Introduction
Financial institutions in Europe and North America have been keen on taking full advantage of the globalized market to spread their operations beyond the boundaries of their home market. Leading financial institutions such as the Barclays Bank, BNP Paribas, Berkshire Hathaway, JP Morgan Chase, and HSBC are currently operating in the global market. The study will be drawing upon accounting and finance as the functional areas of business. According to Wróblewski (2017), although globalization has brought people all over the world closer than ever before geographically, cultural practices and beliefs are still different. The beliefs and practices of Saudis are different from those of Britons. These cultural differences sometimes affect the financial sector. Shermon (2017) argues that culture produces knowledge that sets norms and values for institutions. Financial institutions cannot run without taking into consideration socio-cultural forces in society. For instance, most of the western societies have come to embrace equity among men and women in the workplace. In many cases, firms are always under pressure to ensure that their institutions reflect the new social order. Similarly, Muslims in Saudi Arabia or Oman have beliefs that prohibit the practice of borrowing money at interest (Otley, 2016). They also have to ensure that they follow their beliefs.
The researcher has studied Islamic finance, and this knowledge is critical in this study because it will help in explaining why some of the financial practices common in western countries cannot be embraced in the Middle East. The researcher’s background and motivation for the proposed research is Islamic banking. Many of its principles are different from those of conventional banking. These institutions have to operate by strictly following the Shariah. This research project is potentially important because it will enable local financial institutions to understand how the culture of the market they are targeting may affect how they do business. These organizations should not assume that principles and practices popular in the local market may also be popular in the international market.
Aim and Objectives
This study aims to analyze cultural influences on the management of financial services. The global market is increasingly shrinking due to emerging technologies and increased integration. Financial institutions are finding it relevant to explore new markets, some of which have a different socio-political environment. The information makes it easy for these global companies to develop effective plans before venturing into the global market. The following are specific objectives that the researcher seeks to achieve through this research:
- To determine the impact of culture on the management of financial services.
- To identify cultural differences that exist between Islamic finance and conventional finance.
- To identify ways in which multinational financial institutions can operate successfully in a culturally diversified global market.
The first objective seeks to determine how cultural practices of a given community affect the management of financial services. For instance, in Islamic finance, riba is prohibited because it goes against the teachings of the Quran. Culture may define how financial institutions offer their products to their customers and the principles they use to make their profit. The second objective focuses on identifying differences that exist between Islamic finance and conventional finance. According to Shermon (2017), Islamic finance is a clear depiction of how culture can influence the management of financial services. Its principles are deeply entrenched in Shariah law. Comparing and contrasting conventional finance and Islamic finance makes it easy to understand the impact of culture on the management of financial services. The third objective focuses on how multinational financial institutions can manage the cultural forces when they move to markets with different cultural factors. Companies such as HSBC and many other international banks flourished in the Middle East before Islamic finance gained popularity in the region. Given that the trend is changing in the market, it is necessary to find ways in which these global companies can adjust their operations. They should understand how to align their products and methods of delivery with forces in the market.
Identification and Initial Review of Key Literature
Managing financial services, as Farizal (2016) observes, may be a challenging task as there is a need to embrace cultural beliefs and practices in the process. In this section of the proposal, the focus will be to review the existing literature to help understand the influences of culture on the management of financial services. The researcher will use books, journal articles, and other reliable online sources to inform this study.
Understanding the Concept of Financial Management
Sameer and Nizami (2015) define financial management as the “efficient and effective management of funds in such a manner as to accomplish objectives of the organization.” (p. 420). In most of the cases, the available resources are always limited, and needs that require the use of funds may be unlimited. It is the responsibility of the top management unit to ensure that available resources are used in a manner that addresses the most important and most pressing needs first. In financial management, the focus is to achieve organizational goals while using limited resources. According to Farizal and Fahmi (2015), in such tight financial planning, the top managers must start with identifying and then classifying needs. They must be classified based on their importance and resources required to ensure that they are met (Brigham & Houston, 2016). The management will then analyze the existing resources and their ability to meet the set needs. Finally, resources will be allocated in a way that would yield the highest return to the firm. Merah (2015) argues that the management of financial services goes beyond the narrow approach of the allocation of resources. It also includes other activities in the financial management in other fields such as insurance, the banking sector, and in organizations where planning and management of financial resources are critical.
Influence of Culture on Financial Management
According to Sarea, and Hanefah (2013), cultural practices and beliefs have a direct impact on financial management practices. Some of these beliefs affect how financial institutions operate and offer their products. One of the common socio-cultural beliefs that define financial practices in conventional financial institutions is the age factor. The society believes that anyone who is below 18 years is too immature to make an independent and legally binding decision in the financial sector. The truth is that it is common to find a 16 or 17-year-old who can make a better financial decision than a 29-year-old man. However, because society ties decision-making capabilities to age, a 17-year-old person cannot qualify for a loan. It is a practice that has received acceptance all over the world whether one is dealing with conventional banks or Islamic financial institutions. In the top management positions where critical financial management decisions are needed, it is uncommon to find young adults aged below twenty-five years. It is not easy to find a chief financial officer who is 22 years old even if he has the required academic qualifications. This is so because of the belief that more experienced and mature individuals are more likely to make sound financial decisions than the younger ones.
In Islamic finance, Otley (2016) argues that several factors define various financial management practices and products that banking institutions can offer to their clients. The Islamic culture considers women as subordinates to men (Hartmann & Vachon, 2017). For a long time, they were not allowed to make critical independent decisions without the approval of men, especially in Saudi Arabia (Bratton & Gold, 2017). As such, they could not hold senior managerial positions in various institutions. Although the trend is changing, women in Saudi Arabia are yet to penetrate the corporate world because of these socio-cultural beliefs. Products offered in Islamic financial institutions are also in line with Shariah teachings.
Differences between Islamic Finance and Conventional Finance
Islamic finance emerged in 1975 when Dubai Islamic Bank created history by starting the very first bank in the city of Dubai (Otley, 2016). The founders of this institution realized that the country needed a strong financial sector to spur economic growth. The entire Middle East region was dominated by foreign financial institutions, especially from Europe and North America. The main concern of the founder was that conventional banks were not managed in line with the principles and teachings of the Quran. Conventional banks offered some products which were prohibited by the Quran, such as giving out loans at interest. As such, they needed to create institutions that would be run under strict Shariah principles. Since its foundation, the concept has become very popular, and Islamic finance has transformed tremendously, making it distinct from conventional banking.
Religious attachments
According to Baptista and Oliveira (2015), when comparing conventional banks with Islamic banks, it is necessary to focus on the religious attachment that distinguishes the management of the two institutions. Although conventional banks may have cultural factors that define their operations, they have no religious attachments. These institutions can serve any customer, and their operations are often based on laws and regulations set by governmental institutions. On the other hand, Islamic financial institutions are under the strict guidance of Shariah principles. The product and services offered and the method used in offering them must be in line with the teaching set in the Quran.
Since Dubai Islamic Bank opened its doors for the first time in 1975, many other Islamic financial institutions have emerged, all of which are keen on embracing Islamic principles in offering their products. One of the major concerns that Muslims had with conventional banks was the issue of queuing. The Quran stipulates that women are not expected to make physical contact with men who are not their spouses (Hong & Lee, 2014). However, it was not possible to avoid that bodily contact between men and women in long queues in banking halls. Islamic banks such as Samba Financial Group came up with banking halls specifically meant for women. The move was seen as a deliberate attempt to ensure that some of the religious principles of Muslims are respected. The move was largely accepted by many people in the Middle East and other parts of the world with a significant population of Muslims.
Source of earning
According to Holbeche (2017), it is important to appreciate the fact that both Islamic banks and commercial banks are business institutions that must earn profits to remain sustainable. They have to ensure that their earnings can sustain the cost of their operations. The source of earning for conventional financial institutions is different from that of Islamic banks. Commercial banks majorly rely on interest as their main source of income. However, that is not the case when it comes to Islamic banks. Quran prohibits lending money at interest. As such, these financial institutions rely on the sharing of profits whenever they lend money to their customers. The clients are expected to pay financial institutions the principal amount that is extended to them plus an agreed share of the profit earned. The approach helps in ensuring that these institutions remain profitable but in a way that is in line with Islamic law. Shermon (2017) explains that riba (interest on loans) was one of the most undesirable elements of conventional banking systems among Muslims. Before Islamic banks were founded, it was not possible to avoid this product because it was the backbone of the financial system. It was the product that enabled financial institutions to continue with their operations. Hanzlick (2015) observes that it took time for the founder of the first Islamic bank to come up with an alternative product that would be effective and widely accepted both to the financial institution and customers.
Managing inflation
According to Guirdham and Guirdham (2017), inflation is a common occurrence in any economy because of various socio-economic and political forces. When it occurs, financial institutions are always affected directly. When a commercial bank has issued loans to its customers, the interest rate may be adjusted depending on the inflation rate of the economy. Falconer (2014) notes that rarely will financial institutions reduce interest rates when there is deflation to reflect improving economic forces. However, whenever there is inflation, they are often quick to increase the interest rate to cushion them against the loss of the value of the currency as the prices of products go up. In most cases, the system favors these commercial banks. The approach is not allowed in Islamic finance. Islamic banks cannot adjust the expected profits basically because of the increase in the price of commodities in the local market. The profit will be shared as per the predetermined ratio irrespective of market forces. If the customer makes higher than the expected profit, the bank will get higher returns. If the profit is lower than expected, then the same will be reflected in the earnings of the bank.
Principles
The basic principles that guide operations of commercial banks are significantly different from that of Islamic financial institutions. According to Syed and Kramar (2017), commercial banks’ guiding principle is to make a profit by charging high interest to borrowers and extending a small amount of interest to savers. The policy ensures that banks benefit maximally from the savings of their customers and loans that they take. Little attention is paid to the well-being of customers. The guiding principle in Islamic finance is significantly different and is defined by Islamic culture and practices. The communist approach to managing customers is defined in the Quran. Islamic banks do not focus on benefiting from savings and borrowings done by their customers. They are interested in ensuring that they are successful. The product is designed to ensure that when borrowers are successful, their success will benefit banks and savers as well. Everyone gets to benefit. On the other hand, if they experience challenges in the market, their pain will be felt by all parties involved.
Research Approach
When planning to conduct research, Fowler (2013) advises that it is important to come up with effective design. The sources of data that a researcher intends to use, the method that will be applied in collecting the data, the analysis approach, and ethical considerations should be defined in clear terms. An effective research approach can enable a researcher to collect and analyze relevant data in a way that will inform the study. In this section of the research proposal, the focus is to discuss methods that will be used to collect the needed information.
Data Sources
According to Picardi and Masick (2013), it is important to define sources of data because it also helps in defining the validity and reliability of the study. The researcher will use both primary and secondary sources of data. Secondary sources of data will be obtained from books, journal articles, and reliable online sources. The information will be presented in a detailed literature review of the paper. Tracy (2013) argues that the primary goal of every researcher should always be to come up with new information in the selected field. Research should be able to identify the existing literature gaps and address them as a way of improving the knowledge in that specific field (Rovai, Baker, & Ponton, 2013). As such, conducting a comprehensive literature review will be a critical aspect of this study.
First, the information obtained from these secondary sources will provide a background for the study. It will help the researcher to identify what other scholars have found out so that duplication of already existing information is avoided. Secondly, the review of the literature will help in identifying existing literature gaps. That information can be obtained directly from recommendations for further studies made by previous scholars. It can also be determined by existing conflicts in the current literature. Bryman and Bell (2015) say that conflicting information is always a sign of limited information about a given issue in the research. Conducting further studies can improve knowledge and eliminate such conflicts. The second source of data that will be used in this study will come from primary sources. This chapter will provide a detailed analysis of the process that will be used in collecting and analyzing primary data from respondents.
Survey
The researcher intends to survey a significant number of organizations in the banking industry to explore the objectives and aims of this study. As Nestor and Schutt (2014) explain, culture has a significant impact on the management of financial services. The best way of determining this impact is to engage stakeholders in the industry to determine how their activities are influenced by cultural forces. The researcher intends to collect data from employees of various financial institutions in the city of London. Respondents will come from both conventional and Islamic financial institutions. HSBC and Barclays Bank will be conventional financial institutions from which data will be collected. Islamic Bank of Britain and Samba Financial Group will be Islamic institutions where data will be collected.
Data collection instrument
The researcher intends to use a questionnaire to collect primary data from respondents. A questionnaire helps in standardizing questions and the pattern of response. It makes it easy to code and analyze the data obtained from participants. The questionnaire will be divided into three sections. The first section of the questionnaire will capture the demographical factors of respondents. That includes the nationality of participants, age, and socio-cultural backgrounds. This section will help to capture any form of bias that may be present in responses given by participants because of socio-cultural beliefs.
The second section will focus on the experience and educational background of participants. Yanow and Schwartz-Shea (2014) explain that highly educated people in a given field are best placed to give an expert opinion on a given issue. The experience that one has also enhanced his knowledge of a given area of specialty. The third section of the questionnaire will focus on specific issues relating to cultural influences on the management of financial services. The questionnaire will be sent to respondents through their e-mails. They will be requested to fill questionnaires in their own free time and send them back using the same means. This approach of delivery was chosen because most of the targeted participants are busy individuals who may not find time to have a face-to-face interview, especially during their working hours. The time factor was considered when choosing this approach.
Sampling and sample size
It is critical to come up with a manageable number of participants. In academic studies, one must understand that the project must be completed within a set deadline. All activities must be carefully planned to ensure that they are completed within the duration set by the school. As such, the researcher will sample a section of the employees and managers of the identified institutions. A stratified sampling method will be used to select participants. This method of sampling will enable the researcher to select the required number of participants in each of the two categories identified. The study will have sixty employees in non-managerial positions and forty individuals in managerial positions within the identified institutions. In each of the two categories, the researcher will use simple random sampling to identify participants.
Mixed Methods
The study will use a mixed-method approach when analyzing data. It means that the researcher will use both qualitative and quantitative research methods. The mixed method of analysis was chosen because of the need to understand the magnitude of the impact of culture on the management of financial services and to explain its relevance in the financial sector. Using mathematical methods, the researcher will be able to determine how cultural forces have affected financial management practices in the selected institutions (Clinard, 2016). By using qualitative methods, it will be possible to explain why the impact has been felt in the manner in which it is in these firms. As such, the main advantage of this approach is that it will facilitate a comprehensive analysis of primary data. The main disadvantage of this method is that it is time-consuming. It will take a lot of time to analyze the collected data both qualitatively and quantitatively.
Case Study
The researcher will conduct a case study on Samba Financial Group as one of the firms whose operations have been significantly influenced by cultural forces. Samba Financial Group has established several female banking halls in the city of London and various cities across the Middle East and North Africa (MENA) region. It will be crucial to engage managers and employees of this institution to find out their motivation behind the approach and how it has affected their profitability in the market.
Ethical Consideration
When conducting research, it is important to take into consideration all the relevant ethical considerations. Saunders and Lewis (2017) emphasize the need to contact the top managers of an institution in which a researcher seeks to collect data before engaging employees. The researcher will write a formal letter that will be physically delivered to the branch managers of all institutions that will be participating in the study. It is only after getting their approval that the process of contacting the respondents will begin. Respondents will be informed about the voluntary nature of their participation in the research. They will also be assured of the commitment to protect their identity to avoid cases of victimization because of the possible contrasting opinion. As defined in academic rules and guiding principles, the researcher will avoid any form of plagiarism and academic malpractice. Any information that will be obtained from secondary sources will be referenced appropriately using the American Psychological Association (APA) method.
Research Plan
According to Yin (2009), planning is a critical component of a research project. Before starting academic research (or any other research for that matter), Fisher (2010) advises that one must come up with a clear plan on how various activities will be carried out. All activities must be identified and the time needed to complete them stated. It will help in avoiding time wastage and cases where activities are done consistently. Such an effective plan helps in smoothing the entire process of data collection and analysis (Bernard, 2013). The researcher has identified eight activities in this study and the sequence in which they will be conducted. The first activity will be the development of a research proposal. This process will be completed when this document is approved. The second stage is the approval of the proposal by the instructor. Once the proposal is approved, the next stage is the questionnaire development. The literature review is a continuous process that starts during the proposal development and lasts till the time the final report is completed. The next stage is the collection of primary data that will be followed by its analysis. The final report will be written, and editing was done to eliminate grammatical mistakes. Table 1 below is a summary of the activities that will be conducted and the set timeline.
Table 1: Project Activities.
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