Islamic Banking

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  • Topic: Bank, Sharia, Islamic banking
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  • Published : April 11, 2013
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What are the impacts of the global financial crisis on Islamic banking system and how Islamic bank spared from the crisis? Accounting
Master's thesis
Salad Addawe
2012
Department of Accounting
Aalto University
School of Economics
i
What are the impacts of the global financial crisis on
Islamic banking system and how Islamic bank
spared from the crisis?
Master’s Thesis
Salad Araye Addawe
Winter 2012
Accounting
Approved in the Department of Accounting __ / __20___ and awarded the grade _______________________________________________________
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SCHOOL OF ECONOMICS ABSTRACT 19.12.2012
Master’s thesis in Accounting
Salad Araye Addawe
Objective of the study
The objective of the study was to investigate what are the impacts of the global financial crisis on Islamic banking system and how Islamic bank spared from the current global financial crisis. To understand the issue some important sub questions were investigated such as the differences between Islamic and conventional banking model, modes of financing by the Islamic bank, differences in corporate governance and how Interest-free banking system works in general. Data and research method

For the theoretical part of the research, books, academic research papers and organization’s homepages were used as sources. The empirical part of the study is a qualitative and is based on open-ended questionnaire complemented with semi-structured interviews from two fully sharia compliant Islamic and two conventional bank’s Islamic window managers who make investment decisions in their banks. The study is qualitative and descriptive in nature and investigates how things are rather than suggesting how things should be. All 6 senior Islamic bank managers have been interviewed.

Results
The result indicates that Islamic banks are more resilient than conventional banks in the face of the global financial crisis. Because modes of financing and corporate governance of Islamic banking are different from those of conventional banking, this assisted the IBs to spare from the current global financial crisis. Factors that enabled the Islamic banks to shield form crisis were seen as asset backed financing; avoiding speculation and debt selling; avoiding invest in toxic assets and the use of profit and loss sharing mode of financing.

Keywords: Islamic Banking (IB), Conventional Banking (CB), Sharia Compliance, and Islamic Investments.
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TABLE OF CONTENTS
Objective of the study ...................................................................................................................... 1 Data and research method ............................................................................................................ 1 Results ................................................................................................................................................... 1 1. INTRODUCTION ............................................................................................................................. 5 1.1 Background and the motivation ....................................................................................... 5 1.2 Research questions and its limitations ........................................................................ 7 1.3 Research method and data ................................................................................................ 9 1.4 Definition of the concept ..................................................................................................... 9 1.5 Structure of the research...................................................................................................10 2. LITERATURE OVER-VIEW ON BANKING SYSTEM .........................................................11 2.1 Justification for the existence of banks .....................................................................11 2.2 Islamic banking...
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