Islamic Finance

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Chapter – 1

Introduction

Islamic Finance, The core objective of the dissertation is to analyze the progress of Islamic Finance after the global recession of 2007 – 2009 and compare it with the progress in Conventional Finance. The chapter starts with the background of the research and the motivation of the researcher behind this research. After that, the chapter aims to highlight the problem that will be solved by the research and states research aims, objectives and questions. The chapter also aims to highlight how the research is applicable to the current era and discusses the significance of the study. Lastly, the chapter summary is provided and next chapter has been introduced in the research.
Background of the Study
In the view of Crotty (2009), the financial services industry has changed tremendously since the global financial crisis as the financial sector was mainly held responsible for the crisis. The industry dynamics have completely changed and moved towards a conservative approach rather than aggressive approach as pursued earlier. The conventional financial instruments also got defamed to a certain extent as they were heavily used before the crisis. According to Hasan and Dridi (2010), the Islamic banking products are based on profit sharing and sale of goods to the clients so they are conservative as compared to the conventional banking products which solely rely on the interest rate. The lack in credibility of conventional banking products led to the increase in popularity of the Islamic Finance because people now cannot survive without financial sector.
In the view of Yılmaz (2009), the Islamic finance has progressed rapidly over last few years after the global financial crisis. The progress of Islamic finance is very much evident in the industry as the Islamic banks and Islamic funds have grown to certain extent after the crisis. Not only the Islamic banks and Islamic funds have grown but commercial banks and funds have also opened Islamic banking sections; almost all commercial banks have Islamic banking section at-least in Islamic countries which clearly highlights the rising importance of Islamic finance in the recent years.
Motivation of the Study
The research mainly aims to analyze the progress of Islamic finance over the last few years after the global financial recession. The motivation behind studying this topic is that the dynamic of financial services industry have changed significantly and importance of Islamic finance has increased significantly over the years. Firstly, this increasing importance of Islamic finance and introduction of Islamic banking department by commercial banks has attracted me towards the topic and motivated me to conduct study on this topic. Secondly, I am personally interested in this topic due to my interest toward gaining in-depth knowledge regarding the Islamic finance; this is one of the motivation behind the study.
Problem Statement
The dissertation revolved around the progress of Islamic finance after the sub – prime mortgage crisis of 2007. The problem statement to be solved by this research is:
“Has Islamic Finance gained more reputation and popularity as compared to Conventional Finance after the global financial crisis of 2007?”
Research Aims and Objectives
Every research aims to achieve certain objectives; the objectives to be achieved by this research are as follows:
• To understand various Islamic banking products.
• To explore the differences between Islamic banking and conventional banks.
• To analyze the impact of the global financial crisis on Islamic and conventional banks.
• To investigate if Islamic banking products are more popular than conventional banking products since the global financial crisis.
Research Questions
In every research, the researcher forms a few questions which will be answered by the findings of the research and help the researcher achieve the aims and objectives of the research. The research questions formed for this research are as follows:
• What are various Islamic Banking products and how they work?
• What are the differences between Islamic banking and Conventional banking?
• What is the impact of global financial crisis on Islamic and conventional banks?
• Are Islamic banking products more popular than conventional banking products since the global financial crisis?
Relation of the Research to Current Era
The research is very much related with the current era as it aims to determine the increase in popularity of the Islamic banking as compared to conventional banking. The research will provide the readers and target audience with the findings that what is going on in financial services industry world wide. As discussed earlier, global financial crisis has changed the dynamics of financial services industry as a whole and it has moved towards a conservative approach after the recession. It must be highlighted that the Islamic finance was not much successful before the crisis but the change in industry has boosted the Islamic finance market and it is widely argued whether Islamic banking has become more popular than Conventional banking and how is it different from the conventional banking. This highlights that the research is very much related to the financial sector in modern era.
Significance of the Study
The research has got great significance for the researcher, financial sector and other readers interested in expanding their knowledge regarding financial sector as well. Firstly, the research is important for the researcher himself as it will help me explore the concepts of Islamic banking and financial sector as a whole. The research is also important for the financial sector or people working in that particular sector because they will come to know about current trends in the industry and what should they do to be in the market. The research is also carries significance for other readers as they can enhance their knowledge about the financial market and Islamic banking in specific.
Chapter Summary and Introduction to the Next Chapter
The chapter introduced the research and discussed why research is important for different readers. The research aims and objectives have also been set in the chapter along with research questions which will help the researcher achieve the objectives of the research. The chapter two of the research will focus on the literature review of the research, in which the past literature associated with the research will be analyzed to access the findings of past researchers.
Chapter – 3: Methodology
The main objective of the research is to study the rise in popularity of Islamic finance as compared to Conventional finance after the global financial crisis of 2007. This chapter discusses the methodology of the research in detail; it highlights how the research will be carried out and results will be presented. Firstly, the chapter discusses the research design, research approach, research strategy and research philosophy of the research being performed. Then the chapter discusses the sampling, data collection and data analysis tools to be used by the researcher. Lastly, the ethical consideration and limitations of the research has also been discussed in detail.
Research Design
The researchers select appropriate research design for their research so that the aims and objectives of the research are achieved. The research design highlights the major aim of the research and implies how the research will be carried out. There are three types of research design commonly employed by the researchers for their research; those include the exploratory research, explanatory research and descriptive research (Creswell, 2013).
The research design used for this research is explanatory research because the research aims to explain the impact of global financial recession on the financial sector particularly Islamic finance. The research design selected is appropriate because the research design is aligned with the objectives of the research which aim to explain a relationship.
Research Strategy
The research strategy is important for the effective data collection plan and other stages necessary to reach at the findings of the research. There are different techniques employed by researchers to collect data and achieve the aims and objectives of the research; those tools and techniques include observations, surveys, interviews, experiments and textual analysis (Gratton and Jones, 2010). For the purpose of data collection for this research, survey technique will be employed for primary data collection. The survey questionnaire will be distributed to both professionals in financial sector and general public to get the point of view of both groups. Total 100 questionnaires will be distributed to collect the data; 50 will be filled out by the professionals and 50 by the general public. Secondary data will also be collected from online sources for the purpose of literature review and textual analysis.
Research Approach
According to Joy (2007), selection of appropriate research design is very important for any research as it helps the researcher design the activities of the research. Researchers commonly employ one of the two research approaches; the first research approach employed by researchers is deductive approach and second one is inductive approach. The deductive approach aims to reach at the results by testing a statement called hypothesis, whereas the inductive approach aims to reach at totally new findings without forming the hypothesis.
This research aims to analyze the increase in popularity of Islamic finance as compared to Conventional finance after the global financial crisis of 2007. As discussed earlier, the research is explanatory in nature which means that it aims to explain a relationship already established between the variables. Therefore, the research approach used will be deductive approach; the hypothesis will be formed to test the relationship and reach at the findings of the research.
Advantages and Disadvantages of the Deductive Approach
There are numerous advantages and disadvantages associated with the usage of deductive approach for a particular research. First advantage is that the deductive approach is always straight to the point and second advantage is that it is time saving approach to research. The disadvantages include the formality of the approach and limited scope of the research as it revolves around the hypothesis only (Morse, 1991).
Sampling, Data and Selection of Sample
The sampling is very important before the collection of data for the purpose of the research. Different sampling techniques mainly include the random sampling and non – random sampling. It has been found that the random sampling results in better results because it is often representative of the population (Cochran, 2007). The sampling selected for this research is simple random sampling which means that every constituent of the population has equal chance of selection to be in the sample; therefore, 100 respondents will be selected randomly from United Kingdom to collect the data. The population for this research is people working in financial sector specifically Islamic financing and the general population in United Kingdom as we are interested in finding out the view point of both groups. The data will be collected through the survey; questionnaire will be filled by the selected sample; the sample will be selected on the basis of convenience to the researcher.
Data Analysis Tools and Data Collection Tools
The data will be collected from both primary and secondary sources of data. The questionnaire will be used to collect the primary data and the online sources of data will be used to collect secondary data mainly for the literature review. Once the data has been collected, it is important to analyze the data to reach at the findings. Since the research employs a deductive approach so statistical tests must be applied to test the hypothesis statistically and conclude whether the Islamic banking is more popular after the global financial crisis or not. Different tools are used by researchers to apply the statistical tools to the data collected and test the hypothesis; the statistical software namely SPSS will be used for the data analysis for this research. Different statistical tools will be applied to reach at the conclusion and secondary data will be analyzed through the textual analysis. Both primary and secondary data analysis will be used for to reach at the required conclusion.
Ethical Consideration of the Study
It is important for every researcher to consider the ethical implications of the research regardless of the research design and philosophy employed. When the research is based on primary research, it is important to consider the rights of respondents and treat them ethically. There are three basic rights of the respondents which are known as the anonymity, autonomy and confidentiality. The anonymity right is breached when the data provided by respondents is disclosed with the research in form other than mentioned in the consent form. The autonomy is breached when the respondents are forced to answer in a particular way and cannot provide their independent view. The confidentiality is breached when the information is disclosed with the identity of the respondent and consent is not obtained from the respondents. It is important to protect these three rights of the respondents to keep the research within the bounds of ethics. Other important ethical consideration is associated with the plagiarism; it is important for the researcher to produce plagiarism free content. It must be noted that plagiarism is considered a crime as per the academic laws so it is important to avoid the plagiarism for every kind of research and credit the original author for using their concepts in the research. Thirdly, it is important to present the data and findings as they have been collected; the data must not be manipulated or misrepresented in any case. The findings must be based on the data originally collected..