Potential of Islamic Banking in GermanySYNOPSISBYMUHAMMAD IMRANCOMMON WEALTH LEARNINGMASTER OF BUSINESS ADMINISTERATIONROLL NO- U 557939REGISTERATION NO. 06 PST 2795ALLAMA IQBAL OPEN UNIVERSITYISLAMABAD<br />TABLE OF CONTENTS<br /> TOC o "1-3" u <br />1.INTRODUCTION1<br />2.Literature Review2<br />3.OBJECTIVES4<br />Sub Objective <br />Signification of study<br />4. Research Methodology 5<br />Universe<br />Unit of Analysis<br />Sample Size<br />Data Collection<br />Tools for deta collection<br />Techniques for data collection<br />Data Analysis<br />References 8<br />INTRODUCTION<br />The growth of Islamic Banking is increasing day by day at the rate of 10% - 15%, not only in Muslim countries but also in non-Muslim western countries, comprising now over 300 institutions in over 75 countries. They are concentrated in the Middle East and Southeast Asia (with Bahrain and Malaysia being the largest hubs), but are also appearing in Europe and the United States and London get the recongnization as a hub for Islamic finance in Europe. . Total assets worldwide are estimated to exceed $250 billion, and are growing at an estimated 15 percent a year.<br />Islamic banking refers to a system of banking or banking activity, which is consistent with Islamic law (Sharia) principles and guided by Islamic economics. Islamic Banking is mainly designed on the basis of verses of Holly Quran (2:275 to 279) and follows the orders of God. In particular, Islamic law prohibits usury, the collection and payment of interest, also commonly called “riba”. Generally, Islamic law also prohibits trading in financial risk (which is seen as a form of gambling). In addition, Islamic law prohibits investing in businesses that are considered “haram” (such as businesses that sell alcohol or pork, or businesses that produce Pornography media). <br />There are also more than 50 takaful (Islamic insurance) companies operating in different countries. What are the reasons of such high growth rate? What is the basic contention of Islamic Banking and how are different from the conventional banking? These are the questions which are still in lot of minds, despite Muslim or non-Muslim. In my study, I will try to cover the basic knowledge of Islamic banking and finance system and will try to give details that why Islamic financial system is different from conventional system. After get to understand the difference, we can extract the influencial factors which are supportive for the high growth of Islamic finance. My main target of this study is to find the “potential of Islamic banking in Germany”. For this purpose, I take the example of European country ‘UK’ and compare the opportunites and development process with Germany with a help of previously published on the subject. I will further develop my research through quantitative methodology and try to evaluate the actual position of Islamic Banking in Germany. This research study results would be helpful and provide a source of reference material for further research on this topic.<br />Literature Review<br />In this literature review, I will try to illustrates the development of Islamic Banking in United Kingdom (UK) as an example in Europe and further discuss the challenges of Islamic Banking in UK and Germany. I tried to review the scope of Islamic Banking in UK as compare it with Germany. In Europe UK is the first country that started Islamic Banking and changed their regulatory system and makes it according to Shariah Law for the convenience of Islamic Financial Institutions. Main street conventional banks like HSBC, Lloyd TSB are now realizing the value of Islamic financing techniques and starting to incorporate them, either in their lending practices or via separate Islamic windows<br />An Islamic banking and financial system are trying to provide a range of Shariah complaint financial services to the Muslim communities. Along with this special function, Islamic Financial Institutions are expected to achieve the socio-economic goals of Islam (Chapra, 1985, p. 34). The same observations also expressed by (Usmani M. T., "An Introduction to Islamic Finance", 1998)and (Siddiqi, 2004) that objectives of Islamic Banking would be only ensured when IFIs with their partners start moving for the achievement of socio-economic objectives. Hassan & Lewis (2007)<br />Many economic and Islamic Finance professionals argued in favour of strong potential of Islamic Banking in Germany. El-Mogaddedi & Chahboune (2008), argued in his article that in Germany out of 7.3 million immigrants 3,4 millions are Muslims and majority are 1.8 millions are Turk origin and in others are from Bosnian, Iraq, Morocco, Iran, Afghanistan, Lebanon etc. Turk Muslims are financially strong in Germany, actually Turkish companies in Germany generated € 50 billion in 2008 and to nearly double by 2010, and the yearly volume of savings will amount to € 1.6 billion or about one billion Euros in insurance savings. In an other article Mr. El-Mogadeddi are confident that 75 percent of Muslims in Germany would like to avail Islamic Financial products according to his survey. Studies also shows that Germany have more Muslim population than any other Western European country (Pauly, 2009).<br /> According to Parker (2008), “Germany potentially could emerge as an even bigger market for Islamic Finance on condition that it gets its act together in several areas especially on introducing enabling legislation and increasing government support.” Germany can follow the success stories of UK in implementing and promoting Islamic Banking and Finance in the country and German politicians have to take interest in this matter. One of German politicians such as Mr. Reinhard Löffler, CDU economic Politician spokesman for the Baden-Württemberg also support Islamic Banking and want to promote it as ethical banking in Germany (Loeffler, 2010). But according to Dr. Simon Grieser of the law firm Mayer Brown LLP in Frankfurt, "The politicians for their own reasons simply appear not to be interested in facilitating Islamic finance as in the UK," (Parker, 2008).<br />Parker (2008) further explained that Germany has advantage over UK in many ways and can use these possibilities positively in its favour. For example Germany is one of the three largest economies of the world who have trade volume with oil rich GCC countries is much bigger than the UK's trade with the region, other fact is that Islamic finance has not featured as strongly as it has in London's trade and investment relations with the Muslim countries. Germany has the advantage of double Muslim population than the UK which is just under 5 million, of which 3 million are Turks. However, according to Dr. Patrik Pohl, general manager, Bankamiz, the special banking brand aimed at Turkish clients of Deutsche Bank in Germany, “Most of the Turks in Germany do not “embrace Islamic finance" nor have much idea of it entails”. According to Gassner (2004), Pauly (2009), between 1995 and 2002 Turks lost many billions of euros through fraud in the name of Islamic holding companies. Now they have strong interest in products from established banks. German established banks such as Deutsche Bank, Commerzbank and Dresdner Bank offering Sharia Compliant products but in overseas markets (Parker, 2008).<br /> Lets see when German banks take initiatives to offer the Shariah compliant products as took by conventional banks in UK such as HSBC and Lloyds TSB or they are waiting for the initiatives of German governmental institutions (i.e. the Deutsche Bundesbank and BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht)) in facilitating and promoting Islamic finance. According to Parker (2008), many German bankers and market players are interested in Islamic finance, not only as a part of a social and financial inclusion policy initiative, but also to attract more investments and facilitate greater trade and financial cooperation with Muslim countries. In this situation BaFin have to take some bold step as taken by FSA in UK. German government have to play active role in promoting Islamic Banking regardless of religion belief and create a level playing field for a health competition with conventional banks in the market and support a community-based approach is promising in the fight against financial exclusion of migrants. As we observed that demand pressure and government initiatives in the UK brought a number of innovative products and services for the low-income households (Hayen, Sauer., et al. 2005). There is still no doubt that Germany has potential of Islamic Finance due to big and stable investment market in western Europe and Frankfurt would be next hub for Islamic Finance after London. The establishment of an Islamic Bank of Germany is certain at this stage still a utopia, because this would be parallel to the procedure in the UK and state agencies are required a forward-looking vision.<br /> OBJECTIVES<br /> To study and analyze that what is the actual potential of Islamic Banking in Germany? In a country where more than 4 million Muslims are living and practicing their economic activities according to Islam. <br /> How much peoples know about Islamic Banking and what are their expectations and in which products line they are interested?<br /> Is Germany do the same regulatory changes as done by UK for Islamic financial institutions?<br /> Sub objectives<br />To develop a document through which can explains Islamic banking to the people of Germany<br /> SIGNIFICANCE OF STUDY<br />To bring out a documentation about the chances and risks of Islamic banking in Germany.<br />Research Methodology<br />In this study, I would like to bring an overall picture of prospective of Islamic Banking as compare to conventional banking in Germany. Therefore, both qualitative and quantitative methods are applied to answer the research questions. I used qualitative method to analyze of documents and materials. Hence, in the theory part, these methods is applied to exploring secondary data from books, researches and articles to give a thorough understanding of the topic and draw answers for the research questions. However, both qualitative and quantitative methods will apply in the thesis’ case study. I will use quantitative method for data collection and for this purpose, I will do the survey questionnaire with a number of respondents and other numerical data will collect from German Official websites. Therefore, this method is able to generalize the findings beyond this study. <br />Universe<br />During survey I do not discriminate between Muslim and non-Muslim. I delivered the survey links to everyone in Germany. I think Islamic Banking is not specific for targeted group, it is for everyone and anyone can avail the services of Islamic Banking.<br />Unit of Analysis<br />It was necessary to fill out one questionnaire only by one person because every single decision is very important for any market strategy. Islamic Banking is not specific for a group or a community banking.<br />Sample of Size<br />For studying the potential of Islamic Banking in Germany 150 respondents will be randomly selected.<br />Data Collection<br />In order to carry out an academic investigation, it is necessary to decide how to collect the data. There are two kinds of data: primary and secondary. A self-completion questionnaire will be used to collect primary data. A self-completion questionnaire is one of the most cost-effective ways of collecting data (Kent, 2007). The questionnaire is designed from a set of questions whose purpose is to gather the particular data.<br />Tools for data collection<br />A questionnaire is essential for this research in order to evaluate each of the critical success factors. For the purpose I will use online free of cost survey tool “SurveyMonkey.com” and developed my questionnaire. <br />Techniques for data collection<br />In the SurveyMonkey.com, an option is available through which one can share the link on “Facebook.com” or can copy the link and send it by email to friends. I will try to contact my friends for gather-required database. For this purpose, I will use Internet Social Networks like Facebook.com, StudiVZ.de and by email. Apart from online survey tool, I will also use the hard copy of questionnaire in order to conduct the face-to-face interview with respondents in different places.<br />Data Analysis<br />The data collected will be statistically analyzed using the appropriate design to interpret results of the study.<br />References and Appendices<br />References<br /><ul><li>Chapra, U. M. (1985). "Toward a Just Monetary System". Liecester: The Islamic Foundation.
Hassan, M. K., & Lewis, M. K. (2007). Islamic banking: an introduction and overview. Cheltenham, UK • Northampton, MA, USA: Edward Elgar
Loeffler, R. (2010, January 25). "CDU-Politiker: Von islamischen Finanzregeln lernen". 2. (M. Bunjes, Interviewer) Germany/BW: Evangelisch.de.
Parker, M. (2008, November 10). "Islamic Finance gaining grounds in Germany". Retrieved June 15, 2010, from Institute for Islamic Banking and Finance : http://www.ifibaf.com/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=17&cntnt01detailtemplate=news_english&cntnt01returnid=127
Pauly, C. (2009, October 27). "Sharia Banking comes to Germany". Retrieved June 25, 2010, from www.businessweek.com/globalbiz/content/oct2009/gb20091026_154613.htm
Usmani, M. T. (1998). "An Intorduction to Islamic Finance". Karachi, Pakistan: Idaratul Maarif.
Usmani, M. T. (2009, 10). "Looking for New Steps in Islamic Finance". (A. D. Gennaro, Ed.) Shirkah, Swiss Magazine , p. 55.
Gassner, M. S. (2005, July). "Islamische Baufinanzierung/Modelle und Produkte". Immobilien und Finanzierung , 12, p. 2.
Gassner, M. S. (2004). "Regulatory Framework of Germany - Opportunities for Structuring Shari'a Compliant Financial Products". Havard Forum on Islamic Finance (p. 11). Harvard Law School: Islamicfinance.de.
el-Mogaddedi, Z. (2008, January 13). "Islamic Banking – Deutschland schläft, London gewinnt". Retrieved October 25, 2010, from banklounge: http://www.banklounge.de/index.php?id=130&no_cache=1&tx_ttnews[tt_news]=35353
El-Mogaddedi, Z., & Chahboune, J. (2008). "Islamic Banking - das Marktpotenzial in Deutschland". Kreditwesen , p. 34.</li></ul>Other sources<br />http://www.sbp.org.pk/<br />http://www.bankislami.com.pk/faqs/#?1<br />Online Encyclopedia: http://www.encyclo.co.uk/define/profit<br />http://www.dib.ae/en/index.htm<br />http://www.arabcci.org/services_islamicfinance.htm<br /> <br /> Source: Dr. Zubair Usmani (2009), Shariah Advisor MCB Bank Ltd. Pakistan<br />Questionnaire for Survey<br />Its purpose is to obtain your response, which in turn will be use to determine the people’s perception towards Islamic Banking or Shariah (Islamic law) compliant financial institution in Germany. All information is strictly for statistical purposes only and will be use in my Master Thesis. <br /><ul><li>Strongly Agree Moderately Agree I don't knowModerately DisagreeStrongly Disagree
Do you understand the key concepts of Islamic Banking?
Are you aware that the payment or receiving of Riba (Interest), which is currently the only type of banking available in Germany, forbidden by the Holy Books (Quran and Bibal)? (For example Interest gained from a savings account and Interest payment on Loan)
What is your opinion about the following statement:</li></ul>Islamic Banking may be a good choice after the huge risk of Current Conventional Banking Crisis. (You choose only one)<br /><ul><li>Strongly Agree Moderately Agree I don't knowModerately DisagreeStrongly Disagree
If your bank open up a facility exclusively on the principle of Shariah, would you like to transfer your account into Islamic Banking?