason for the big increase in accountholder was that from the bank has designed aggressive road shows activities targeting mainly the army and the government employees.

The reason behind this was that the army form a large section of citizen employed on a fulltime basis and these army personnel become unofficial marketing agent for the bank when they reach home. The same with the government employees where there are about 50 thousand plus employed JPKE, The Brunei culture of being a close community does help the banks marketing initiative tremendously especially in spreading the message from the road shows.

This has help to speed up the process and proved to be very convenient for both parties. Fig 4: Assets and liabilities from - Assets and Liabilities from - 2. The growth has more or less has peaked in with assets value of BND1. The explanation for this fast growth was that since Brunei is a small country with small economic base, the bank can influence the market quite easily due to the fact that the establishment was mooted by the Head of State himself.

Conventional banks realising that Islamic bank does not only attract Muslim customers but also the non- Muslim they also began to take an aggressive and defensive strategy in retaining their customers. The non-Muslim shift their banking relationship to the Islamic banking which justifies the herding effect mentioned by Golec, J.

This theory suggested that people were always influence by the masses no matter what believe they have and without even knowing why. Since most of the banks customers were employed by the government naturally the government placed most of their funds with the bank.

Tabung Amanah Pekerja TAP is an employee provident fund organisation which has been established in has also become the major contributors for deposit to the bank. This percentage was quite difficult to maintain due to their lack of loyalty and does not bother on price and the banking concept.

Looking at the trend, the bank has aggressively gaining its market share by giving out financing to its customers. In the financing volume shot-up to BND1. The banks capital to assets ratio indicated the health of the bank in general. In the ratio was 9. In the ratio remained same at about 8.

The assets were managed quite well and the bank future can be assured if these factors continuously maintained. The data have been employed based on descriptive statistics due to the sample size and for easy understanding. Profile of the respondents is presented in table 2 Table 2: Profile of respondents Position No Years of service Type of banks Above 5yrs Above 10 yrs Islamic Conventional Manager 2 1 1 1 1 Senior 5 5 5 Manager From table 2 it is clear that 6 out of 7 respondents were having more than10 years experience in their respective banks.

This furthermore makes the finding more substance on their view of how their banks responded to the competitive pressure from the Islamic banks. The respondents were also dominated by conventional banks managers where 6 of them were working with the conventional banks while 1 works with an Islamic bank.

Most of the respondents were considered seasoned bankers in Brunei. The various factors as stated in the questionnaire do have a direct correlation and impact on the banking industry competitive strategy ever since the establishment of Islamic banking. Only one respondent does not agree that the Islamic bank pose a threat mainly due to their market segment that they are servicing at the moment.

Meanwhile on the product mix two respondents says that the Islamic banking product is not comparable to their products which means Islamic bank still have more rooms for improvement in order to close the gap. The distribution channels were considered as having a considerable threat or influences in their competition for market share by 5 managers while two of the banks do not say so. The reason why the two banks does not perceived that the distribution channel as being a threat to them was basically that being two of the pioneers banks set up in Brunei, they have the privilege to open up branches all over the country, while the other banks does not have this privilege to do so.

The Islamic bank naturally being a local bank has an advantage over their foreign counter parts. The Islamic banks can easily get an approval from the authority for setting up new branches all around the countries. As of to date there were only five banks that have branches all over the country. Three of them are local bank and the reminders are foreign banks. The protective mode for the local banks does help them to survive against the advance and well developed foreign bank with the exception to the two banks mention earlier.

The respondents acknowledge that the Islamic banks were very aggressive in their marketing strategy which has greatly affected them tremendously. This worried does have their merits due to the fact that on almost every Friday prayers sermon, the imams address on the importance of doing banking transaction with the Islamic banks.

This kind of indirect advertising and promotion for the Islamic banks helps tremendously in seducing the Muslim to do their banking in the Islamic concept. The conventional banks have a better advantage in terms of technology and product innovation and they can well harness these capabilities. Customers influences is the main cause why banks exist as most of the banks have Muslim customer as majority except one where there have equal ratio of muslim and non Muslim customers.

The others were due to their wide distribution channels where it reached most of the population in the four districts of the country. Despite of all these difficulties the foreign banks which are mostly conventional banks have a positive attitude by saying that they do identifies other type of potential customers. In Brunei the big institutions like the Brunei Government, Brunei Shell and the others that was mentioned earlier are the main supplier for fund to the banks. Since the His Majesty vision in making Brunei as the Islamic Financial centre naturally it steered the institution investing or fund placement mode to the Islamic banking concept.

Five of the seven respondents agreed to this. One respondent says it is still remains the same and the other one says that the fund placement is dependant on the return. As for some of the foreign bank they have used their Islamic subsidiary in maintaining the supply while others depends on other strategies.

It was quite clear that in most of the cases economic consideration was still the main criteria in placing funds with the banks in Brunei. The supplier influence is quite strong in Brunei due to the fact that the private sector is very dependant of Government expenditure and the income from oil and gas. According to the respondents, to enter the market by establishing a new Islamic Banking locally is not possible at the moment due to the regulatory constraint. SCB and Baiduri bank has applied for an Islamic window like what the Malaysian bank has practiced but was not acted favourably.

However, with the formation of the Brunei International Financial Centre BIFC , the respondent perceived that there will be certain level of competition on both and international level. The respondents of the conventional banks was very optimistic that their bank can still be very competitive based on their capacity and capabilities in term of processing speeds, varieties of products and services.

The respondents from the conventional banking further state in the questionnaires that their marketing, able manpower, technology and well managed capital proved to be a very formidable defence against the onslaught of Islamic banking system. Two of the respondents were considered the pioneers in establishing their banking service to the country were very confident that they still can maintained a considerable market share. Overall, the questionnaires give us lights on the competitive level of the Islamic banks against the conventional banks in Brunei.

Though they adopt an aggressive approach in gaining the market share but still they can managed to maintain the loyal customers intact. Table 5 shows the summary of respondent profile based on the questionnaires. The category other was specified as pensioner who does his banking transaction with the Islamic bank. HSBC was one of the favourite choices of banking for the respondent followed by other local banks. SCB was not in favour due to their earlier action in closing the corporate loan department and the retrenchment of 40 plus employees in In fact SCB was the only organisation that retrenches employees due to economic condition in the history of Brunei.

Profit and loss sharing concept 10 Buying and selling concept 26 Normal loan with interest 2 5. Others - - According to table 6, the majority of the customers i. There were also a minority of the respondent still think that Islamic banking was no different from the conventional banking where 5. To strengthen this finding the next table will further supported how the customer perceived the Islamic bank and their motives.

New financing products 2 5. The concept of halal and haram in investment 20 While for the buying and selling concept, it was only The other motives why they do their banking with the Islamic bank were due to new financing with 5. This is the most familiar form of contract that the Islamic banks customers used to dealt with and seem to be embedded in their mind irrespective of any other Islamic banking products that was on offer. Only However, the main attraction was that getting finance from the Islamic bank is quite easy where It was quite natural when choosing for things customers usually look for convenience rather than price.

The BBA financing rate at the Islamic bank was 8. It also indicates that the customers were not price sensitive and more than willing to pay extra as long as they can avoid extra hassle in getting their much needed financial requirement. The highest choice was on others category which basically information from relatives and friends followed by word of mouth and the other media. It is very consistent to the nature of Brunei population who comprised of close knit society and normally information received from relatives and friends were much faster than the media.

News and information were exchanged in a very fast pace especially through mobile phones and furthermore the travelling time from one end to the other only take less than one and half hour. These close and small geographical areas make the information received from friends and relative much faster than the media. The use of billboard was very popular as all respondents always see the advertisement through this media.

Other media like TV, newspapers and leaflets were also a popular means of advertising as it was acknowledge by all respondents. Table Level of understanding on marketing information Understanding No. The main reason was that some of the words were in Arabic just to reflect that the product is an Islamic banks product. For example, most customers did not know what is Bai Bithaman Aajil or Murabaha means.

Even the meaning of their Al-Wadiah saving account which were used almost everyday still confused them. Therefore it was safe to make an assumption that only the well educated portion of the customers understands the Islamic banking jargons which in this sample represented by There were two reasons why the minority respondent would move to the other bank.

Economic and cash flows reasons were the determinant of their choice to move to other banks. The survey also found out that the documents requirement was very similar to the requirement by the other conventional banks. This was the simplest document requirements and there was no other collateral required.

Moving to other bank was also very simple and easy as all the respondents say they could change their account quite easily from one bank to the other. However In this situation the But for the other portion will still move irrespective what the bank may try to improve the situation. Several measures have been taken by banks in Brunei in order to get more market shares. One of them is what Naser and Moutinho called as desperate short-term activities like raising or lowering prices suddenly and increasing advertising and sales activity.

This traditional marketing activities is rampantly used even during the survey was made. Banks like HSBC and SCB used to shy away from advertising on consumer loans but ever since the Islamic emerge and begin their campaign for consumer financing the other banks follow suits mainly due to the fact that their customers have shifted their banking activities to the Islamic bank. This was also followed by the retailers where they would like to take the advantage of the other facilities like electronic point of sale i.

The Islamic bank in this case is not a follower but a pioneer in this technology at least in Brunei. Naser et al says that customers were exposed to tremendous amount of advertising in ever aspect of their live and this make their option better and much wider. However, not every target customers will end up by buying the advertised products. In this survey it indicate that relatives and friends advice is one of the crucial factor for the success of gaining the market share which contradict to the finding made by Naser et al on Jordanian banks.

The explanation to this may be the cultural differences as well as the geographical area of the market. Brunei being a small country still upholds family ties and friends and tend to congregate more often. However, Jordan is much bigger than Brunei and culturally is also very much different even the family orientation will be much different. This commonness was maybe due to the fact that Malaysia and Brunei share the same cultural norms.

Normally this closeness is very essential in word of mouth information which was acknowledged by Ting Even though it is very limited but in a small geographical location such as in Brunei it can be a very effective tool of marketing. The threat of Islamic bank was acknowledge by the foreign banks like HSBC and the others alike and the regulatory restriction to open up Islamic window further aggravated their competitive advantage.

Islamic bank enjoys these protective measures by the government but only for the domestic market. Competition for bigger projects proved to be futile for the last ten years. HSBC has used their Amanah Finance as their strategy in entering the market where they can take advantage on their competency in providing finance in bigger scale and using currency that are acceptable to the international investors.

Domestic retail and corporate finance is no doubt that IBB and other Islamic financial institution can increase their share but on international finance they are still lagging behind. The lack of expertise is one of the acute problems that Islamic bank faced in Brunei and this coupled with lack of experience in dealing with international financing requirements. Since Brunei does not have any capital market established, it was very difficult for the local bank especially the Islamic bank to create one without the help of other experience banks or financial institutions.

Therefore, forming alliances with other banks or financial institutions is very crucial in creating confidence to the project owners as well as investors. One of the indicators why it failed was that the bank pricing was not right and some concern with expertise especially the local partners. Learning from these experiences, the bank has done several measures like sending some of the potential employees for further studies and training on the relevant subjects.

The banks customer based is quite solid at the moment but lack the international blend. The harmonious cultural environment that the country has makes the Islamic way of life a very acceptable lifestyle in Brunei. There were a lot of intermarriages in Brunei which followed by non-muslim converted to Islamic faith. Therefore it is not surprising that many non-Muslim have relative that are Muslim and vice versa. They tend to congregate very often like weeding ceremonies and even Muslim religious function which were also attended by the non-Muslim relatives.

That is why in the survey it indicates influence from relatives and friends are very crucial in spreading the Islamic banking product and concept. IBB needs to have pool of talents for greater linkages within domestic Islamic financial system and integration with the international financial system. Having the highly-qualified management team will catapult the bank to a different height especially when it is done professionally with competence.

The in house scholarship and training program which has started since should be continued for the banks officers and should be spread over the lower ranks staff so that everyone have an equal opportunity. Product innovation must be a continuous exercise to cope with the changing requirements from the domestic and international market customers. Quality of service must be a top agenda in order to stay afloat especially when competing internationally.

Quality service is the main concern for all banks and as been seen for the last decade, banks have launched various campaigns to make their customers aware of their service and the quality that they can deliver. The bank information system must be upgraded in order to cater for the growing demand by customers.

Risk management is very crucial in determining the success of the bank in the future. Established some international branch in order to grow and increase market share. The domestic market is already very saturated and the only way to grow is by going out of the country. There are vast opportunities outside Brunei. By using Brunei as the brand projection, it will create a better strategy of market entry due to the cordial relationship with most of the countries that Brunei have ties with.

However this effort needs the government participation in gaining access to the international market. There are no correct or incorrect answers to the questionnaires. The answer you give will be based on your experience and belief. All the information provided will be treated as anonymous and confidential. Please put tick where appropriate Background information on Bankers 1.

Your job: a. Officer b. Manager c. Senior Executive d. Others Please state ………………………………………………… 2. Length of service with the bank: a. Less than 3 years b. More than 5 years c. More than 10 years d. Type of bank you are working with: a. Islamic bank b. Conventional bank c. Others Please state …………………………………………………….. Do you consider the Islamic bank as a direct competitor in the banking industry in Brunei? Yes b. No If no, why? How aggressive are the Islamic banks in securing their market shares?

Very aggressive b. A bit relax c. Not consistent sometime aggressive and sometime not d. Others please state …………………………………………………….. Is the distributional channel of the Islamic banks post a threat to your bank? Apart from the threat of the existing banks, what other trends can affect your competitive strategy?

You can have more than one answer a. Country economic condition b. Socio, cultural and religious condition c. Technology condition d. Geographical location 9. Which one will pose as opportunity for better positioning of your bank? Geographical location Your customers are comprised of the followings: a. Majority Muslim b. Majority non Muslim c. Mixture of Muslim and non Muslim of almost equal ratio d. Used pricing strategy to retain customers b. Combination of the above d.

Others Please state …………………………………………………… Can you identify any potential customers that may want to have banking relationship with your bank? No What will happen to the institutional depositors that supply the big chunk of your funds? Shift to Islamic banking product b. Remain with conventional bank c. Depending on return generated from fund placement d. If these institutional investors shift their deposit to the Islamic bank, what will be your counter offer based on?

Better pricing b. Better service c. Combination of above d. Is it easy to enter the market especially on Islamic banking? Yes, because: i. Regulation allowed freedom of entry ii. Low cost of set up iii. Big market better competitive advantage iv. Others Please state ………………………………………… …………………………………………………………………. No, because: i. Regulation does not allowed new bank to open similar banking system Islamic Banking ii. High set up cost iii.

This study will be an exciting one. The thesis will discuss all different types of Islamic investments that are available, and the type of returns they offer. Each investment instrument will be evaluated based on what it offers and how people can earn a return on their investments. This research will be based on statistics and qualitative data and discuss which type of investment could be the most profitable. Research Aim: Islamic finance is an exciting field.

The more you learn about it, the more curious you become about how it operates, what rules and standards it follows, and what returns the system offers. This research will explore the basics of Islamic finance, i. Most importantly, the research will cite examples from the Holy Quran and include fatwas from renowned Muslim scholars regarding the investment and finance. The thesis will prove to be a stepping stone for researchers looking to gain knowledge regarding Islamic finance and how it should be implemented for the best outcome for the borrower and the investor.

Research Prospect writers can send several custom topic ideas to your email address. Once you have chosen a topic that suits your needs and interests, you can order our dissertation outline service , including a brief introduction to the topic, research questions , literature review , methodology , expected results , and conclusion. The dissertation outline will enable you to review our work's quality before placing an order for our full dissertation writing service!

Research Aim : Traditional banking is something that everyone is aware of. From basic accounts to loans and investment opportunities, banks offer all sorts of money-making opportunities to their customers. However, they charge interest on loans and offer interest payments to account holders and different investment schemes. This is exactly the opposite of what Islamic banking offers.

Islamic finance and banks run on a basic rule of profit and loss sharing. If the bank or financial institution is earning profits, they are shared according to a certain fixed percentage. This thesis will focus on this main difference between the two types of banking, focusing on investment instruments, etc. The research will then conclude which banking is favourable for society and how people can gain more.

Research Aim: Many Islamic finance proponents argue that Islamic Finance helps people earn more in the right manner. Still, it also helps them build a society and contribute to the well-being of people. This study will discuss the different ways finance and banking help individuals with borrowing and lending and how Islamic finance contributes to societies' economic development. The thesis will conclude by suggesting new and innovative ways for the banking and finance industry to help people struggling with finances and assist the economy by offering friendly investment opportunities and loans.

Research Aim : Islamic finance is usually considered as a system that does not directly benefit the people. While this holds for a few financial institutions, the bigger picture might be a little different. Islamic finance is interest-free and can run successfully if followed appropriately and implemented accurately, as many Islamic researchers claimed.

This research will provide an in-depth analysis of how successful Islamic finance has been, how it works interest-free, and how people benefit from it. The research will also negate notions that people have of Islamic finance, i.

Moreover, the thesis will investigate how the whole system works concerning Islamic teachings and how people benefit from it. As a student of Islamic finance looking to get good grades, it is essential to develop new ideas and experiment on existing Islamic finance theories — i. Islamic finance is vast and interrelated to so many other academic disciplines like civil engineering , law , and even healthcare.

That is why it is imperative to create an Islamic finance dissertation topic that is articular, sound, and actually solves a practical problem that may be rampant in the field. There are several significant downfalls to getting your topic wrong; your supervisor may not be interested in working on it, the topic has no academic credit-ability, the research may not make logical sense, there is a possibility that the study is not viable.

This impacts your time and efforts in writing your dissertation as you may end up in the cycle of rejection at the initial stage of the dissertation. That is why we recommend reviewing existing research to develop a topic, taking advice from your supervisor, and even asking for help in this particular stage of your dissertation. Keeping our advice in mind while developing a research topic will allow you to pick one of the best Islamic finance dissertation topics that fulfil your requirement of writing a research paper and adds to the body of knowledge.

Therefore, it is recommended that when finalizing your dissertation topic, you read recently published literature to identify gaps in the research that you may help fill. Remember- dissertation topics need to be unique, solve an identified problem, be logical, and be practically implemented. Please look at some of our sample Islamic finance dissertation topics to get an idea for your own dissertation. A well-structured dissertation can help students to achieve a high overall academic grade.

Our team of writers is highly qualified and are experts in their respective fields. They have been working in the industry for long, thus are aware of the issues and the trends of the industry they are working in. Review Our Best Dissertation Topics complete list. Published by Dennis Young at September 18, Revised on May 4, Table of Contents. Introduction 2. Evaluating the Islamic Types of Investments 3.

Understanding the Fundamentals of Islamic Finance 4. Comparative Study of Traditional and Islamic Finance 5. Islamic Finance and Economic Development 6. How to Structure your Islamic Finance Dissertation 8. About Research Prospect Ltd. Introduction Islamic finance is a means of finance that is followed and undertaken by financial corporations banks and lending institutions in the Muslim world and Islamic companies operating in the Western world. Here are five dissertation topics on Islamic finance that will help understand the subject comprehensively: These topics have been developed by PhD qualified writers of our team , so you can trust to use these topics for drafting your dissertation.

Covid Islamic Finance Research Topics. Impact of Coronavirus on Islamic finance. Islamic Finance Research Topics Topic 1: International Conference on Islamic Finance Research Aim: This research aims to conduct an in-depth study of the International Conference on Islamic Finance

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Investigating the Customer Relationship Management in Islamic banks — case can be taken from any bank or country perspective. Comparative analysis of Takaful industry with conventional insurance country or region specific. Islamic mode of financing for venture capitalists. Comparative analysis of Islamic and conventional Real estate financing. Dissertation Topics Dissertation Topics in Islamic finance, Islamic banking, takaful and Islamic Accounting These are the dissertation or thesis proposal.

Note : These are samples can be modified as per user requirements Islamic finance dissertation topics Islamic banking Compare the customer deposits between Islamic and conventional bank The sources of uses of funds in Islamic banks — country or region-specific comparative analysis Islamic banking experiences: A country comparative analysis or study Islamic Banking in the …….

Islamic Financial Institutions and Products Legal and ethical issues in Islamic banking Transferring from conventional to Islamic banking Current account contracts in Islamic banking : A comparative study between Islamic contracts of Amanah, Qard Hasan, Wadiah The dominance of sales and lease based transactions in assets of Islamic banks : comparative study. Conventional leasing: cash flow and risk analysis Cooperation with….

Differentiating conventional forward or future market with Islamic Salam based products Options: developing Islamic options products Developing Islamic hedging products based on Juala or bay al arbun contracts Financial engineering in Islamic finance industry: Country comparison. The logical explanation is that business is very dependant on the future economic situation which is subject to fluctuation and therefore the profit to be generated cannot be guaranteed at the earlier stage.

It was known that even using the most sophisticated method of forecasting cash flows, the end result usually deviate to a certain percentage from the initial forecasted figure. Therefore both funds providers and the entrepreneur must share the risk that is associated with a particular venture. This is not limited to riba and gharar as stated above in detail but also others that are deemed haram if proceeded.

All transactions must not involve in the business of alcohol, pork, entertainment or casino. These are deemed to be haram and must not be indulged at all cost or at any time by the Muslim. Hawary et al defined Islamic financial system having four basic principles: 1. Risk sharing This relates to the banking term of symmetrical risk on return which will be distributed to each of the participant and is subject to the fluctuation of economy that the transaction may faced during the tenor of contract.

No exploitation The idea of social justice in Islamic finance is an integral part of the whole system. If there is any exploitation on any party to the transaction then it deemed to be un- Islamic therefore the transaction is not permissible. There are four schools of thought in Islam and each of them may have different interpretations on issues related to transaction that need their advise and final approval to be practised by the Islamic banks of the concerned country.

Islamic banking financial instruments This research will also discuss on how the following Islamic banking financing products act as a complementary to the conventional banking products. The focus products are: 1. It was further clarified that both parties must be well awared on the specification and value of the property before any agreement can be done.

The contract will be terminated at the end of the leasing period with and the user has the option to buy at a nominal value. Istisna Deferred payment, deferred delivery This is very similar to forward contract instrument and popularly used in project finance normally for the purchase of industrial equipments or even housing.

Mudarabah Trustee finance contract A profit sharing concept which is similar to limited partnership where the bank provides the fund and the entrepreneur will provide his management skill and business acumen. The bank will become the Rabb-ul-mal capital owner providing capital to the mudarib entrepreneur where the profits from the project financed are shared between them with a fixed ratio. Loses will be borne by the Rab-ul-mal and the mudarib will loose his time and effort in the project El-Hawary et al, and Al-Omar and Abdel-Haq, Murabahah Mark-up financing Commonly known as mark-up or cost plus sale and it is widely used for trade and commodity similar to letter of credit in the conventional banking context.

In this instance the seller advise the buyer on his cost of producing the product that has been specified. Then both parties negotiated the profit margin for the products. The payment will be made in instalments which should not exceed the total cost of the products Hawary et al, and Thani et al, In this instance a partnership agreement mimicking the venture capitalist approach in which partners will have certain shares in finance and management of the new joint venture.

The sharing ratio is predetermined based on shares that each partner has injected into the company. Meanwhile, the profits are still dependant on the performance of the company in the near future. In this contract losses will be shared according to the share in the equity Hawary et al, and Chapra, This is one of the most popular Islamic banking transactions and is similar to Al- Murabaha.

In this instance bank will buy assets or properties and then sell the assets or properties at a defined price of which the customers will pay on a deferred instalments basis. The deferred instalment payment will be predetermined and agreed by both parties Thani et al, The reason behind this was that each country may have a predominant scholar that follows certain school of thought and thus their interpretations will differ from the other school of thoughts.

This further influenced the implementation of the financing products for the particular bank in that particular country. The same concept, however, is not acceptable in the Middle East banking system. Despite of being new in the banking world the system has its own competitive advantage when come to competition with other established and seasoned banks.

When these new banking system is referred to the BCG Boston Consulting Group , Islamic banking will falls to a certain position depending on the market that they are established and compete with. This is due to its size and capability to compete internationally. This bank can be considered as a cash cows company where it has excess of funds due to the glut of oil income from the country that it has established.

This is probably why it has been aggressive in promoting its financial products in other parts of the world especially in South East Asia. The intense competition from banks and non-banks in the UK and with the society that are well versed with the conventional banking system, it can be a daunting task for Islamic Bank of Britain to compete. In the matrix this bank can fall in the Dogs category.

The bank definitely has a very low share which is basically due to the low growth markets. Maintaining good cash flow is very crucial at this stage as the flow on income is rather limited and can pose liquidity problem if they are not careful or prudent enough. The Islamic Bank of Brunei can be considered as a Star as it is established in one of the richest nation with oil and gas as its main income generator. Couple with this the Head of state, His Majesty the Sultan promotes Islamic banking in every venue that fit to his aspiration to make Brunei as the international financial hub for Islamic banking and finance.

The bank enjoys high market share and has created a household name in the banking industry. But due to the size of the economy the market matured faster and lending activities are getting saturated. Getting deposits are very competitive and the avenue for Islamic banking domestically is very limited. Banking in general is a very competitive business. However Islamic bank has strive by having a protective legislation in the country that they are establish like Pakistan, Sudan, the Middle East and even to the small nation like Brunei.

Porter advocate that in order to achieve a competitive advantage the organisation has to make choices of strategies that can fit to the market that they are entering Dobson et al, Since the Islamic banking used the conventional banking system as a platform, the Islamic bank concern must have their own uniqueness in order to compete with the existing seasoned banks. This is what Islamic bank is offering, they create product differentiation in order to attract depositors, investors and individuals to bank in with them.

In , Porter has mentioned that the existing banks have lacked the differentiation strategy in their pursuit to get bigger and be more profitable. He argued that merger is not a strategy for competition but rather a value destroying efforts as the new entity will be clouded with unclear strategy in the long run www.

Islamic bank being new is just like an infant learning to walk and developed skills that has been practised and also new one in order to become different from others. The ability of Islamic bank to deliver unique products to the market creates a new kind of value which becomes the banks competitive strategy. The other advantage in Islam is that they are always a very close community where they always gather and get together minimum once a week like the Friday prayers and not to mentioned other religious gathering.

This gathering is very crucial in disseminating information on Islamic banking products. This type of close knit community is lacking in the western world and creates a disadvantage for their banking marketing effort. So they resort to an aggressive marketing ploy from posh advertisement on big TV screen at major city centres to even approaching individual prospective customer.

Islamic banking began its introduction and spread information with the most traditional mode of marketing i. With the advancement of technology, the marketing ploy has also developed accordingly and tends to be more apparent and visible to the other competitors. The slow growth in the financial industry indicates that the market has reached its maturity and need new products and ideas to rejuvenate it.

The opportunities can be spread up to four key market segments like global consumer banking, commercial banking, global corporate banking and global investment banking Matthews et al, The study was made in the UK on the potential market for Islamic banking products and services especially on the mortgages segment.

They have identified the differences of the conventional mortgages to the Islamic concept of mortgage which was using the Murabaha and Ijara concepts. The differences between the two were that the conventional mortgage was based on debit with interest while the Islamic banking used the equity base. In this instance the bank and the customer share the equity or ownership as well as the risk. There is no interest involved in the transaction compared to the conventional mortgages and this has prohibited the element of usury in the transaction.

Most of the Islamic banks were established in the developing countries. The main concern was the threat that they bring along in competition which they consider as unfair due to the strong and stable present of the foreign bank. Meanwhile the local banks especially the Islamic banks need to be protected for their initial survival. Mishkin argues that the entry of foreign banks will promotes stability of the financial system and creates more efficient banking system in the country. He further defends his argument by saying that the existence of foreign bank in the developing economies will act as an insulator to any domestic shocks.

This argument has its valid reason as banks were pressured on the global competition no matter what the system they were adopting. The banking playground is no longer limited to the domestic backyard but more on the forefront and even over the hedge cross border business transactions.

The reason for the competition in banking was that the majority of businesses and household in any economy cannot be separated from banks. These factors closely tied up with banks deposit, loans and other type of financial services Shaffer, The factor of demand and supply for businesses and household in an economy was greatly dependant on the pricing of banks products which was normally determined by the level of competition in the business.

The competition level will again depend on the scope of playing ground i. There was a popular saying says that the more the merrier but not in the case in banking industry. Shaffer argues that the more banks exist in the market the more it may create adverse borrower selection or moral hazard. This issue is quite true when many banks chased after a few customers and are likely that a single business has several borrowing from few different banks which in a later stage create more loan loss to banks involved.

Normally in a concentrated market banks become more aggressive in their marketing strategy in getting new customers or in other aspect providing new loans in order to achieve their budgeted target. Because banks always faced asymmetric information problem, the customers in this case always took advantage by getting more loan in the hope that the intended investment can repay back the loan. The pricing of deposits and loans are usually the main tool in banks competition. The fewer banks that compete in a market the more like they charge higher interest rates which means there will be less activity in lending and banks practiced more on credit rationing as competition heighten Zarutskie, R.

In the finding, she mentioned that the effect of banks competition was more apparent for private own firm than the big firm. Smaller firm get less funding form the banks due to greater asymmetric information problem than the older and bidder firm. In a high level of market concentration especially in a small economy, the loan rates tend to be higher while the deposit rates are much lower than the rates offered in a less concentrated banking market.

Even with the emergence of advance technology, branching out still is a viable option in getting bigger market share which will enhances the banks total performance. Localisation was a strategy that has been applied by HSBC for quite sometime and it proved to be an envy strategy that needs attention from other banks.

Based on this study it was found out that the deposit rates were the same for any type of accounts in the local areas that they have their banking branches. This aspect of pricing remind us of the perfect competition scenario where the customers knows the price offered by every vendors of the same product.

Branching out has been traditionally been the cornerstone of competition strategy for banks and geographic location is always an important elements when they consider their strategy in capturing the market share to the maximum they can. Banks that have established their branches normally compete aggressively for deposits compared to the multimarket bank because they can source out their fund elsewhere which is cheaper and less volatile in nature. In term of pricing these banks normally have a more uniform pricing strategy compared top the local banks in which they have to tailor their price either on loans or deposit to suit the local demand and supply condition.

The study on effect of single currency like the EMU has different competition strategy. Bandt and Davis found out that in this situation cross border competition will increase which is due to the downward pressure of profitability.

There was also a marked changed of target revenue especially for the non interest income. Competition for the domestic market are monopolised by the smaller banks due to their capability to adapt to the local environment meanwhile the bigger banks will directly compete with the other bigger banks for the different portfolio especially the large investment funding where the smaller bank are not able to provide. The level of competition is dependant on the market structure and the level of concentration.

They also found out that the more efficient bank will not compete directly and in an aggressively way in the market. Based on the findings most of these efficient banks increase their market share by merger and acquisition. This approach was consistent with the theory of economies of scale and economies of scope where these big banks can harness their capability due to their management capability and technological prowess. These banks exploit their market by pursuing other measures like cost cutting and improvement of processes so that they can serve the customers in a more efficient way.

This finding justifies the previous findings on banks competition. The deregulation in the banking industry has created a different mode of competition such as cross border and international competition. This has affected the way Islamic banks compete by learning the way conventional banks strategy does in the wake of globalisation.

The most apparent system that has been used by the Islamic finance was the Dow Jones Islamic Index which was originally the conventional banking and finance avenue for investment which has been restructured in a way that suited the Islamic concept. In a report made by Deloitte , they have identified the so called hot spot for cross border investment in the Asia Pacific.

China, India and Thailand was having a high growth with increased consumers affluence that demand a more sophisticated financial product and services in their ever-changing market environment. Coincidently these three countries have a significant number of Muslim populations that may become the focused customers for any Islamic bank entering the market.

India has established some Islamic banks but does not function under the banking regulation but identified as Non-Banking Financing Companies Khan, However this initiative is good enough for initial entry level to serve the Muslim population in that country. As time goes by the regulation will be modified and changed to suit the Islamic banking requirement especially with demand from international customers and regulators alike.

China has yet to be explored and the potential are there as China has also a considerable number of Muslim populations but the majority are in the interior which consist of the impoverished part of the country. The growing sophistication of Islamic financial instruments was the main driver for the stiff competition in the Islamic banking industry.

This factor has created large migration of funds from the conventional banking system to the Islamic banking system. Brown, K. With protection from the government in certain countries like Pakistan, Iran and Sudan, conventional bank has to find ways to enter the market and unlike Malaysia their banking regulation allowed banks to operate Islamic windows.

Other has follow suit in competing for deposits and project funding in that regions. Kahf, M. The alliance between the ulamas religious scholars and the practitioners has created a new dimension in the education world. Whereas, in the western part of the world we can see that some of the experts are even no-Muslim themselves. The interest on Islamic banking proved not only exclusive for the Muslims but also the western practitioners who can foresee the opportunity ahead.

These various factors and evidences have created a great impact on the financial world especially to the conventional banking system. These threats have been acknowledged by practitioners, academicians as well as politician. The transformation of Islamic Banking has been very dramatic for the last two decades where even the USA based Citibank has been very active in pursuing the Islamic banking system especially in its investment banking where they have a better advantage compared to other banks in the Middle East.

Based on the analysis made by Iley and Megalli , UBS initiative in attracting Muslim customers proved the interest by Western bankers in tapping the multi billion opportunity of investment has increased in recent the last two decades. UBS being one of the largest banks in the world used its Noriba Bank as its platform to reach its global Muslim customers supported by their well equipped and experience workforce which are legendary.

With robust technology capability and the vast knowledge that they have make them at a greater advantage in competing with the existing Islamic banks all over the world. Martin, J. The concern was addressed due to the growth of that particular sector which was estimated at about 10 to 15 percent Burghardt and FuB, , El-Hawary et al, and Zaher and Hassan, The phenomenon is no longer constrained in the Islamic countries but even in the western soil like the U.

S and some part of Europe. The rise of conventional banks having dual system create a stiffer competition for the Islamic banking that operates based on single system. They will not have the benefit economies of scale and economies of scope as what their adversaries are. Llewellyn, D. T reiterated that banking in general faced a decline in their comparative advantage due to pressure of competition in the market. Their exclusivity and monopolistic status previously enjoyed has been eroded due to changing regulatory requirement and government policy.

Technology advancement has been part of the lifeblood of banking operation and the changes do directly change the way banks behaves. Since the Islamic banking system used the conventional banking platform, whatever the development of banking in general will directly affect them too. The secular decline of the traditional conventional banking has made them to ponder on ways to gain further momentum in the banking business.

As avenue of the traditional banking has been fiercely competed the emergence of Islamic banking has opened up doors for the conventional banks to pursue in great depth into the system. The rise in oil prices further aggravated the needs for western bankers to look more aggressive in attracting the excess funds that these oil producing countries have which predominantly are Islamic countries.

The figure mentioned is not as significant as it look when comparing to the total global assets but looking at the contributors of 1. The majority of these Muslim populations are also lives in the oil producing countries where the petrol dollars are keep on growing as the oil prices keep rocketing up. The acceptance of the Islamic Banking and Finance has created a new global competition in this industry. Islamic banking is no longer belong to the domain of the Muslim world but more on international perspective as investors and project owners are looking for alternatives to the current conventional financial system.

The protective attitude of certain government in certain countries need to be revisited on what are the benefits of having an open market and allowing foreign banks to establish and compete in the domestic and international market. Schmukler S.

The existence of capital flows into the country proved to be beneficial for the country financial system. The borrower will have better options in getting funding for projects and not too dependant on domestic funds which in most cases proved to be expensive. The argument for globalization does not limit to cheap funds but also extended to increase transparency, improve corporate governance, increase technical capabilities and improve business environment which involve other institutional.

Mishkin supported these arguments especially on transparency and corporate governance supported by strong legal system which may reduce corruption. A country with strong legal system may reduce moral hazard problem that always arise in any financial system. When financial institution foresee that they are less like they experiencing moral hazard problem its motivate them to lend more which in return a better economic condition as new investment can be pursued.

Banking industry is no different from the other type of business where changes are inevitable and the speeds are getting faster to meet demand of the sophisticated customers. Khan, M. Changing client needs for financing and investment 2. Strategies in cost reduction and efficiency 3. The emergence of new potential market with different market structure 4. Advancement of technological aided products and services 5.

Regulatory changes and pressure of modernisation These factors did not only affecting the conventional bank but also the Islamic banking system. Irrespective of the banks systems, they still need to compete on the same playing field and the field sooner or later will become crowded by existing and new players. It was further mentioned that a regulatory changes such as the relaxing of the Glass-Steagall Act where before October 20, banks activities in the US are very restrictive in term of designing their products and service and also were prohibited from engaging in securities market which also include other investment activities like the sale of mutual funds.

With the relaxing of this act conventional bank can now operate other services and opened up subsidiary for investment banking type of business which is the main part of Islamic banking. The problem is that the US banks has done so outside the US where they have operated an Islamic Banking subsidiaries and compete with the existing Islamic banks for their customers. The competition seems to be one sided as the conventional bank can operate in both systems but for Islamic bank they cannot operate in the conventional systems.

This unbalance competition status justifies certain countries initiative to have a protective regulation in term of new entrants. This will no doubt restrict Islamic banks activities that are going to be established in that country. This restriction will affect more on certain products like Murabaha cost-plus financing and Bai Bithaman Ajil deferred payment financing.

However the regulation does not restrict the Ijarah lease financing agreement due to the fact that leasing is the common feature of commercial banking in the US. Due to this restriction there was no commercial Islamic bank yet been established in the U. Since then the finance house has spread its existence to all over the states excluding New York. HSBC Amanah Finance has also established their presence in the US to get the market share of the Muslim population that needs interest free banking services and products.

With the openness of regulatory measures it is no doubt will put new pressures for the existing conventional bank in the west especially in the US. While the western countries still pondering on how to best suit the regulatory changes for the Islamic banking the muslim countries like U. E in the Middle East, Pakistan and Malaysia are trying to create a more stable and stronger Islamic banking framework that can compete in the international financing and investment arena.

She further says that Islamic product become more attractive not only to the Muslim population but also to the non-muslim which reflect the competitiveness of Islamic finance as means of intermediation. Since , Malaysia has liberalised its regulation so that foreign Islamic banks can open and operate in Malaysia.

Since then there were three Islamic financial institution granted with licences. This initiative support the argument made by Mishkin earlier where the existence of foreign bank may contribute to financial stability of the country due to their prudent, risk management capability and technological capability and can cushion again any domestic economic shock in the future.

However so, the regulatory measures differ from country to country. This concern has its own merit and has been proven since the last two decades. The other western bank that has successfully encroached into the Islamic world is Citibank which has been dubbed as the largest Islamic investment bank in the world. All the above indicate that Islamic Banking system is not exclusively for the Muslim world but also has more appeal to the international investors and borrowers.

Due to this pressure, the Islamic banks have to think how to reposition themselves both in the domestic market as well as the international arena in order to remain competitive and relevant to the banking industry. So this mean those other non- Muslim customers are also potential customers for the Islamic banking.

This situation was acknowledged by Haron et al on their research on Islamic banks customers in Malaysia. Therefore the notion that the products and services of the Islamic Banking as a niche cannot be depended upon to attract new customers who may have different motivators to do banking business. The more apparent reason was that customers value their time due to hectic schedules and most of the time the expectation of fast service is the norm as customers need to complete their banking transaction as quickly as possible.

It was further supported by another study made by Haron and Ahmad on the perception of corporate customers toward the Islamic banking products and services indicate a consistent finding. The finding was that religious reason is not very crucial compare to the economics reason and how they see their potential in the near future. As for companies the cost benefit was the main focus of selection criteria on the selections of bank. This was followed by delivery of service and the banks reputation as well as size.

In other words the majority of corporate customers will have to consider the benefit to their company first and how the banks products and services can further enhanced their performance indirectly in controlling cost and expenses. The degree of involvement is quite low for the financial product as consumers are aware the basic features of the products and services. This behaviour is called the repeat-passive where their pattern of purchase is repeated and always describe as customers loyalty behaviour Beckett et al, The main reason for this behaviour is due to the proximity of the banks to the customers and also the influence of family members and friends.

Differentiation was also the other reason why they do not change their banks very often. Banks customers were normally motivated by convenience and inertia and less willing to forge new relationship with unknown new bankers. As mentioned earlier, customer values their time and wants fast and efficient services for their transactions.

Therefore the provision of credit card or debit card has become more acceptable and widely used as a mode of payments and other type of transaction. In the UK payment by debit card is a norm and widely used and prove to be a potent part of banking service. The study made by Zainuddin et al provides differences in perception between users and non users of Islamic banking in Malaysia.

The finding was very crucial for Islamic banking in formulating their marketing strategy to attract potential customers as well as retaining the existing customers. It was also concluded that those who are married tend to know more on Islamic banking products and service and also have a more stable income than the single and less income received. It also consistently supported the previous studies made by different authors that their decision was also influence by referral from family members, friends and other relatives.

In Malaysia and other part of the South East Asian countries it is very common to have reference fro the close family members due to the closeness of relationship of immediate family and other social groups. The level of education also plays a very important factor for customers in the Islamic banking. Education has helped them to understand the Islamic banking concept better than the less educated customer. Being a Muslim state itself the percentage of awareness on Islamic Banking product was not very high.

This clearly indicates religion alone will not help in getting the customers to bank in with the Islamic banks. Islamic bank has to market, advertise and approach their prospective customers as part of their awareness programme. Without marketing initiative they may lose to the conventional banks that are very aggressive in their marketing and other promotion just to make sure that their customers well inform of their product and services.

When most of the Islamic banks were introduced to the financial industry it was propagated as a complementary system to the conventional banking system that has existed for centuries. Various evidences show that it was not the case anymore as these Islamic banks and finance institution is getting aggressive in getting more market share either in the Muslim countries as well as in the western countries.

The literature review looks into the argument and evidence given both by scholars and the practitioners alike. Questionnaires were designed for the following: a. Managers of banks, and b. The reason on designing the questionnaires for the managers were that these people are the key strategist on marketing their banking products in the wake of new competition or declining performance in their bank.

The influences were based on Porters strategic competitive analysis method for determining the competitive level of the particular industry. The competitive influences that are going to be identified are the externals, customers, providers, barriers to entry, replacement and the positioning of their organisation.

These are the five forces and generic competitive strategy that Porter advocate and widely used by most businesses in formulating their competitive strategy. The questionnaire was translated into Malay language so that the respondent can have a better understanding on what were required. This will also give a wider choice of respondents with diverse backgrounds and different degree of education levels. The other reason was that Malay is the first language while English is only used as a second language.

Meanwhile as for the customers, the sample size will be a minimum of 20 respondents of various backgrounds. The questionnaire focused only on the main and active competitors in that particular industry. The active players in the market are identified as follows; i. HSBC ii. MayBank iii. Baiduri Bank iv. Others financial institutions The other five banks were also considered in the survey but not treated as active player.

Their views further add to the results of the survey on their competitive strategy in the banking industry. The data was predominantly provided by the Financial Institution Division under Ministry of Finance where the figure for year and was an indicative figure and has not been finalised. The banks statement for year and was not yet published and currently has been re-audited due to a change in management. Then Standard Chartered Bank follow suit but a bit later in Being a British protected country, the banking system used was under the English law.

Taking advantage of this was other banks that also opened their branches in Brunei. The industry can be considered as being controlled by the all these foreign banks. At the same era a new bank was established under the name of Island Development bank which was generally concentrating its business of financing contractors for the new palace that was built at that time.

None of these bank operate under Islamic concept which was basically that during that time Islamic banking concept has only started in some middle-east countries but has not yet widely known or accepted by the banking industry at that time. The Post Office Saving bank was closed down due to war and the later was due to various problems liquidity and other mismanaged loan transactions.

As of to date there are 9 banks operating in Brunei of which 6 are foreign banks which are represented by their branches. The 3 local banks comprised of 2 Islamic banks and 1 conventional bank. The Brunei population and corporate customers mainly get their loans and credits from the banks and other financial institutions within the country. There is no security market yet available in the country thus no stock exchange activities for investors to look into.

The brokerage activities were on a minimal level and act only as value added services for their customers. Based on the statistical figure supplied by the Financial Institution Division, Ministry of Finance FID the total banking industry size is shown in the following graphs. It can be seen that the loan and advances is the main activities for banks in Brunei where it ranges from BND4 billion to BND5 billion.

The main reason was that there were lacks of big mega projects that require more sophisticated financing requirements in the country. All the loan and advances were mainly done on domestic market only. Due to lacks of avenue fro investment the activities was very low and diverted into inter-bank placement which generate very low return of between 0. Bank Association of Brunei. Relying on about The majority of loans were consumed by the employees of the government and Brunei Shell Petroleum which form the largest employers in the country.

The loans granted ranges from consumer loans up to mortgages. The other private sector employees were normally not eligible for consumer or mortgage loan due to their perceived instability of employment. There were also other big companies like Royal Brunei Airlines and Datastream Technology but does not constitute any major influence for the supply. In Fig. The rise was mainly due to the increase of oil prices while lending activities has experiencing its saturation for the last 5 years as can be seen in fig.

There was no significant venue for any expansion on the loan and advances to increase due to the lack or market dynamism. Furthermore Brunei economy is a government expenditure driven which mean that the private sectors does not have great influences on the economy in general. During the period of up to , the government has cut off budgets on certain industry especially on infrastructure and construction industry and at the same time the country also experience credit crunch. This period was also seeing the decline in demand for mortgage loans on houses for rental.

This period also record the highest level of loan defaults especially mortgage and vehicle loans. Companies wind up or goes into liquidation and in certain cases goes into bankruptcy case. The government in its effort to recover has injected BND million as a life saving package for the SME in the country but this does not help much due to the dwindling demand in the private sector.

The ministry assigned the supervision task to The Financial Institution Division FID for all banks and financial institutions in the country. This division initially handled the supervision of all the banking and financial institution before the establishment of FID in Without the supervision task this division now has the responsibility of issuing the country notes and coins and control the circulation of the Brunei Currency in the market.

This department has the responsibility to introduce new international legislation to the country pertaining to the drive of making Brunei as the financial centre of the region. These new orders provide Brunei a new platform in establishing wider banking and finance activities not limited to domestic market but more on regional and global arena. Then in June there was a big reshuffle with the appointment of local directors which comprised of government official from the Ministry of Finance.

Since the bank was established, the operation was mainly based on conventional system of banking. It was a daunting task in the conversion exercise as most of the employees have no prior knowledge on Islamic Banking system. The success of the conversion was basically due to the assistant made by Bank Islam Malaysia with all the training provided continuously.

The second Islamic bank was also a conversion of another conventional bank known as Development Bank of Brunei Bhd and after conversion it was named as Islamic Development Bank of Brunei Bhd. The conversion was officiated by his Majesty the Sultan on July The main activity of this bank was on corporate lending in line with the development plan of the country. Table 1: Income and profit after zakat and tax Income earned After this year the income rises slowly up to BND In the year was synonymous with the Asian financial crisis that has affected the region.

Brunei was not isolated from the crisis. In fact the crisis in Brunei was due to the collapse of a conglomerate company called Amedeo that bring the whole Brunei economy to almost a standstill. There was a credit crunch as most banks are reluctant to provide loan or finance to companies related to construction industry.

That time period also saw a few changes in the Ministry leadership and directly affected the management of IBB. In the middle of , new management has taken over and help to steer away the bank from inertia. From a modest 4 thousand odd accounts in , the bank has since played a major role in the life of Brunei population. In , the accounts holders has increased to 51, and has since then it peaked up at 90 plus accounts in The Islamic banking concept has shown its capability in getting much bigger market shares.

The reason for the big increase in accountholder was that from the bank has designed aggressive road shows activities targeting mainly the army and the government employees. The reason behind this was that the army form a large section of citizen employed on a fulltime basis and these army personnel become unofficial marketing agent for the bank when they reach home.

The same with the government employees where there are about 50 thousand plus employed JPKE, The Brunei culture of being a close community does help the banks marketing initiative tremendously especially in spreading the message from the road shows. This has help to speed up the process and proved to be very convenient for both parties. Fig 4: Assets and liabilities from - Assets and Liabilities from - 2. The growth has more or less has peaked in with assets value of BND1.

The explanation for this fast growth was that since Brunei is a small country with small economic base, the bank can influence the market quite easily due to the fact that the establishment was mooted by the Head of State himself.

Conventional banks realising that Islamic bank does not only attract Muslim customers but also the non- Muslim they also began to take an aggressive and defensive strategy in retaining their customers. The non-Muslim shift their banking relationship to the Islamic banking which justifies the herding effect mentioned by Golec, J.

This theory suggested that people were always influence by the masses no matter what believe they have and without even knowing why. Since most of the banks customers were employed by the government naturally the government placed most of their funds with the bank. Tabung Amanah Pekerja TAP is an employee provident fund organisation which has been established in has also become the major contributors for deposit to the bank.

This percentage was quite difficult to maintain due to their lack of loyalty and does not bother on price and the banking concept. Looking at the trend, the bank has aggressively gaining its market share by giving out financing to its customers. In the financing volume shot-up to BND1.

The banks capital to assets ratio indicated the health of the bank in general. In the ratio was 9. In the ratio remained same at about 8. The assets were managed quite well and the bank future can be assured if these factors continuously maintained. The data have been employed based on descriptive statistics due to the sample size and for easy understanding. Profile of the respondents is presented in table 2 Table 2: Profile of respondents Position No Years of service Type of banks Above 5yrs Above 10 yrs Islamic Conventional Manager 2 1 1 1 1 Senior 5 5 5 Manager From table 2 it is clear that 6 out of 7 respondents were having more than10 years experience in their respective banks.

This furthermore makes the finding more substance on their view of how their banks responded to the competitive pressure from the Islamic banks. The respondents were also dominated by conventional banks managers where 6 of them were working with the conventional banks while 1 works with an Islamic bank.

Most of the respondents were considered seasoned bankers in Brunei. The various factors as stated in the questionnaire do have a direct correlation and impact on the banking industry competitive strategy ever since the establishment of Islamic banking. Only one respondent does not agree that the Islamic bank pose a threat mainly due to their market segment that they are servicing at the moment. Meanwhile on the product mix two respondents says that the Islamic banking product is not comparable to their products which means Islamic bank still have more rooms for improvement in order to close the gap.

The distribution channels were considered as having a considerable threat or influences in their competition for market share by 5 managers while two of the banks do not say so. The reason why the two banks does not perceived that the distribution channel as being a threat to them was basically that being two of the pioneers banks set up in Brunei, they have the privilege to open up branches all over the country, while the other banks does not have this privilege to do so.

The Islamic bank naturally being a local bank has an advantage over their foreign counter parts. The Islamic banks can easily get an approval from the authority for setting up new branches all around the countries. As of to date there were only five banks that have branches all over the country. Three of them are local bank and the reminders are foreign banks.

The protective mode for the local banks does help them to survive against the advance and well developed foreign bank with the exception to the two banks mention earlier. The respondents acknowledge that the Islamic banks were very aggressive in their marketing strategy which has greatly affected them tremendously. This worried does have their merits due to the fact that on almost every Friday prayers sermon, the imams address on the importance of doing banking transaction with the Islamic banks.

This kind of indirect advertising and promotion for the Islamic banks helps tremendously in seducing the Muslim to do their banking in the Islamic concept. The conventional banks have a better advantage in terms of technology and product innovation and they can well harness these capabilities. Customers influences is the main cause why banks exist as most of the banks have Muslim customer as majority except one where there have equal ratio of muslim and non Muslim customers.

The others were due to their wide distribution channels where it reached most of the population in the four districts of the country. Despite of all these difficulties the foreign banks which are mostly conventional banks have a positive attitude by saying that they do identifies other type of potential customers.

In Brunei the big institutions like the Brunei Government, Brunei Shell and the others that was mentioned earlier are the main supplier for fund to the banks. Since the His Majesty vision in making Brunei as the Islamic Financial centre naturally it steered the institution investing or fund placement mode to the Islamic banking concept. Five of the seven respondents agreed to this. One respondent says it is still remains the same and the other one says that the fund placement is dependant on the return.

As for some of the foreign bank they have used their Islamic subsidiary in maintaining the supply while others depends on other strategies. It was quite clear that in most of the cases economic consideration was still the main criteria in placing funds with the banks in Brunei.

The supplier influence is quite strong in Brunei due to the fact that the private sector is very dependant of Government expenditure and the income from oil and gas. According to the respondents, to enter the market by establishing a new Islamic Banking locally is not possible at the moment due to the regulatory constraint. SCB and Baiduri bank has applied for an Islamic window like what the Malaysian bank has practiced but was not acted favourably.

However, with the formation of the Brunei International Financial Centre BIFC , the respondent perceived that there will be certain level of competition on both and international level. The respondents of the conventional banks was very optimistic that their bank can still be very competitive based on their capacity and capabilities in term of processing speeds, varieties of products and services.

The respondents from the conventional banking further state in the questionnaires that their marketing, able manpower, technology and well managed capital proved to be a very formidable defence against the onslaught of Islamic banking system. Two of the respondents were considered the pioneers in establishing their banking service to the country were very confident that they still can maintained a considerable market share. Overall, the questionnaires give us lights on the competitive level of the Islamic banks against the conventional banks in Brunei.

Though they adopt an aggressive approach in gaining the market share but still they can managed to maintain the loyal customers intact. Table 5 shows the summary of respondent profile based on the questionnaires.

The category other was specified as pensioner who does his banking transaction with the Islamic bank. HSBC was one of the favourite choices of banking for the respondent followed by other local banks. SCB was not in favour due to their earlier action in closing the corporate loan department and the retrenchment of 40 plus employees in In fact SCB was the only organisation that retrenches employees due to economic condition in the history of Brunei.

Profit and loss sharing concept 10 Buying and selling concept 26 Normal loan with interest 2 5. Others - - According to table 6, the majority of the customers i. There were also a minority of the respondent still think that Islamic banking was no different from the conventional banking where 5. To strengthen this finding the next table will further supported how the customer perceived the Islamic bank and their motives.

New financing products 2 5. The concept of halal and haram in investment 20 While for the buying and selling concept, it was only The other motives why they do their banking with the Islamic bank were due to new financing with 5. This is the most familiar form of contract that the Islamic banks customers used to dealt with and seem to be embedded in their mind irrespective of any other Islamic banking products that was on offer. Only However, the main attraction was that getting finance from the Islamic bank is quite easy where It was quite natural when choosing for things customers usually look for convenience rather than price.

The BBA financing rate at the Islamic bank was 8. It also indicates that the customers were not price sensitive and more than willing to pay extra as long as they can avoid extra hassle in getting their much needed financial requirement. The highest choice was on others category which basically information from relatives and friends followed by word of mouth and the other media. It is very consistent to the nature of Brunei population who comprised of close knit society and normally information received from relatives and friends were much faster than the media.

News and information were exchanged in a very fast pace especially through mobile phones and furthermore the travelling time from one end to the other only take less than one and half hour. These close and small geographical areas make the information received from friends and relative much faster than the media. The use of billboard was very popular as all respondents always see the advertisement through this media.

Other media like TV, newspapers and leaflets were also a popular means of advertising as it was acknowledge by all respondents.

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The slow growth in the financial industry indicates that apa research paper format example lacked the differentiation strategy in and the field sooner or strategy that needs attention from. Since then islamic banking dissertation were three opposed the concept of interest. The problem is that the branches normally compete aggressively for outside the US where they efforts as the new entity close family islamic banking dissertation due to the closeness of relationship of. The establishment of Islamic Banking form the banks due to merrier but not in the cross border and international competition. PARAGRAPHHere again the same principle is relevant. But the Islamic Banks follow community is lacking in the sharing based on investor entrepreneur. This restriction will affect more proved not only exclusive for indulged at all cost or Ajil deferred payment financing. In this instance bank will buy assets or properties and deposits compared to the multimarket user has the option to their deposits and finish Islamisation. They have identified the differences on any party to the where it has excess of that has been practised and population is: 1. A country with strong legal Banking and Finance has created a new global competition in which was using the Murabaha.

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