Research Proposal
Focus
There have been concerns over the practices of Islamic financial institutions. It has been claimed that Islamic financial markets do not match with conventional financial markets. The practices of Islamic financial institutions remain a challenge to non-Muslim financial markets, as well as non-Muslim investors. This research is set to explore business cultures practiced by Muslim financial institutions. It will additionally compare Islamic and conventional financial markets.
Background to the Study
Islamic financial institutions are generally guided by Shariah Law, which prohibits charging of interest rates. It also prohibits Muslims from investing in derivates and other ‘impure markets’. If an individual is offered a loan by a bank, he or she may not pay an interest rate or fine incase he or she defaults paying installments or the principle amount within the agreed period. He or she will pay the contracted amount only. Recently, several financial products that comply with Shariah law have been designed to match the needs of Muslims.
Problem statement
Financial products provided by Islamic financial institutions continue to be a problem to the conventional financial markets. Laws regulating Islamic institutions do not put strict measures as regards to disclosing full financial information. This poses a challenge of hiding crucial information that would guide an investor in making prudent decisions. Islamic economy is more vulnerable to problems of illiquidity, considering that the market is very thin and underdeveloped.
Objectives
- Examine the effects of Shariah principles to the performance of Islamic institutions in non-Islamic world
- To compare the growth rate of Islamic and conventional financial institutions
- To establish the quality and effectiveness of Islamic financial products and services
Literature Review
The Islamic populace refers to interest rate as Riba. According to them, Riba is anything that is paid above the amount loaned to any individual or institution. The Shariah Law is strict with individuals or institutions tending to invest in businesses prohibited by the provisions Shariah (Clement, & Springborg, 2010).
Such individuals face the law by being imprisoned for a certain period according to the level of offence they committed. Generally, acts prohibited by Shariah principles are commonly recognized as Haraam (Abdurrahman, 2010). Both private and public institutions comply with these regulations in their entire financial practices (Mamarinta, 2002).
It is estimated that over 300 Islamic financial institutions across the world operate in accordance to Shariah Law (Sohrab, & Farhad, 2006). These institutions, which range from investment banks to commercial banks and insurance companies, are located in 51 nations.
Through various analysis and estimations, it has been concluded that Islamic financial institutions grow at an average rate of between 11% and 16% every year. However, these institutions indicate a low level of participation in the bond market commonly referred as Sukuk market by Muslim investors (Abu, & Faruq, 2010).
Sukuk market have not been vibrant for the last one decade given the strict law provided by the Shariah principles regarding the interest rates charged on such market securities. Due to high earnings obtained from bond markets at the global level, Islamic financial institutions began participating in Sukuk market, which requires the holder of Sukuk instruments to earn a certain portion of the benefit associated with Sukuk. This has seen Islamic debt market expand rapidly for the last five years.
Methods
The chapter attempts to cover various aspects including target population, research design and sampling method. Moreover, it will cover data collection techniques used, as well as data analysis.
Research Design
Research design refers to overall plan of conducting a study with an intention of answering research questions in order to achieve the objectives of research. This study will involve assessing effects of regulations and principles governing Islamic financial sectors. Effectiveness of Shariah Laws in both Islamic and non-Islamic regions will also be assessed. To achieve accurate results, this study will use descriptive analysis in order to provide adequate results as per the objectives set.
Population
The research will be carried out in Saudi Arabia, a county dominated by Muslim religion apart from having strong financial markets. The research will focus on Managing Directors, as well as Chief Financial Officers of several financial intermediaries, such as commercial banks, investment banks and insurance companies. Fifty financial institutions will be the target population. This will include twenty-five commercial banks, ten investment banks and fifteen insurance companies.
Sampling Technique
From the fifty-targeted population, a sample of ten commercial banks, five investment banks and five insurance companies will be chosen. Considering that from every institution one Managing Director and one Chief Finance Officer would be selected, this study will use stratified sampling to group the institutions into three main categories. This will ensure balanced representation of all institutions.
Data collection
The researcher will attempt to collect data by administering open-ended questions with a view of collecting a wide range of information. However, to ensure that the researcher does not lose focus, structured questionnaire will be necessary. Questions asked will include:
- Does your institution adhere to Shariah Law?
- What types of accounts do you operate?
- What other services and financial products do you offer?
- What is the market capitalization of the firm?
- What is the rate of return on equity for the last one year?
Data analysis
Answers given to each question will be assigned some percentage. The response to each question will be assessed and data will further be analyzed. The data will be analyzed using pie charts, bar graphs and line graphs.
Time Scale
- March – May 2012: review of literature
- June 2012: formal agreement with institutions on how to collect the data
- July 2012: compiling and reviewing of questionnaires
- August 2012: administering questionnaires
- September 2012: analysis of collected data
- October 2012: writing final project report
Scope
The researcher will only cover Saudi Arabia and will only be limited to fifty institutions after which he or she will end up choosing 20 institutions. Questionnaires will be administered to twenty institutions.
Expectations and implications
This research will be pertinent in resolving ongoing conflicts between Muslim markets and the conventional markets. It will especially assist conventional institutions to understand how investment in Islamic financial markets would greatly help in improving their financial performances. Islamic institutions will as well be accepted in conventional markets, without facing unfair competition
The Islamic Financial institutions and Markets
Introduction
Several financial institutions including commercial banks, investment banks, insurance companies, lending institutions among others, characterize Islamic world.
Although Islamic financial institutions had earlier provided similar products and services as those offered by conventional banks in western countries and other regions, currently, Islamic banks and other monetary institutions are providing differentiated products. Nevertheless, it is confirmed from a variety of sources that Islamic monetary institutions, including investment banks and commercial banks, are operating in a good number of non-Islamic countries including the United States.
For instance, a University Bank, which is located in Michigan, is alleged to operate its activities in accordance to the Shariah Law. Currently, about US$900 billion of assets is under the control of Islamic economies. US $900 billion is estimated at 0.5% of the world’s total assets. This percentage is a clear indication that Islamic laws and regulations guide about 320 financial institutions around the world.
According to the opinions of various scholars, it is estimated that Islamic financial institutions will grow at a rate of 14% per year in future. Moreover, the performance will tend to either persist at that level or surpass it in future. Such growth rate signifies that Islamic financial institutions are perhaps the fastest growing institutions in relation to other monetary institutions in other non-Islamic regions.
According to various advisors and financial market experts, conservative Islamic financial institutions will serve as a healing factor amongst the ailing financial markets elsewhere in the world. To some degree, this belief appears to be true given the fact that financial crises have often occurred in the US and European financial markets. For a long time, Arab countries have remained stable, although they have experienced some consequences resulting from the global financial crisis.
Middle East and Shariah Law
The Islamic community portrays several characteristics in its financial institutions as compared to its counterparts in the western countries and other regions. Islamic law, commonly known as Shariah Law, guides all financial institutions in Islamic economies.
The majority of Islamic financial institutions have been discovered to comply with principles and regulations stipulated by the Shariah Law. The most distinguishing factor in this law is its strong stance with regard to paying interest rates. The interest rates are either fixed or floating.
A floating exchange rate is one that changes in response to changes in a number of factors such as capital base, inflation rate or changes in regulations and laws governing the financial institutions. The Islamic populace regards interest rate as Riba. According to them, Riba is anything that is paid above the amount loaned to any individual or institution. The Shariah is also strict to individuals or institutions tending to invest in business prohibited by the acts enacted by the Shariah.
Such individuals face law by being imprisoned for a certain period, according to the level of offence committed. However, the law also provides other kinds of punishments. Generally, practices prohibited by Shariah acts are commonly recognized as Haraam. Both private and public institutions comply with these regulations in their own operating capacities.
Islamic Financial Markets
Islamic world is amongst the regions with highest population in the world. Its population is estimated at 20%, which is approximately a fifth of the world’s population. Profits in monetary markets were more attractive during 1980s and 1990s. Between 1981 and 1990, statisticians estimated that returns in the financial sector averaged between 16% and 19%.
However, there was a slight drop from the year 1991 to 2000 since the returns averaged between 11% and 14% (Barbara, 2005). This had discouraged a number of investors in Islamic financial markets forcing most investors to switch to other attractive investments. However, a good number of investors remained in the market hoping that returns will appreciate in future.
Although the Islamic financial market is dominated by Islamic based banks, which operate in accordance to the Shariah law, a number of foreign institutions also characterize the market. Amongst the banks based in the Islamic market includes Standard Chartered, Citibank, Hong Kong and Shanghai Banking Corporation, ABN Amro Bank, among others. A number of these banks do not entirely comply with Shariah Law. In case of compliance, the institution will be doing so for profit purposes and not for spiritual interests.
Changes in the Islamic financial sector between 1970 and 2010
In 1970s, the financial market had a number of commercial banks. Commercial banks provided a variety of services to its customers including fixed deposit accounts, savings accounts and current account. All accounts operated in line with the Shariah law. In 1980s, the Islamic financial market expanded from commercial banking sector to include project finance and syndications.
Equity and Ijarah part entered the market in 1990s. Equity dealt with sales and purchase of equity shares. Shares included those of preferred and ordinary shareholders. Ijarah on the other hand dealt with leasing of properties. Several real assets were leased to various individuals and institutional investors at a fee. Sukuk and structured institutions found their ways into the market the following decade.
Sukuk, as referred by Islamic community, meant trading of corporate bonds in the financial markets. Long-term bonds were chiefly traded in capital markets while short-term bonds were issued at money markets (French, McNayr, & Escher, 2010). Additional liquidity management tools characterized the 2000 and 2010 in the financial market.
Current Islamic financial products
Murabaha. This is an asset-based product where a financial institution buys a commodity and later sells it at a higher price to the user. The higher price charged on the commodity is a justification of profit inclusion. The client normally agrees to pay the goods over a specified period in form of installments or as per the agreed terms. In a situation where a customer defaults to pay the agreed amount within the established period, he or she will not be charged anything above the agreed price. The contracted price is the amount he will be liable to pay.
Mudaraba. Mudaraba is also an asset-based instrument. Mudaraba is a liability-based asset that relates to the contract existing between two or more parties. This contract is carried out by two parties where one party gives the entire capital for a given investment project. The other party is charged with the responsibility of controlling the project. In case of a loss accrual, the provider of the capital is the one that exclusively suffers the loss.
However, if the project generates profit, both the project manager and the financier of the project share the profit at a predetermined proportion, relative to the actual income generated. In relation to Islamic banking, investors frequently provide funds to the bank where each investor provides a certain management fee. The bank later invests the amount provided by investors on some projects that promises high returns.
Ijara. A bank purchases and leases out assets at a predetermined fee. The rental fee includes both capital cost and profits. The equipment is transferred to lessee who agrees to use the property for a specified period upon which he or she will surrender the property to the lesser bank.
However, during the period upon which the leaseholder uses the property, ownership remains with the lesser. Various equipments are leased either on finance or on operating lease basis. Leasing of equipments is practiced regularly in the airline industry. The housing sector in the Islamic world also practices finance and operating lease.
Istisna’a. With this financial product, a bank agrees to come up with a certain product that is within the requirements provided, such as time horizon and specifications. The product is later delivered at a predetermined date and price. Considering that banks do not specialize in manufacturing, it is no doubt that a bank will contract one of the firms specialized in manufacturing the proposed product.
Normally, a bank charges a specific price, which includes the amount of money charged by the manufacturer and a marginal profit. A fee is charged above the product price bearing in mind that the bank takes a risk of manufacturing assets.
Tawarruq. This is an approach adopted by the bank in lending cash to individuals and other institutions. In this situation, a client purchases a certain commodity from a bank and then sells to a third party on cash but at a cheap price as compared to the purchasing price. As a result, the customer will be obtaining cash without taking a loan that is generally provided at a specified interest rate.
Musharakah. Musharakah is another financial approach where parties contribute funds in a certain business and later on manage its affairs jointly. The net profits are always shared on some predetermined ratios. However, losses are shared based on the proportion of capital contribution. Although contributions are made in cash, at times, the management considers paying in kind.
Sukuk. The sukuk market is estimated at US $80 billion worldwide. This makes it one of the influential markets at the international level. Sukuks are similar to ordinary bonds although assets back them. They always represent ownership of a certain value generated by the basic asset (Sherifa, 2005). Therefore, a sikuk holder is entitled to a claim at a given ratio of value generated by an underlying asset.
Takaful. This is a form of insurance where individuals contribute funds to a common pool from which they jointly provide and assist group members. Members always cooperate and take responsibilities on a mutual basis. Policyholders normally pay a given amount of subscription fee to assist members who are in need. Presently, the market for Takaful stands at US$ 5 billion.
Comparison between conventional and Islamic financial sectors
Comparison between non-Islamic and Islamic financial sector will give an exceptional impression of major differences and future trends displayed by these markets. It will therefore give an in-depth understanding of the Islamic financial sector. Research was done in GCC and Malaysia to give a good representation of both conventional and Islamic financial institutions.
Banking assets and deposits
In 2002, conventional assets were estimated at US$486.2 billion while Islamic assets were estimated at US$56.4 billion. By the end of 2005, conventional assets stood at US$678.2 billion whilst Islamic assets were evaluated at US$103 billion. Conventional assets represented a growth of 11.7% while conventional assets grew by 22.3%.
Deposits for conventional banks were US$369.7 billion by 2002 while that for Islamic banks was US$43.2 billion. Conventional deposits rose to US$512 billion by 2005. Islamic deposits reached US$74.8 billion by 2005. As a result, Islamic deposits grew by 20.17% while conventional deposits grew by 11.5% within the same period (Abu, & Faruq, 2010)
Equity capital markets and Return on Equity
Islamic equity was estimated at US$6 billion in 2002. By 2005, its equity had risen to US$13billion. This represented an increase in Return on Equity growth from 15.3% in the year 2002 to 24.3% in the year 2005. On the other hand, conventional equity rose from US$52 in the year 2002 to US$82 billion in the year 2005. This was a representation of an increase in Return on Equity from 13.5% in 2002 to 19.45% in 2005.
The largest bank in the Islamic world is ranked amongst the top 50 banks in terms of equity value. Al Rajhi has a market capitalization of US$27.9. Kuwait Finance House, Malayan Banking BHD and Dubai Islamic Bank have market capitalization of US$15.4 billion, US$13.65 billion and US$8.1 billion respectively. Other Islamic banks as well have considerable market capitalization (Abu, & Faruq, 2010).
Debt capital markets
Islamic total loan stood at US$39.4 billion in 2002 while that of conventional financial institutions stood at US$250.3 billion. By the end of 2005, outstanding loans for conventional commercial and investment banks were valued at US$377.3 billion while that of Islamic institutions was valued at US$74.9 billion. Generally, conventional outstanding loans grew by 14.7% while Islamic loans grew by 23.8%.
Although Sukuk market securities had a slight dominance in the debt market between 2000 and 2002, where it recorded loses at the debt market, Sukuk drastically rose to US$4.5 billion in 2003 (Abu, & Faruq, 2010). In December 2006, issuance of Sukuk at global level stood at US$18.8 billion. From the year 2003 to 2006, Sukuk had increased in the market by 61%. This was an outstanding growth as compared to other bond markets elsewhere outside the Islamic market.
Insurance sector
A research which was carried out on insurance sector revealed that the amount of money invested in life assurance by non-Islamic institutions was worth US$1388 billion in 2002. The amount rose to US$1940 billion by 2005. Life Takaful moved from US$28 billion in 2002 to US$40 billion in 2005.
It is projected that Life assurance for non-Islamic institutions will increase to US$5,600 billion by 2015 while Life Takaful will rise to US$1,400 in the same period. Although Life Takaful are expected to grow at 34% annually while non-life Takaful 14%, it is unbelievable that Islamic countries accounts for 5% of global premium despite having a population accounting 25% of the world’s population.
Taxation and Legal Issues
Most of the Islamic financial products and services are regulated by several Shariah principles such as Ijarah and Musharakah. Financial intermediaries are required by law to form Shariah Supervisory Boards in order to ensure that their practices are in line with the regulations provided by the Shariah. Ijarah is an Islamic word meaning leasing or renting. Financial institutions sell benefits of a given service to a customer at a fixed price.
On the other hand, Mushrakah refers to a situation where two or more individuals contribute capital in an enterprise at a given proportion from which profits and losses would be shared. Such appealing financial products have drawn diverse governments into the financial market expecting to obtain adequate taxes from various transactions that occur within this market (Sohrab, & Farhad, 2006).
It is reported that a number of assets are traded more than once thereby enhancing taxation at every transaction. Although this has been a common trend in many countries, some countries such as the United Kingdom have made concerted efforts to defend what they call unfair act.
Managing financial risks
The Islamic financial market is more risky as compared to other markets outside the Islamic region (Hirschey, Kose, & Makhija, 2004). Most Islamic financial institutions are not allowed to invest in debt security market, derivatives and other perceived forbidden markets.
This makes Islamic conservative banks risky as compared to conventional banks. For instance, Islamic banks will tend to be risky since clients are likely to default paying the agreed amount on time upon which interest will not be levied. Fines or penalties are to be imposed by the Shariah Law.
Regulatory and disclosure of financial information
As compared to other non-Islamic nations, disclosing of financial information is less strict in the Islamic world. However, there have been a number of problems in relation to cross-border transaction. This has the tendency of hiding crucial information that is supposed to guide investors in making prudent decisions (Mamarinta, 2002). As a result, many international investors continue to avoid Arab’s financial institutions given the fact that such institutions do not disclose full information regarding their operations.
Threat of having high levels of liquidity in the economy
There is a high tendency of leaving the economy with huge amounts of cash. Liquidity level that is not appealing to the economy results from prohibiting debt security investment. The Islamic economy is not allowed to invest in hedging instruments such as put and call options, as well as future contract. Transactions that are carried out between banks are very few since they involve few types of transaction.
Fragmented small players
The Islamic world is dominated by a variety of small and disintegrated financial institutions that fail to compete successfully with other large international players. Large international players have remained competitive in financing large projects across the world. Only a few Islamic institutions have been able to fund relatively large projects. Development Bank of China leads non-Islamic market in financing several projects in other foreign nations such as India (Schmitt, & Lane, 2009).
Conclusion
The Muslim community has its own unique financial products and services, which differentiate its financial institutions from other conventional institutions. Such products and services include Ijara, Mudraba, Murabaha, Ististna’a, Tawarruq, Musharakah, Sukuk among others.
These financial products are designed in a way that they comply with the Shariah Law. For the last two decades, a number of institutions that operate in accordance to Muslim regulations have increased to over 300 and currently operate in about 51 nations worldwide.
Annotated Bibliography
Clement, M., & Springborg, R. (2010). Globalization and the Politics of Development in the Middle East. New York: Cambridge University Press.
Even though Islamic based institutions dominate Islamic financial market, which practices Shariah law, a number of foreign institutions also characterize the market. Amongst the banks based in the Islamic market includes Standard Chartered, Citibank, Hong Kong, Shanghai Banking Corporation among others.
A number of these banks do not entirely comply with Shariah Law. In case of compliance, an institution will be doing so for profit purposes and not for religious interests. For instance, Merill Lynch has complied for long with the Shariah principles for purposes of increasing its market share and corporate profits.
As indicated above, it is clear that other non-Islamic financial institutions have come up with specific measures to suit in the Islamic financial markets. This includes practicing Islamic principles. This will particularly help these institutions be acceptable in the Muslim financial markets. Perhaps it prevents them from being perceived different from other traditional firms in the Arab region. However, these firms appear to have different kinds of managements in diverse localities, which leave so many questions unanswered.
Abdurrahman, Y. (2010). Shari’ a Law in Commercial and Banking Arbitration: Law and Practice in Saudi. Burlington: Ashgate Publishing.
Islamic financial institutions operate in line with principles provided by the Shariah Law. The most distinctive factor with this law is its strong stand with regard to paying interest rates. Interest rates are either fixed or floating. A floating exchange rate is one that changes in response to changes in inflation rate or regulations and stipulation of new laws governing interest rates. Islamic populace refers to interest rate as Riba. According to them, Riba is anything that is paid above the amount loaned to any individual or institution. The Shariah prohibits individuals from investing in areas that are considered ‘impure sectors’
Although Shariah law is effective in other sectors of the market, it tends to be ineffective in the bond market. Worldwide, it is noted that bond market, which remains less risky, is the most productive market. The market attracts both domestic and international investors. It remains quite puzzling when Shariah law indicates that interest rate is unholy. Interest rate is just like any other payment and should not be isolated from common expenses or fees. A review on this law will particularly help Muslim financial institutions perform magnificently in the debt market.
Abu, U., & Faruq, A. (2010). Developments in Islamic Banking Practice: The Experience of Bangladesh. Florida: Universal Publishers.
The two scholars hold that banking in Islamic countries had been unprofitable due to regulations put in place by various governments. The scholars mention Saudi Arabia as an example. This country has been keen to ensure that all principles of Shariah law are strictly adhered to. Shariah law prohibits charging of interests on loans. A bank depends on the interest as its profit in order to meet its costs of operations.
By denying the banks an opportunity to charge its customers an interest on loans, the banks are left with minimal options of making profits, a fact that has seen a number of financial institutions avoid this market completely. Those that decide to stay must be contented with the little profits they get.
Barbara, A. (2005). Shaping the Current Islamic Reformation. London: Frank Class Publishers.
According to this scholar, there are various Islamic financial institutions operating in about fifty-one countries. Over the last one decade, Islamic financial institutions were estimated to grow at a rate of 11-14% annually. All Islamic financial institutions are approximated to manage assets worth US$300 billion worldwide. Financial institutions feature in diverse sectors of economies, such as capital and debt markets, insurance sector, management of assets, as well as derivatives markets.
For these firms to penetrate the local market successfully, governments should allow them freedom to operate without regulations that would bring them down. For local financial institutions to compete with other international firms, they must develop a strong base in the local market. This may not be possible if the government subjects them to regulations that prohibit free trade
French, J., McNayr, J., & Escher, F. (2010). Banking: Part 1: Banking Principles, Part 1. New York: Biblio Bazaar.
The scholars report that their main reason for coming to this region, especially Saudi Arabia was to facilitate financial transaction for their customers who would import oil from Saudi Arabia to their respective countries. Fees charged on transactional operations such as withdrawals or ledger maintenance fees remained the main source of income for such institutions in most Islamic nations
Large international firms had dominated most of the Arab financial markets. Firms such as Citibank dominated the Saudi and other neighboring countries such as United Arab Emirates. Because of economies of scale and profits earned from other markets, these firms could support their operations in such countries without straining.
Hirschey, M., Kose J., & Makhija, K. (2004). Corporate Governance. Amsterdam: Emerald Group Publishing.
The perception of the community matters a lot in the normal operation of the financial institutions. If the society perceives these institutions as extortionists, then it will be very difficult to change their mind and convince them that banks are just like any other businesses that must earn a profit if it is to sustain its operations in the market. Although the shariah law prohibits charging of interests, it is important that the society appreciate the reasons behind charging the interest.
It is through this that the financial institutions would be able to charge interest on loans given out to customers. A loan is one of the most profitable products of the bank. Through this product, a bank is able to gain enough income to take care of its operations. Efforts should therefore be made to ensure that this product is made as productive as possible.
Mamarinta, P. (2002). The Role of Multinational Companies in the Middle East: The Case of Saudi Arabia. New York: Mamarinta.
Samba Financial Group, formerly known as Saudi American Bank, is one of the major players in Islamic societies. It has expanded since its inception and currently stands out as the main financial institution in the region. With its headquarters at Riyadh, Saudi Arabia, this financial institution has branches in Pakistan, various cities in United Arabs Emirates and other locations within Middle East. It also has branches in the United Kingdom.
The institution has a Shariah board that ensures the bank complies with Islamic laws. The board, based at Riyadh, has been keen to monitor operations of the bank within the Islamic countries. Although the regulations do not affect non-Muslim regions where the bank operates, this effect would reach other regions that are not affected directly.
Schmitt, J., & Lane, N. (2009). An International Comparison of Small Business Employment. Web.
In this article, the two scholars give a comprehensive outlook regarding the role of small financial institutions offering employment to citizens of Saudi Arabia. Being a country that upholds Islamic principles, such small institutions may find it had to expand due to a number of reasons. This society still has some restrictions on female citizens.
There are specific activities that women are not supposed to be involved in without the permission of their husbands or close male relatives. For instance, a woman below 45years may not travel abroad without seeking permission. Because of this, employing them becomes an issue because they cannot be delegated duties that would send them out of the country. This limits their abilities.
Sherifa, Z. (2005). Saudi Arabia: Islamic Threat, Political reform, and the Global War on Terror. New York: DIANE Publishing.
War on terror has seen many Islamic countries fall off with major world powers. Many international terrorists are claimed to be Muslims. The most feared terrorist, Osama bin Laden, was a Muslim born in Saudi Arabia. The west accuses a number of Arab countries of hiding or financing terrorists in one way or the other. This has caused tension between the Arab countries and the west.
This tension is a blow to the development of financial institutions in Islamic countries. It is not easy for them to fight this negative perception in the market. For this reason, it becomes very difficult to attract markets outside Arab countries. Whether or not there are elements of truth in the above claim, the tension created by the claim has a direct negative impact on businesses.
Sohrab, B., & Farhad, N. (2006). Islam and the Everyday World: Public policy Dilemmas. London: Routledge.
The global community has undergone a great change in various social aspects. In many societies around the world, women have assumed a completely new position. Unlike in the past, women are currently attaining higher levels of education and are in the job market, just like men. They have an active role to play in every aspect of development in society. This sharply contrasts what happens in most Muslim societies.
Because of this, many Islamic financial institutions may not find it easy to operate in non-Muslim markets. The societies outside Muslim region will consider such institutions retrogressive. This would limit the chances of such firms succeeding in the international markets.