Islamic Banking - Sharia-compliance of the product portfolio of Islamic banks

The growing number of Muslims has raised the demand in Islamic products reflecting the faith in Islam. Hence, Islamic banks have been established to supply the needs of Muslims, who have to obey the Islamic law (Sharia). However, are Islamic banks really Islamic and fully compliant with the Sharia?

Aydemir Gizem, 2013

Bachelor Thesis, Institute for Finance, School of Business FHNW
Betreuende Dozierende: Galia Kondova
Keywords: Islamic banks, Sharia principles for banking and finance, prohibition of interest (Riba) in Islam
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Religion shapes every aspect of life of Muslims, including the way they do finance or trade. The steadily growing number of Muslims globally has raised the demand in Islamic products. Thus, the main feature of Islamic financial institutions is that it is run in accordance with the Islamic law. It is most vital for their existence to be correct from a religious point of view. Therefore, Sharia sets principles for the Islamic banks. However, when implementing and practising Islamic banking, it is of utmost importance to evaluate the factors making Islamic banking products accepted.
This work aims to concentrate and analyse in a first step the main principles Islamic banks need to adopt in order to become Sharia-compliant and accepted as a halal (permissible) bank. Furthermore, this study provides an idea whether Islamic banks are truly 100 % compliant with the Samaria Law. In order to achieve the objectives of this paper, secondary data including the Holy Quran, Hadith, books, journals, websites, newspapers and other studies will be consulted. Furthermore, primary research will be conducted in order to seek answers, if Islamic banks are 100 % Sharia-compliant.
Results show that many different issues have to be taken into consideration when wanting to become Sharia-compliant. The major principle defined for Islamic banks is the prohibition of Riba (interest), which is forbidden in Islam. For this reason an alternative concept of profit and loss sharing has been developed in Islamic banks, in which the bank is supposed to share the profits as well as the losses with its customers. Furthermore, the results of the primary data collected shows that Islamic scholars vary in their opinions in regards to Islamic banking and finance. Sharia is varying in its interpretations and thus, being Sharia-compliant or not compliant depends also on the region where an Islamic bank is operating in. For instance, while one Muslim country accepts a 70 % Sharia-compliant bank as a compliant bank, another Muslim country disagrees with the compliance. It is the different opinions that scholars have, reasoning over the centuries on the understanding of Quran and Hadith. This study benefits the client in the way of understanding the acceptance of Islamic banks as Sharia-compliant. It also gives an opinion to the client whether Islamic banks are 100 % Islamic.
Studiengang: Business Administration International Management (Bachelor)
Fachbereich der Arbeit: Andere
Vertraulichkeit: öffentlich
Art der Arbeit
Bachelor Thesis
Institute for Finance, School of Business FHNW, Basel
Autorinnen und Autoren
Aydemir Gizem
Betreuende Dozierende
Galia Kondova
Sprache der Arbeit
Business Administration International Management (Bachelor)
Standort Studiengang
Islamic banks, Sharia principles for banking and finance, prohibition of interest (Riba) in Islam