Understanding the Objectives of Islamic Banking: a Survey of

Topics: Islamic banking, Bank, Sharia Pages: 27 (8038 words) Published: April 16, 2011
Paper to be published in International Journal of Islamic and Middle Eastern Finance and Management, Volume 1, Issue 2, 2008. (Published by Emerald Group Publishing)

Understanding the Objectives of Islamic Banking: A Survey of Stakeholders' Perspectives Author: Asyraf Wajdi Dusuki Department of Economics Kulliyyah of Economics and Management Sciences International Islamic University Malaysia P.O. Box, 50728 Kuala Lumpur Malaysia Tel: +00 603 6196 4664 Fax: +00 603 6196 4850 Email: asyraf.w@iiu.edu.my

Asyraf Wajdi Dusuki has a Phd in Islamic Banking and Finance from Loughborough University United Kingdom. He is currently an Assistant Professor in Kulliyyah of Economics and Management Sciences of International Islamic University Malaysia. He is also a Coordinator of IIUM Institute of Islamic Banking and Finance.


Understanding the Objectives of Islamic Banking: A Survey of Stakeholders' Perspectives Abstract: Purpose – The purpose of this paper is to survey the viewpoints of various stakeholder groups on the philosophy and objectives of Islamic banking particularly in a dual banking environment, like in the case of Malaysia. Design/methodology/approach – The paper presents primary data collected by selfadministered and postal questionnaires involving a sample of 1500 respondents representing seven stakeholder groups, namely customers, depositors, local communities, Islamic banking managers, employees, banking regulatory officers and Shariah advisors. An exploratory factor analysis is employed to examine the respondents' perceptions towards various objectives of Islamic banking. Findings – This study reveals that respondents highly regard Islamic banking as an institution that should uphold social objectives and promote Islamic values towards their staffs, clients and the general public. Other factors perceived to be important include contributing to social welfare of the community, promoting sustainable development projects and alleviating poverty. Practical Implications – The empirical evidence of this paper affects two aspects; first Islamic banks must not be solely profit-driven entity; rather they must aim at promoting Islamic norms and values to achieve the economic objectives as prescribed by Shariah (Islamic Law). Second, true success for Islamic banking participants depends on the extent they can integrate social goals with the mechanics of financial innovation. This research will be of interest to both incumbent and potential entrants into this niche market. Originality/value – The paper reports findings from the first nationwide survey of diverse stakeholder groups in the area of Islamic banking and finance. Keywords – Islamic banking, stakeholders, survey, questionnaires, Shariah, Malaysia. Paper type – Research Paper Introduction Islamic banking is an area that has mushroomed to become an increasingly substantial segment within the global financial market. It has been recognised as a viable and competitive form of financial intermediation not only in Muslim countries but also outside the Muslim world and offering a wide range of financial products and services. The industry that started on a modest scale since its inception in the mid-1970s has shown a rapid expansion and evolution over the past three decades. It is in fact one of the fastest growing industries, having posted double-digit annual growth rates for almost 30 years (Iqbal and Molyneux, 2005). According to information released by Council for Islamic Banks and Financial Institutions (CIBAFI), there are over 284 financial institutions operating in 38 countries and managing US$250 billion. This does not


include conventional banks offering Islamic financial products and services through window operations, which CIBAFI estimates to manage about US$200 billion. Furthermore, the above information does not cover non-banking Islamic financial services, takaful and re-takaful and capital market activities (CIBAFI, 2005).

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