The Future of Islamic Banking
Introduction
Islamic bank is successfully penetrating in the different parts of the world. The financial journals show that Islamic banking sector is growing with a double digit. British broadcasting sets a report in 2012, reporting that the growth rate of Islamic banking is 17 percent. It is an amazing achievement of Islamic banking because this period is a slim time in the corporate world. This figure is two times higher with the growth of conventional banking. There is a difference of philosophy between the conventional and Islamic banking. Most of the Muslims are living in developing countries. These countries are potential and have many untapped opportunities for the Islamic banking. There is brought future of Islamic banking in these countries (Ministry of Finance-London, 2008)
Islamic sector is also enjoying the religious and sentimental effect as well along with the business needs. People prefer Islamic banking system over the conventional banking system. Pakistan is emerging country in Islamic world economically in future. It has been observed in Pakistan that more than 90 percent banks opened their Islamic branches and windows in the country. Islamic banks have high acceptance in Muslim regions. There is a challenge for an Islamic bank in these countries as well. Many Muslim countries are suffering from political unrest and experiencing economic crunch.
The economy of Saudi مساعدة التعيين – خدمة كتابة المقالات من قبل كبار الكتاب العرب, Arabia is the healthiest economy in the Muslim country. They are facing economic slump since the oil prices have been decreased. Other business in the country also affected (Salim al dar maki, 2012). In the last decade, many conventional institutions have been shut down. It has been put a question mark on the conventional banking system. In the failure of conventional banking, Islamic banking is cannibalizing the share of the financial industry from conventional counterparts (Yea, 2015)
Islamic banking introduces many new products in the financial industry. These products are purely Islamic, which were not possible for the conventional banking. These products have high acceptance from the market. Madarbah, Masharqa, and Ajara among others are the examples of these products. A conventional banking sector has much dead capital in the market. Islamic banking sector is sharing business, capital, and management with the clients. There are many motivational and transparent operations in the Islamic banks. Islamic banking is successfully replacing the conventional banking in Muslim countries. Pakistan is one of the major examples. There is much gap in the market. The failure of conventional banking is also rationalizing the Islamic banking industry.
Islamic banking has seen a dramatic increase in a couple of banks have even registered their names as Islamic banks the examples are Abu Dhabi Islamic Bank, Dubai Islamic Bank, etc. The other banks operating in the market are also trying to introduce their Islamic side of transactions and operations. Abu Dhabi commercial bank is a prominent example of banks who have shifted their focus towards Islamic banking by introducing by Abu Dhabi Islamic banking a complete set of a package including Islamic modes of financing. Apart of this being Muslim country and having an inclination towards Islamic value the people avoid the element of interest that makes Islamic banking more Demand, preferred and valuable (AbudhabiIslamicbank.com, 2015).
I chose this topic because it affects our lives, and we should know what Islam says about finance and to let people know about the Islam finance and how to solve their problems. I also choose it because my major is finance I want to learn about Islamic finance, so I will have some knowledge about the Islamic finance that’s will helped me in my work and life. I took the information by reviewing others people work. I and I arranged my work by talking about Islamic banking globally and then to the Middle East and finally about our country, which is the UAE.
Literature Review
According to Kearney (2012), the future success of Islamic banking in the UAE was concerning due to the declining growth levels and the erosion of the profitability. The UAE Islamic banks should see to revise the strategic positioning as well as improving the nature of operational efficiency. After many years of increased growth among the Islamic banks, the UAE Islamic banks started to show a sign of maturity due to the slow growth rates. In addition, the lack of consistency in the Islamic bank operations would erode the profitability levels. In the last five years, the major Islamic banks in the UAE have seen reducing profit margins. To improve the growth of profits, the Islamic banks should develop sophisticated leveraging to promote the Islamic banking potentials.
From the discussion of Kearney (2012), the notable challenges that forms part of the decline of growth and erosion of the profits includes the stiff competition in the UAE markets and the lack of proper regulation and standardization of Sharia law in the UAE. Moreover, the small size of the Islamic banks, and weak cost structure within the Islamic banking environment are significant concerns. In addition, Schimth (2005) noted that the Islamic banking in the UAE has been enjoying significant rapid growth rate. The rapid growth in the Islamic banking showed the ability of the banks to work well with the customers and the investors to expand Islamic finance into the different nations in the Muslim world. For example, the structure of the Islamic banks in UAE was able to avoid speculation and foster trade and business investments. The expansion of Islamic finance was important in supporting the diversification of the market and the institutional structures.
Based on DCIBF (2014), the Islamic banks face concerns about the growth and stability in the banks relating to the growth of assets among the banks. The ability to sustain the growth of the banks is a major problem for the Islamic banking and finance. Under the prevailing global and domestic financial environment, the Islamic banks faced difficulties in growing its assets. The Islamic bank’s networks are usually useful in growing the total assets base. Within three years period, the dynamism of the Islamic banks is a clear indication of the continuous investments in commercial banking on a global level. The growth level of assets within the current Islamic banking systems is declining due to the various factors. The Islamic banks should seek to concentrate through mergers and acquisitions to promote the growth and expansion of the banks. Such actions and strategies are critical in expanding the growth of the Islamic banks as well as highlighting the key issues that undermine the long-term sustainability of the banks.
According to EYGM Limited (2015), World Islamic Banking Competitiveness Report 2016 recognizes that social attitudes and expectations of the customers would impact on the performance of the Islamic banks. Such expectations would lead to the development of trust and confidence within the capital markets and various economies around the globe. In the current retail banking, the consumer expectations are important in expanding its relationships with other digital sectors. The expectations of the consumers are to have easy access to electronic payment tools, customized alerts, and the ability to open an account through the internet as well as simple loyalty programs among others. Such the consumer attitudes and expectations towards the Islamic banking are important in integrating the lifestyle of the individuals while addressing the specific banking needs.
The survey by EYGM Limited (2015) discovered that there was a strong correlation between the customer experience on the digital services and the banks’ revenues. The correlation is significant in examining the significance of the banking relationship when the customer experience is improved. When the digital expectations are met, the consumers will increase their transactions such as increased savings, increased investment, and increased payments through the Islamic banking services. In the UAE, most Islamic Banks have failed to perform well due to the inability to achieve the needs and the expectations of the customers. Thus, it is important to promote innovations and transformation of the Islamic banks to meet the attitudes and expectations of the customers.
Analysis
Based on the literature review, it is clear that the future of Islamic banking has mixed results and expectations. However, the Islamic banking should seek to develop proper innovations and embrace technology. Embracing with technology will be useful in meeting the current needs of the customers in the banking sector in the UAE. The consumer attitudes and expectations towards the Islamic banking are important in integrating the lifestyle of the individuals while addressing the specific banking needs. Some of the problems identified in limitation of the future of Islamic banking including stiff competition and the challenge of addressing the technological needs and demands. The Islamic banks should develop sophisticated leveraging to promote the Islamic banking potentials.
The Current Development in UAE Banking System
In spite of all the challenges facing the UAE banking sector, the banking sector in the UAE has made significant progress in promoting innovation and improving growth in the commercial banks. However, from 2009, the UAE banking sector has suffered from a reduction in profitability figures due to the occurrence and negative impacts of the global economic crises. The occurrence of the global economic crisis adversely affected the profits of the banks. Also, the UAE banking sector has suffered adverse aspects due to the stagnation of advances and loans growth because of the increased funding costs to impact the profitability of the banks. It is clear that in spite of the innovation and technological advancement in UAE banking sector, the UAE banks have suffered adverse effects due to economic downturns globally. For example, there has been a negative trend in the prices and yields in the real estate industry that impacts on the UAE banking processes and systems.
The Future of Islamic Banking System in UAE
Going forward, the Islamic banking systems in the UAE will seek to make certain transformations and productivity. The development of innovation of products and services that align with technological advancement will be critical in continuing to develop proper boundaries to enhance investments. The innovation trends will help in offering innovative and advanced products and services to enhance value satisfactions. Another important trend is promoting the globalization of Islamic banking process to Islamic across the different countries in the countries. The future efforts seek to enhance the collaboration of the Islamic banks to foster innovation and understanding of the Sharia laws and principles. Therefore, the future of Islamic banking system in the UAE is based on the desire to integrate innovation efforts as well as the promoting globalization of the Islamic banking in the world.
Conclusion
In summary, the assessment of the future of the Islamic banking in the UAE is important in promoting the understanding of the key challenges facing the banks as well as a decline in profits. If the banks meet the digital expectations, the consumers will increase their transactions such as increased savings, increased investment, and increased payments through the Islamic banking services. Also, the growth level of assets within the current Islamic banking systems is declining due to the various factors. Thus, it is useful for the Islamic banks should seek to concentrate through mergers and acquisitions to enhance the expansion of the banks.
Recommendations & Limitations
Recommendations
Based on the findings obtained about the Islamic banking in the UAE, the recommendations include the need to develop relationships and cooperation with Islamic banks across the world. The cooperation and globalization of the Islamic banks globally will be critical in offering additional opportunities to promote the Islamic banking sector in the UAE and globally. It is also recommendable for the Islamic Banking sector in the UAE to develop strong innovation efforts and programs to drive the success of its financial products and services. Such efforts will be important in promoting the customer satisfaction a well as promoting the sustainability of the Islamic banking process. Promoting innovation is important in overcoming sustainability problems in the Islamic banking sector in the UAE. Such recommendations will be important in securing a positive and sustainable Islamic Banking sector in the UAE and across the world.
Limitations
The findings obtained are important in promoting the competitiveness of the Islamic banks in the UAE and other countries across the world. However, certain limitations impact on the recommendations and conclusions of the research study. The key limitation is the challenges of competitiveness of global banks in the Islamic banking world. There are exists relevant concerns about the influence of the competitiveness of global Islamic banks in the banking sector in the UAE. However, it is important to evaluate the scope of the research about the competitiveness challenges to promote growth in the Islamic banking system. Future research studies should seek to identify the specific factors associated with the competitiveness of the global banks that impacts on the performance and productivity of the Islamic banks in the UAE.
References
DCIBF Report. (n.d.). Islam. Retrieved from https://monkessays.com/write-my-essay/dcibf.ae/system/files/DCIBF_Report_English.pdf
EYGM Limited (2016). World Islamic banking Competitiveness Report 2016. Retrieved from https://monkessays.com/write-my-essay/ey.com/Publication/vwLUAssets/ey-world-islamic-banking-competitiveness-report-2016/$FILE/ey-world-islamic-banking-competitiveness-report-2016.pdf
Kearney, A. T. (2012). The future of Islamic banking. Retrieved from https://www.atkearney.com/documents/10192/654853/Future of Islamic Bankingpdf/27167edf-a96d-4465-b88a-83beb25ed4bd.
Memon, N. A. (2007). Islamic Banking: Present and Future Challenges. Retrieved from http://biztek.edu.pk/qec/jbs/3.1/1. Islamic Banking-Present and Future Cha
Schimth. S. (n.d.). Islamic Banking Experiencing Rapid Growth. Retrieved October, 2005, from https://monkessays.com/write-my-essay/trade.gov/mas/pdf/Islamic_Banking.pdf.
