* Use simple words and language , put charts about how the financial crises affect Islamic banking sector and non Islamic Banking sector .
* Make sure there is no copy , PLEASE stuck with Gulf council countries ( GCC ) .
* put a general comparison between Islamic banking and non Islamic banking in (GCC)
* Put charts and Tables with numbers that shows how the financial crises affect the banks sector in GCC in both Islamic Banking and non Islamic banking .
* Explean why the non Islamic Banking affected by financial crisis more than Islamic banking
The effect of financial crisis on Islamic banking Compared with non-Islamic banking in Gulf council countries (GCC)
This paper delves into the effects of financial crisis on Islamic banking compared with conventional banking in the gulf council countries (GCC). It is noted that Islamic banks performs better during financial crisis than their conventional counterparts, largely because of the distinctive principles imposed to them by shariah law. Essentially, Islamic banking and finance operates on a justice principle, which is fulfilled largely through the sharing of risk. On the other hand, the conventional intermediation is debt based, which allows for risk transfer, and which contributes most to risk exposure during a financial crisis. The paper will also discuss the key features of GCC economy, and that one of Qatar in particular. The economic features of this region will be tied to the factors that led to a better performance of IBs in GCC, during 2008 financial crisis.
The largest Islamic banks (IBs) belong to the countries of the Gulf Cooperation Council (GCC). The 2008-2010 global financial crises brought a fresh perspective on the relationship between financial stability and Islamic banking, especial in relation to the flexibility of such an industry during financial crises. Some specialists have argued that the Islamic banks were less affected by the financial crises because of their risk-sharing and asset-based nature as well as the fact that they do not deal with the kind of assets associated with most of the losses that non-Islamic banks suffer during financial crises. Still another section of experts argue that the Islamic Banks, just like the non-Islamic banks, have depended on leverage and have taken on considerable amounts of risks that expose them to the second phase impact of the global financial crises (Čihák & Hesse, 2008).
By and large, Islamic Banks suffered less risk compared to non-Islamic banks during the 2008 financial crisis, especially considering that the non-Islamic banks suffered the largest losses in Europe and the US. A close study on 2008 financial crises shows that Islamic Banks did better, in terms of profitability, than the non-Islamic banks. This situation, however, retracted in 2009 as the impact of the crises became more real. Islamic Banks from GCC continuously showed a growth in assets and credit that surpassed the non-Islamic banks in all countries, apart from UAE (Čihák & Hesse, 2008).
The nature of Islamic banks business model played a key role in containing the unfavorable effect on their profitability during 2008 financial crisis. Additionally, some Islamic banks experienced a weakness in risk-management practices, which led to larger reduction in profitability compared to non-Islamic banks in 2009. Essentially, Islamic banks maintained stable external ratings and achieved a relatively stronger demand for credit, courtesy of their higher solvency and lower leverage (Čihák & Hesse, 2008).
The GCC region has the largest confirmed oil reserves in the world, with up to 486.8 billion barrels, which accounts for 35.7 percent of all the oil reserves in the world. As a result, this region is the largest producer and exporter of petroleum oil, globally. The region consists of six countries, which have enjoyed an impressive economic explosion until late 2008, when the effects of global financial crises became unbearable. Between 2002 and 2008, the economy of GCC tripled in size to $1.1 trillion. The GCC member countries takes up 49% of the total OPEC crude oil production and 52% of the total 52% of the total OPEC oil reserves. The regions’ oil and gas sector takes up about 73% of its total exports earnings, 41 of its GDP, and about 63% of the government’s revenue. The annual average OPEC’s oil price reduced by 35.4% to $61.06 per barrel in 2009 vis a vis US$ 94.45 per barrel in 2008. This decline was essentially as a result of the global financial crisis and the fall in world energy demands. The fall in global oil market attributable to the global financial and economic crisis decelerated the rate of investment and development projects, but it is expected that the current global economic resurgence will stimulate a quick recovery in the region.
The economy of Qatar
The economy of Qatar is largely dependent on petroleum, which represents more than 70% of the total government expenditure, approximately 85% of its exports earnings and more than 60% of its GDP. Qatar has a per capita GDP that ranks among the highest globally, thanks to its large oil reserves. Qatar’s proved natural gas reserves accounts for more than 5% of the global total and it is ranked third largest in the world. The banking sector of Qatar was not directly affected by 2008 financial crises, though it experienced some slight aftershocks. By and large, during the last quarter of 2008, Qatar emerged the best performing of the GCC markets, when most of its banks enjoyed substantial profits. However, the banking sector has experienced problems such as a forced reluctance to lend, declining customer confidence, and issues of liquidity.
Impact of financial crises – conventional vs. GCC Islamic Banks
Although both Islamic banks (IBs) and Conventional Banks (CBs) have a key role in acting as financial intermediaries in easing moral Hazard and Asymmetric Information, the adherence to Shariah principles give IBs a distinctive feature that significantly determines how such banks are affected by financial crises. In line with Islamic jurisprudence, the transaction can be allowed by default if there is no apparent prove for prohibition. Consequently, this fundamental principle grants Islamic Finance development a greater flexibility. There are two basic prohibitions that account for all distinctions between contracts considered legitimate or illegitimate; that is, Gharar and Riba. The latter means any untenable increase of capital in form of fixed interest rate and the former means the speculative character, which includes any transaction involving gambling. The two principles lead to the implication of money as a unit of measurement, a store of value and as a medium of exchange, rather than a commodity. The arrangement of Islamic finance rotates around the prevention of any interest or any ex ante proceed accumulated on any loan/debt (Riba). Gharar is also forbidden; it engages risk, insecurity, lack of sufficient value -pertinent records (jahl) and assumptions.
Islamic finance segment is ranked as one of the fastest growing in the world; therefore, it has become an essential consideration in other markets. While Islamic intermediation is asset-based and focuses on risk sharing, the conventional intermediation is primarily based on debt capital, whereby risk transfer is freely condoned. This feature goes a long way to providing IBs with supplementary shields and brings their activities closer to the real economy. Additionally, their distinctive features seem to curtail their role in bubbles and excesses. In view of this, Islamic banks performed relatively well than their conventional counterparts during the recent financial crisis (Imam & Kangni, 2010).
Figure 1: pre-crisis profitability of IBs and CBs
The Islamic banks business model largely played role in restraining the negative impact on profitability in 2008. On the other hand, poor risk management practices by some Islamic banks contributed to greater decline in profitability in comparison with conventional banks in 2009, as shown in Figure 3. Specifically, compliance with Shariah laws ruled out Islamic Banks from investing or financing in the kind of assets that have negatively affected their conventional counterparts and stimulated the global financial crises, such as the real estate interest bearing sector (Imam & Kangni, 2010).
In some countries, a deplorable performance was experienced as a result of sectoral concentration, which was sometimes stimulated by exceptions from concentration limits. This brought to light the significance of intensification of risk management and ensuring neutral regulatory framework for Islamic Banks and Conventional banks. Although Islamic banks recorded higher profitability prior to the 2008 global financial crisis, their average profitability for 2008-09 was comparable to that of conventional banks, implying a better cumulative performance for pre and post crisis period. Comparison of the profitability of IBs with CBs is illustrated in figure 1 (Aziz, 2009).
Figure 2: Impact on profitability as a result of the crisis (IBs vs. CBs)
During the financial crisis, the credit and asset growth of Islamic banks was at-least twice that of conventional banks – this implies a larger supervisory accountability and growing market share. Figure 2 shows how the Islamic banks experienced just minor effects on their profitability, during the early stages of the crisis, while their credit and assets remained strong. The IBs’ higher solvency has helped them meet their healthy demand for Islamic finance as well as maintaining healthy external ratings………………………………………………………………………..
For more on this paper, click here
To get a custom written paper in this or any other topic, click here
Expert consultations to help you with studies
We have competent advisors in majority of main subjects
We are available around the clock and all over the world
We promise to meet your expectations or your money back
Place your order now
Our Service Charter
Excellent Quality / 100% Plagiarism-FreeWe employ a number of measures to ensure top quality essays. The papers go through a system of quality control prior to delivery. We run plagiarism checks on each paper to ensure that they will be 100% plagiarism-free. So, only clean copies hit customers’ emails. We also never resell the papers completed by our writers. So, once it is checked using a plagiarism checker, the paper will be unique. Speaking of the academic writing standards, we will stick to the assignment brief given by the customer and assign the perfect writer. By saying “the perfect writer” we mean the one having an academic degree in the customer’s study field and positive feedback from other customers.
Free RevisionsWe keep the quality bar of all papers high. But in case you need some extra brilliance to the paper, here’s what to do. First of all, you can choose a top writer. It means that we will assign an expert with a degree in your subject. And secondly, you can rely on our editing services. Our editors will revise your papers, checking whether or not they comply with high standards of academic writing. In addition, editing entails adjusting content if it’s off the topic, adding more sources, refining the language style, and making sure the referencing style is followed.
Confidentiality / 100% No DisclosureWe make sure that clients’ personal data remains confidential and is not exploited for any purposes beyond those related to our services. We only ask you to provide us with the information that is required to produce the paper according to your writing needs. Please note that the payment info is protected as well. Feel free to refer to the support team for more information about our payment methods. The fact that you used our service is kept secret due to the advanced security standards. So, you can be sure that no one will find out that you got a paper from our writing service.
Money Back GuaranteeIf the writer doesn’t address all the questions on your assignment brief or the delivered paper appears to be off the topic, you can ask for a refund. Or, if it is applicable, you can opt in for free revision within 14-30 days, depending on your paper’s length. The revision or refund request should be sent within 14 days after delivery. The customer gets 100% money-back in case they haven't downloaded the paper. All approved refunds will be returned to the customer’s credit card or Bonus Balance in a form of store credit. Take a note that we will send an extra compensation if the customers goes with a store credit.
24/7 Customer SupportWe have a support team working 24/7 ready to give your issue concerning the order their immediate attention. If you have any questions about the ordering process, communication with the writer, payment options, feel free to join live chat. Be sure to get a fast response. They can also give you the exact price quote, taking into account the timing, desired academic level of the paper, and the number of pages.