1. Can Islamic Banking and Finance Organizations Win Non-Muslim Patrons
Zaman Khan
BSc. Business Administration
Northern Arizona University
June 2016

2. Abstract
The rapid pace of technological advancement coupledwiththe forcesof globalizationis
contributingtoa burgeoningmiddle classacrossthe globe.The majorityof this growthisexpected to
take place in the developingnations of Asia,the Middle-East,andNorthAfrica.Althoughasignificant
portionof the estimatedone billionpeoplethatwill earntheirway intothe global middle class this
decade (Kharas,H. 2010) are of the Muslimfaith,there are hundredsof millionsthatwill notbe. This
populationandeconomicboommeanslotsof new business forregional banks. Islamicbanks are
established institutionsthroughout the region andenjoy highlevelsof successandpatronage fromtheir
Muslimcustomers,but,the questionif theycanappeal tothe large populationof non-Muslimsinthese
regionsandbeyond,andhow,iswhatthispaper examines.Inlightof the changingdialogueabout
wealthinequalityand the pitfalls of capitalismacrossthe globe,Islamicbankingandfinance
organizationsneedtopositionthemselvestoattract the emergingmarkets.Ithasbeenfound thatnon-
Muslimsare of the opinionthatIslamicBankingisastrictlyMuslimendeavor (BleyandKuehn2004),
due to lack of understandingand Islamcentricbranding(DarandPresley).Thispaperreviewssome of
the available literature onnon-MuslimperceptionstowardsIslamicbanking andoffers aunique solution
to helpIslamicfinance organizations appeal toNon-Muslimbankcustomers acrossthe globe.

3. Introduction
Crisis- The Catalyst
The global financial crisisof 2008 highlightedthe unsustainable lendingpractices of
conventional finance organizations acrossthe westas“too bigto fail”firmsfailedandseta domino
effectintoactionthroughthe global economyandrevealeditsflimsystature. The crisis isoften
characterizedashavingbeencausedby riskyinvestments andhighinterestrates,butthere isn’ta
consensusamongfinancial expertsastothe exactimpactof eachcontributing factor.Asexpertsstudied
whatledto the Global Recession theyindirectlyshedlighton Islamicbanking.Since Sharia-Compliant
bankswere prohibitedfromengaginginspeculativeactivitiesandissuinginterestbackedloans,Islamic
banksweatheredthe creditcrunchbetterthanconventionalcompetitorsandbegantobe toutedby
some inthe mainstreammediaasa saferand more sustainable formof bankingthanthe conventional
model.These assertionswere laterbackedby studiesthatindicated Islamicbankshandledfinancial
stresstestsbetterthanconventional banks(M.Cihak,H. Hesse,2010), furtherfortifying the notion that
Islamicbankingwasa veritable alternative tothe conventional banks.IslamicBankingbegantobe
heraldedas a more sustainable,equitable,andethical financial alternative tothe boom-bustcyclic
patternthat isnow recognizedasabyproductof capitalism.Criticshave triedtoargue that Islamic
financial servicesare merely superficiallydifferent,and,thatunderneathoperate similarlyto
conventional banks;whetherIslamicbankingissubstantiallydifferentfrom conventionalbankingornot
isnot the focus of thispaper,rather,thispaperfocusesonwhetherornot non-Muslimscanbe won
overfromconventional banksandhow.
Foundationsof Islamic Finance-
IslamicFinance andBankingprinciplesare derivedprimarilyfromthree sources:the Quran,
Hadith,and scholarlyconsensus. The Quran,believedby Muslims tobe the literal wordof God,contains

4. variedcontentof spiritual,ethical,andpractical nature thatcoversvast aspectsof life andsociety,
essentiallyformingthe basicrules of life andgovernanceforbothof the major branchesof Islam(Shiite
& Sunni). Of relevance,the Quranclearlyprohibits takingorgivinginterestpayments(Quran;2:275,
3:130).
The Hadith are the vastrecords of the ProphetMohammad’steachingsandlife asrecordedby
hissuccessors;firstorally,andthenwritten.Inmanyinstances the Hadithofferinsightintothe Quranic
injunctions astheyrecordthe Prophet’sexplanationsandpractical applicationof hisownunderstanding
of the Quran. While some Hadithare an explicitprohibitionof certaintransactionsthatwere
commonplace inthe time of the Prophet,alack of prohibitionor evenrecorded participationinother
formsof transactions bythe Prophet are consideredbyMuslimscholarstobe a direct,or indirect,
endorsementof saidtransactions.
Both branches of Islamand theirscholarsprohibitdealingininterest due tothe clearQuranic
terminologyandinheritedScholarlytradition.Unlike the Shiites,Sunnisdon’thave acentral authority
and neitheristhere aformal regulatorybodyof scholarswhoforma consensus onfinancial rulings.The
processismore organic and bottom-upinSunni Islam where the peoplechoose the scholarsandelevate
theirpopularity accordingtotheirabilitytorenovate orthodoxy.Althoughthereare outliers,the climate
of Muslimbelief andpractice remains fairlyconstantand center-right,often withlittle roomfor
disagreement.
IslamicFinance canbe boileddowntoa few basictenantsfromthe scriptural sources that
togetherformthe foundation of anyIslamicfinance organization. The core principlesare:avoiding
interest, equity/fairness,Islamicmorality,andcorporate/socialresponsibility.The practical application
of these tenantsare mostapparentas the Profitand LossAgreement,refrainingfrom unethical
endeavors -deemedHaram-(pork,porn,etc.),avoidingspeculation andunnecessary risk,andinvesting

5. insociety.Though the exactapplicationof these principlescanvarysomewhat,there isa general
patternof behaviorthatcan be observed inIslamicfinanceorganizationsacrossthe globe.
WesternViewsonInterest-
ThoughChristianityandJudaismhave traditionallybannedInterestandusurytosome degree
(Exodus22:25–27, Leviticus25:36–37 and Deuteronomy23:20–21), the practice of lendingoninterest
became more widespread inthe middle agesasthe catholicchurchbeganto lose powertothe
protestantreformation.Europe begantobreakfromtraditional interpretationsandtake more liberal
meaningfromthe termUsury, differentiatingitfrominterest,andoftenpushingthe acceptable limit
furtherback. With the Enlightenment,Europeanpowersstartedinstitutionalizingthe separationof
church and state,electingrationalismasthe authorityongovernance ratherthandivine revelation.Prior
to that, usurywasfrowneduponandevenpunishable,thoughprevalentasa tool forwealthyinvestors
to benefitoff of loansasloansharks.The Enlightenmentpavedthe wayforInteresttobe usedas a
financial instrumentinthe openandwithout persecution. Interestbasedbankingnow comprisesthe
supermajorityof moneylendingacrossthe globe.Despite-ordue to- the prevalence andsystemic
nature of interestbasedbanking,there hasbeen modernresearch andcriticisminthe west thatraises
ethical andsustainabilityissueswiththe practice.
ProfessorMargritKennedy writes:“Exponentialgrowthinthe physical realmusuallyendswith
the deathof the hostand the organismon whichitdepends.Basedoninterestandcompoundinterest,
our moneydoublesatregularintervals,i.e.,itfollowsanexponential growthpattern.Thisexplainswhy
we are introuble withourmonetarysystemtoday.Interest,infact,actslike acancer in oursocial
structure,“(InterestandInflationFree Money,ch1pg6).In herbook “OccupyMoney” (2012), Kennedy’s
researchrevealsthatevencommonpurchasesbyconsumerscontainmassiveinterestpaymentsthat
can be tracedbackwardsfrom retailer,throughmanufacturer,toraw materialsthemselves.She asserts

6. that 35-40% of the cost of an itemgoes to interestpayments.This,she argues,is35%-40% of the GDP
that goesto the top wealthholders.Elsewhere, she reveals thatmore than 70% of rentcosts in
Germany simplycoverinterest-relatedpayments. Kennedy goesontoassertthat inthe UnitedStates,
the top 1% own42% of the wealthwhile the bottom80% ownmerely5% of the wealth,thisshe argues
isdue to hiddeninterestpaymentsonall purchases thatconstantly syphon money tothe top10% of
wealthholders.
Notedpolitical commentatorand formerUSSecretaryof Labor RobertReich writesonhisblog:
“Once you have wealth,itgeneratesitsownincome asthe value of thatwealthincreasesovertime,
generatingdividendsand interest(emphasisadded),andthenevenmore whenthoseassetsare sold.
Thisis whywealthinequalityiscompoundingfasterthanincome inequality.The richesttop1% own40%
of the nation’swealth. The bottom80%ownjust7%,” (2016).
The frustrationexperiencedbythe consumerdue togrowingincome inequalityisapparentin
the form of differentmovements sproutingup acrossthe globe. Modernpopulist movementslike
Occupy Wall-streetandthe nearlysuccessfulprimarybidfordemocraticnominee byself-proclaimed
socialistBernie Sanders -whorallied massive crowds tohisequalityplatformagainstthe “1%”- reveal a
grassrootsreceptivenesstowealthinequalityarguments.Bernie Sandersoftenreferenced the
stagnation of relative income and the shrinkingmiddleclass witnessed acrossdecades despite massive
growthto the US economy. The relationshipbetweeninflation,interest,boom-bustcycles,andinterest
as a mechanismtoenrichthose withexcesscapital, hasbeendocumentedbymanywesternresearchers
(Minsky1977, Bernante andGertler1990, GreenwaldandStiglitz 1990) and isnow an acceptedpart of
Keynesianeconomicmodels.
LITERATURE REVIEW

7. In “IslamicFinance:A WesternPerspective,”DarandPresley(1999) analyzedthe terminology
employedbyMuslimscholars andthe marketingmaterialsutilizedby IslamicFinance Organizations.
Theymake a compellingargumenttosupporttheirfindings;thatIslamicFinance organizationshave
neglected toutilizethe wealthof researchinthe westerntraditionthatiscritical of interest andits
effects.This, Darand Presleyargue,isn’tdoingIslamicFinance organizationsanyfavorsinwinningover
people receptive to the cause of interest-free banking.Theyassertthatthe narrative toldbyIslamic
finance organizationsneedstobe empiricalanddraw uponthe wealthof westernscholarshiponthe
topicin orderto gainadditional support,legitimacy,andmarketshare.
In supportof Dar andPresley, BleyandKuehn(2004) foundthat non-Muslimsview Islamic
bankingas cateringtoMuslimsonly andofferinglittletonothingof value tonon-Muslims.Bleyand
Kuehnconductedasurvey of business student’sperceptionsandunderstanding of the twobanking
systems:conventional andIslamic.They found thatnon-Muslimstudents understood little aboutIslamic
bankingandheldthe viewthatIslamicfinance wasintendedforMuslims. Theirstudyalsorevealedthat
non-Muslimbusinessstudentsdidnotbelieve Sharia-complaintproductsandservicestobe superiorto
the conventional model inanyway, norofferingaunique value fornon-Muslimconsumers.Thispoints
out that a lack of the empirical argumentisperpetuatingignoranceof the interest-freeconceptandits
allegedsuperiority.
A studydone inMalaysia(Amin,Isa: 2008) strengthens the findingsof BleyandKuehn’s2004
studythat non-Muslimsunderstandverylittle aboutIslamicBanking,itsintentions, differences,or
allegedbenefits.Compoundedbythe otherstudiesthatmeasure non-Muslimsentimentsand
knowledge of Islamicbanking,itisevidentthatnon-Muslimsare grosslyunaware of the Islamicbanking
contention,we canassume,because of the non-empirical andexclusionistreligiousterminologythat
Islamicbanksuse to wintheirtargetmarket -Muslims.Besidesthis,the studyconfirmedotherfindings
that Muslimsandnon-Muslimsbothhave similarperformanceexpectationsfromtheirbanks.

8. Studiesdone by Metawaand Almossawi (1998),andNaser,Jamal and Al-Khatib(1999) have
confirmedthatthe primaryreasonthat Muslimschoose Islamicbanksisstrictadherence toreligious
interpretations. This,however, doesnotspeaktothe millionsof Muslimslivingin non-Muslimcountries
withinsufficientSharia-compliantbankingproductsandservices ora total lackthereof.ManyMuslims
withoutaccessto Islamicfinance options are pressured touse conventional banksandmake use of the
countless Fatwas(religiousrulings) issuedbymajorIslamicJudicialbodiesthatinstructreligious
followersonhowto navigate the conventional financialsystem. These studiesmake itabundantlyclear
that In countrieswiththe Islamicbankingoption,Muslimschose Islamicbanksonthe groundsthat a
particularscholaror bodyof scholars,private orgovernment, have endorsedthe institutionas“Halal”
(religiouslypermissible).
PhilipGerrardandJ. Cunningham’s1997 study founda few thingsof far reachingimplications.
First, that neitherMuslimsnornon-Muslimsunderstandthe financial operationsof Islamicbanksorhow
theydifferfromconventional banks.Thissupportsthe findingsof Darand Presleythatthe terminology
circulatinginMuslimcommunitiesisnon-empirical andshroudedinreligionratherthan practical
terminologythattranslatesintocommonlyunderstoodtransactionsandbankingoperations.Also,this
supportsthe findingsbyBleyandKuhnthatthere isa lackof understandingaboutthe Islamicbanking
conceptamong non-Muslims.Second,GerrardandCunninghamfound thatMuslimandnon-Muslim
bankpatrons prefernearlyidentical performance standards.Lastly,theirstudy foundthatMuslimswere
far more likelytokeep theirmoneyinabankthat didn’tpayprofitondeposits comparedto Non-
Muslims.This supportsthe findingsfrom independentstudies(MetawaandAlmossawi (1998),and
Naser,Jamal and Al-Khatib(1999)) thatthe majorityof Muslimsaren’tpreoccupied withsteadyreturns
as much as theyare withreligiouspermissibility,whileNon-Muslimsassume the statusquoof interest
and desire profitable interestrates ondeposits. Thisdifferenceinexpected returns ondepositsappears

9. to be the largestsingle difference inbankinghabits/expectationsbetweenMuslimandNon-Muslim
bankpatrons.
Haron, AhmadandPlanisek(1994) conductedastudyof bankingpreferencesamongMuslims
and non-MuslimsinMalaysiaandgatheredfromtheirdatathat there were insignificantandnegligible
differencesbetweenthe twogroup’sbankselectionandsatisfactioncriteria.Non-MuslimandMuslims
bothpreferredbanksforfactorssuch as speed,effectiveness,customerservice,andproximity.
Synopsis
Studiesfocusedonselectionand satisfaction criteriapreferredbyMuslimandnon-Muslims
overlookedthe initial“Islamic”qualifierthatMuslimsrequire topatronize banks.However,these
studieshave beenhelpful inestablishingthatMuslimsandnon-Muslimsare similarenoughafterthe
Islamicbadge isestablished.Bothgroupslooktothe same factorswhenselectingandremainingwith
banks;reputability,proximity,customerservice excellence,andproduct/services.Of relevance to
selectioncriteriabyMuslimsare the findingsbymultiple studies thathave independentlyverifiedthat
Muslimschoose Islamicbanksforreligiousreasons. Once the Islamicbrand reputabilityisestablished,
Muslimslooktothe same factors as non-MuslimswhenchoosingbetweenIslamicfinance organizations;
namelyproximity,products,customerservice levels.The largestdifference insatisfactioncriteria
betweenthe twogroupsare expectedprofitsondeposits.
Multiple studieshave foundthatnon-Muslimsunderstandverylittle aboutIslamicbanking.
TheyalsofindIslamicbankingtobe inferior,andnotconcerningnon-Muslims. Thisrevealsadisparity
betweentheirunderstandingof Islamicbanking principles,andthe belief of some thatInterestisa
detrimenttoglobal financialsustainability.There isanemergingdemographicof non-Muslims thatare
critical of capitalism tovaryingdegrees thatIslamicbankshave failed toattractby usingterminology
that isn’tempirical oruniversallyappealing.There isatwopart marketing/brandingproblem;the

10. “Islamic”name that isadvertisedtoattract Muslimbankpatronsis beingviewedasexclusivelyfor
Muslimsbynon-Muslims,andthe marketingterminology isdrapedinreligion ratherthandatawhichis
alienatingnon-Muslims. Thisdoeslittle toconvince non-Muslims thatIslamicFinance is analternative
financial model thatoffersanyworldlybenefits tootherthanMuslims.Italsodoesnothingtospark
debate aboutthe pitfalls of interestbasedbanking,further keepingMuslimandnon-Musliminthe dark
aboutthe empirical argumentforinterest-free banking,whichMuslimsbelieve issuperiorandtheir
responsibilitytodisseminateamongmankind.
Since there is ample scholarlyworkonthe negative effects of interest,speculation,and
unethical lendingpracticescommontoconventional banksdone bywesternthinkers,andthere isalsoa
growingbodyof disgruntledcapitaliststhatwantchange butdon’t know of the competingmodels,
Islamicbanksneedtoemploy secularterminologytoattract attention,gainlegitimacy,and winover
customerstopositionthemselvesforfuture growth.
The Problem
The problem facingIslamicFinance Organizationsisthatthere ispotential toreacha large
audience of non-Muslimsacrossthe globe whoare growing frustratedwithcapitalism, but Islamicbanks
have yetto communicate tothat audience inneutral terminology.These non-Muslimspossesslittle-to-
no understandingof Islamicbankingconcepts becauseIslamicBankshave to-date utilized religion-
specificjargon.Consequently,Muslimstooare unable todescribe the practical differencesbetweenthe
banksbecause the narrative hasfocused onreligionratherthanfinancial operations,inturn,preventing
ardentbelieversfromarticulatingthe “superiorfinancial model”topotential new customers and
curbingthe organic spreadof the ideas.The fact that so few Muslimsunderstandthe differencesisalso

11. leadingtoa lossof the targetdemographicasmore and more middle-classMuslims are patronizing
conventional because itisseenassuperior.
Anotherintegral partof the problemisthatin orderto attract the Muslimtargetaudience,
IslamicBanks have traditionallyadvertisedthemselvesasIslamicbyincludingthe word “Islamic”intheir
very name.Thishas alienatednon-Muslims enmass andas longas the Islamicbanksare namedassuch,
will continue toalienatethem.InorderforIslamicbankstoappearneutral,theymustshedthe “Islamic”
intheirname,but findaway to retaintheirMuslimpatrons. A solutionthatexcludesthe established
IslamicBankswill potentiallyfail togathermomentum.Therefore,the solutionmustdosomething
substantive forthe Islamicbanksalreadyinoperation,the bankswith“Islamic”names,inadditionto
justcreatinga hypothetical solution.
Solution
The solutionsupportedbythe exhaustivereview of literature onthe topicisthatthe Islamic
bankingestablishmentandleaders (experts,scholars, bigbanks, coalitions)worktogethertocreate two
separate international regulatoryboardsthatworkmore like asingle –twopart- international regulatory
board; part secular,andpart Islamic.Thistime theymustincorporate non-Muslimopinion,data,
support,and fosterpartnershipswithexistingbank/organizations tolegitimizetheireffortsandexpedite
growthin the newmarkets.The secularregulatoryboardmust be endorsedbya coalitionof Muslim
scholarsor run the riskof losinglegitimacywithMuslims.Thisnecessitatesthatthe secularregulatory
board operate directlyunderIslamicfinancial principles. The twoorganizationswill offerone
internationallyaccredited seal of approval each;one secular,andone Islamic.The namesof the
respective bodies shouldreflecttheirintentions;one secular,and one Islamic.Thiswillhelpprevent
alienatingeitherdemographic.Somethingof thisnature isalreadyprevalentinconventional banks

12. operatingin Muslimmajorityregionsandbolstersthe solutionprovidedinthispaper.Manylarge
conventional bankshave hiredMuslimscholarsandfinancialexpertsinordertotailorShariacompliant
productsfor theirpotential Muslimspatrons. Thisisviewedaswhitewashingthe interestinacloakof
Islamic,anissue thatisn’ttakenlightly,due tothe strictand prohibitive rhetoricutilizedinthe Quran
and Hadithaboutinterestanditsimplications.
The intentionof the secularinternational bodyisthattheywill partnerwithMuslimandnon-
Muslimorganizationsacrossthe globe that promote the interest-free bankingagendausingthe
empirical argument.The marketingcampaignwillbe ona platformof equality,fairness,and
sustainability whiledrawinguponall available secular/empirical argumentsattheirdisposal. The secular
seal of approval will usedtoendorse Islamicfinancial firmsinordertobroadentheirappeal to
disenfranchisedcapitaliststhatyearnfora more sustainable andsustainable globaleconomy.
ThissolutionoffersexistentIslamicbanksthe optionof retainingtheirname astheyexpandinto
non-Muslimmarketsthroughthe use of the secularseal of approval thatlegitimizesitasa sustainable
and fairbank,meshingwiththe sentimentof non-Muslimsthatare receptivetowealthinequality
argumentsandcritical of capitalism’sextremes.Shouldabankchoose a religionneutralname asthey
venture intonon-Muslimmarkets,theycanutilizethe Islamicbankingseal-of-approval toopenthemup
to the Muslimdemographicwhilestillappearingtobe a conventional bank.
Thisallowsestablishedfinancial organizationsthe optionof venturingoutbythemselveswith
theiroriginal ornewname,or,in partnershipwithanotherorganizationwithareligion-neutral name.
ThissolutionworksforestablishedIslamicbanksthatwishtooperate independentlywiththeirnames
and yetbe available tonon-Muslimcustomers byutilizingthe secularseal of financial sustainability.
There isa wealthof research andhistoricevidence (industrial,political,andhumanitarian
organizations) tosupportthatsuchan undertakinghasbeendone andisoftensuccessful. Educatedand

13. involvedconsumersare familiarwiththe seal orstamp the appealstothemand seekitout inall sectors
of consumption:vegans,organic,kosher, Halal,recyclable,containsnuts, countryof origin,etc.This
solutionyieldstwoorganizations withtwostampsunifiedinvisionandgoal,the sealshiddenfromthe
uninterestedmassesbutapparent tothe seeker,one religiousseal toattractMuslimstoa “halal”bank,
one secularseal to attract non-MuslimstoIslamicfinancial conceptssupportedbysecular/empirical
evidence.Thissolutionoffersopportunitiesforinvestmentandgrowthforall players,new or
established,innewregionsorfamiliar,foremergingmarketsandunderserveddemographics,evidently
the onlyviable solution.

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