How have Islamic Banks performed during the recession

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TABLE OF CONTENTS

CHAPTER 2: LITERATURE REVIEW1

Introduction1

Islamic Banking1

Types of products offered in Islamic banking2

Ijara: Lease-To-Purchase2

Murabaha: Cost-Plus-Sale3

Musharaka: Partnership3

Mudaraba: Profit- and Loss- Sharing4

Recession4

The Financial Crisis Leading towards Recession6

Recession in UK6

Islamic Banks and Recession7

Islamic Banks versus Conventional Banks8

Company Profiles9

Islamic Bank of Britain9

HSBC Bank in United Kingdom10

CHAPTER 3: METHODOLOGY11

Research Methodology11

Case Study Method11

Data Collection Method12

Literature Search12

Interviews13

Participants14

Limitations14

Reliability15

Ethical Considerations16

Gantt Chart18

REFERENCES19

CHAPTER 2: LITERATURE REVIEW

Introduction

Islamic banking has become increasingly popular in the emerging markets after they have helped some financial institutions from avoiding the worst scenarios during economic downturn. In the most simplest form, Islamic banking involves financial products, starting from saving accounts to mortgage, to be fully designed in order to comply with Sharia laws. According to Sharia laws, rates are restricted and clear terms are encouraged, indicating that under the Islamic banks financing, banks are not allowed to charge interest rates, but can buy the property and can lease back the property to the customers for a specified period of each month.

From the year 2007 to the year 2009, assets of Islamic banks grew with an average of twice as fast as assets in conventional banks of major Muslim markets; according to research tat was presented by Maher Hassan. Although, the Islamic banks were not more profitable as compared to conventional banks, yet they were able to extend credit for customers at a much after pace.

Islamic Banking

The existence of a global Islamic finance industry, as well as its investors and consumers, indicate many Muslims believe that an alternative form of financing from conventional banking is preferable - and, in the perception of many, required - under Islamic law. A number of jurists, however, had in the past issued fatwas that conventional finance is permissible on the grounds of legal necessity (El-Gamal, Mahmoud, 2009, 29).

There is a body of theoretical literature, spanning from the 1970s to today, arguing for the necessity of Islamic finance and how it can be structured so as to provide Muslims viable alternatives to conventional, interest-based finance. Conversely there exist criticisms of Islamic finance from scholars who question both its religious justification, in its currently practiced form, and its economic viability. These critics are often idealists who consider an "Islamic economy" one that should be based on maximizing economic productivity to the benefit of society, and consider Islamic finance as it is practiced to fall far short of this calling.

El-Gamal (2006) points out that the contract forms today's Islamic finance has engineered are the "functional equivalents" of conventional financial forms, except for being less efficient because they add layers of extra transactions. Kuran also criticizes Islamic banking for propagating inefficient economic thinking as it seeks to cordon Muslims off from integration in the global financial system. Despite the debates about whether Islamic financing truly reflects the economic order required by Sharia religious law, the industry has experienced explosive growth worldwide particularly in the past ten years. Also in the United States the Islamic finance industry, concentrating mainly on home financing, has grown at a modest but steady ...