Islamic terminologies meanings

An Empirical Approach Towards Islamic Banking The Future Of Islamic Banking In UK

Introduction

Islam is non merely a faith but it ‘s a complete codification of life. The basic ethical criterion and normative values of Islam are based on the holy book of Muslim ( Qur’an ) and the ideas of Prophet Mohammad ( PBUH ) . Islam leads in all facets of Muslim ‘s life, including the manner of finance and trade. One of the most critical perceptual experiences is Reba “interest” . Qur’an revealed more so five times about prohibition of involvement. The bottom line is that Muslims does non necessitate any cogent evidence of exclusion of involvement and no human can explicate and hold to acquiring them, because it is the mater of Iman ( religion ) ( Arif, 1988 ) The Islamic banking system tends to prevail the involvement and construct involvement free society. Islamic banking system demonstrates moralss and finance could come at one topographic point and better serve the society. Basically the theory behind this system is to eliminate the societal unfairness in the society.

Islamic banking system was fresh phenomena for fiscal institutes in early phase when Islamic banking was turning, but bit by bit over the last two decennaries Muslim Bankss spread up all over the universe ( Choudhury and Hussain, 2005 ) . There are about 300 Muslim Bankss and institutes with US $ 500 to 700 one million millions capital worth are in operation across the universe ( Arekat, 2006 ) . One study has been conducted by CIA ( Central Intelligence Agency ) in 2007, this study illustrate the sum estimated population of Muslims is about 1.61 one million millions. Islam is the fastest emerging faith of Europe every bit good as universe.

More or less 1.8 million Muslims life in United Kingdom and half million are frequent visitant of UK. 12 million Muslims live in EU, largely in France and Germany ( FSA ) .

There are so many high street Bankss functioning different Islamic merchandises in UK, i.e. current histories, salvaging histories, mortgage and so on. These merchandises are designed in the visible radiation of Shriah ( Islamic Law ) . These merchandises are extremely acceptable by Muslim ‘s of UK. ( FSA ) London has become hub of Islamic banking in Europe and many houses and fiscal institutes are puting in this sector. Hong Kong and Shanghai Banking Corporation ( HSBC ) , Lloyds TSB, Islamic Bank of Britain and Al-Barka Bank are already in the market. Barclays plc is traveling to get down operation really shortly. Though, Islamic banking is in the initial stages of its development, the chief purpose of Islamic banking system is to supply the clients a more effectual replacement to the conventional banking system in any facet.

The chief subject of this piece of work is to lucubrate the doctrine of Islamic banking system, the hereafter of Islamic banking in UK and to supply better replacement of conventional banking.

Purposes And aims

The chief subject of this piece of work is to lucubrate the doctrine of Islamic banking system, the hereafter of Islamic banking in UK and to supply better replacement of conventional banking. In support of this work, researcher set out following aims:

• To analyze Islamic banking background
• To understand the basic rules of Islamic banking
• To explicate some Islamic fiscal contracts
• To compare the major difference between Islamic and conventional banking
• To research the hereafter of Islamic banking in United land
• To give the decision and recommendation

Literature Review

The conceptual enlargement of Islamic banking was boost-up after mid 40 ‘s. Muslim intellectuals such as Qureshi ( 1946 ) , Ahmad ( 1952 ) , Uzair ( 1955 ) , Maududi ( 1961 ) , Siddiqui ( 1967 ) and Al-sadar ( 1974 ) played major function to the development of Islamic banking ( Khan and Bhatti, 2008 ) . The major discovery in late 70 ‘s, when Gulf states formulated petrodollars and provided strong impulse to the set up legion Muslim Bankss in Middle East ( Ghannadian and Goswami, 2004 ) . In last two decennaries, Islamic banking system has spread-up through around the universe ( Aggarwal and yousef, 2000 ) . Now this doctrine is intensifying non merely in Muslim states but non-Muslim states such as USA, UK, France, Germany and India so on. There are more so 300 100s Islamic fiscal institutes across the universe.They have more so 700 billion US $ deserving capital with an mean 15 % growing rate ( Arekat, 2006 ) . Muslim fiscal institutes are functioning ample merchandises based on hazard sharing and net income sharing harmonizing to rules of Islamic banking ( Khan and Bhatti, 2008 ) .

Islam means the human obeisance to the Godhead will, as a faith Islam denote higher values and moral rules such as justness, equality and brotherhood of human being. Islam arose a reform motions and fetched justness and equality in socio-economics, it abolish all such activities those brink on unfairness such as the prohibition of Riba ( involvement ) ( Inayat, 1993 ) . Prohibition of involvement is most of import belief of Islamic banking system. Islamic banking is the merger of Commercial and investing banking. All operations in Bankss must be well-matched with Muslim norms. The Bankss must non prosecute any dealing with involvement in any fortunes, concerns i.e. gaming, alcoholic drink trade, erotica, and trade of porc meat, are clearly banned by Islamic jurisprudence ( Shariah ) ( Tivla and Tuli, 2003 ) .

Islamic jurisprudence is called Shariah, this is an Arabic term which means “Way” or “Clear path” . It defines the Divine jurisprudence – The Law of God ( ALLAH ) . It is based on Qur’an and Sunnah. ( Al-Omer et.al, 1996 ) . The Sunnah enclose those words or Acts of the Apostless of the Prophet Mohammad ( PBUH ) and relates the exercising presume from them ( Nomani et.al. , 1994 ) .

Sariah boards are responsible for reappraisal and blessing of Islamic banking merchandises. They scrutinize any new operation that is leery sing the shriah position. The shariah board members include intellectuals who recognize in all over the universe as the universe ‘s prima experts in Islamic jurisprudence of fiscal minutess ( Aggarwal and Yousef, 2000 ) . Most of Islamic bookmans are agreed with some major Muslim fiscal contracts ( Tarek and Kabir, 2001 ) these contracts are as below:

Murabaha ( Deferred Sale Finance ) : Its one of the most popular manner which is by and large used by Muslim Bankss. In Mubaraha, the client make an understanding to purchase the peculiar good from the bank on vary payment footing. The bank purchases the merchandise from the provider and sells the merchandise to client with respect net income border. Then the client merely makes fixed payments in episodes or full payment as defined in the contract ( Khan and Bhatti, 2008 ) .

Mudarabha ( trust funding ) : It is one sort of partnership where investor provides capital for a venture capital and enterpriser manages the capital with ain expertness. The investor called “Rabb-ul-mal” , while the other spouse called “mudarib” . It is rather necessary for both parties to hold with at the beginning of undertaking. On the proportion of net income each party should be entitled. In instance of undertaking failed, investor receives no negative return and enterpriser gets no compensation for the attempts ( Loqman, 1999 ) .

Musharakah ( Partnership: funding ) : Musharakah means “partnership” , it is based on net income and loss sharing. Both spouses provide capital for the undertaking and both can pull off hazard and wages sharing in proportion. It is as similar to conventional interest equity with right control ( Loqman, 1999 ) .

Ijara ( Islamic leasing ) : Ijara is a signifier of leasing, which is rather similar to the traditional leasing. It involves a contract under the Islamic bank ( lease giver ) , where the bank purchase asset/equipment and so rent an point to client ( leaseholder ) for the peculiar clip of period. The continuance of rental every bit good as the footing for the rent must be predefined.

Takaful ( Islamic Insurance ) : Takaful is an Muslim insurance, it is based on common co-operation, duty and aid between spouses. The theories behind this construct provides compensation and sharing duty among the community ( Khan and Bhatti, 2008 )

After depicting the contract of Islamic banking, now researcher move on the major differences between conventional banking and Islamic banking.

There are some major differences between traditional banking and Islamic banking. The construction of Islamic banking is based on involvement free on the other manus conventional banking wholly relied on debitor and creditor relationship, involvement is the anchor of conventional banking. Conventional Bankss merely concern the “abolition of risk” while Islamic bank implement “bear the risk” policy ( Siddiqui, 1999 ) .

Harmonizing to Saeed ( 1996 ) Traditional Bankss connect in dealing with consumer they do non acquire the liability merely merely take the benefit from consumer in footings of involvement, where Muslim Bankss accept all the liability when they engage with consumer in any dealing.

Usmani ( 2000 ) nowadays, Islamic banking could non supply all fiscal solution, because they have to follow the regulation of sharia law ( Islamic jurisprudence ) they are confronting some challenges from traditional bank ‘s merchandises such as “used of recognition card” that ‘s the large quandary for Muslim community.

Some Islamic intellectuals have some reserves sing the cogency of recognition cards, such as Zineldin ( 1990 ) , Shariffa Carlo ( 1995 ) , Shaykh ( 2002 ) , Imran Usmani ( 2005 ) , Bakhshi ( 2006 ) are highly combat to cogency of recognition cards ( Ahmed, 2007 ) .

However, some Islamic bookmans strongly agree with the Hurmat ( prohibition ) of recognition cards such as Ma’sum-Billah ( 2004 )

Mohammad ( 2005 ) , Obedhullah ( 2005 ) believe Muslim community can utilize recognition cards, issued by Muslim Bankss.

There is one different sentiment came from Taqi Usmani, a celebrated Islamic bookman, allows the usage of recognition card, but following point must maintain in your head when you use recognition bounder:

• The best appropriate manner for utilizing recognition card is that the card holder must put direct debit in Bankss account.
• If there is no direct debit installation so card holder must pay right money before the due day of the month
• The one-year fee, which Bankss usually charge from the history holder is non involvement but it ‘s a sort of rent you can state any manner. ( Ahmed, 2007 ) ,

This above piece of work examined the basic Islamic banking constructs and characteristics and so explains the term, sharia law and the function of shariah board. Further briefly discuss the contracts of Islamic finance and comparing between traditional banking and Islamic banking. Finally, Credit card is controversial topic in Islamic universe. Researcher accent the cogency of recognition card in Islamic banking.

Research Methodology

The thesis will be completed on fact-finding research and both quantitative and qualitative research will be used in footings of the better understanding about the research subject. Research design is the anchor of the survey, such as research inquiries, program and choice of instance survey design ( Rowley, 2002 ) .

Data Collection And Resources

For the intent of this undertaking research, the study method will be adopted to roll up primary informations through the questionnaires and face to confront interviews from the bank directors, staff and clients.

Secondary informations will be collected from reliable articles, published diaries, books, thesis, newspapers, magazines and web sites. Collection of secondary informations is more expedient because it is already organized, that ‘s why its more convenient to used.

Decision

Islamic banking system is in lifting phase and confronting infinite challenges but the hereafter of Islamic banking is bright. This system has strong potency to confront all challenges. There is a demand to do good and long term schemes so they can accomplish ultimate ends and better advancement.

Work Programme

See affiliated

Mention:

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[ Accessed 18 April 2008 ]