The relationship between Islamic banking theory and practice
This thesis is designed to investigate the practice of Islamic banks within different economic, financial, social, legal and religious environments, with a view to determining whether or not the Islamic banking theory is reflected in practice. It covers three Islamic banks working in different environments: in London where Al-Baralca International Bank Limited works as an Islamic bank in a non-Islamic country; in Jordan where Jordan Islamic Bank works as an Islamic bank in an Islamic country and in Turkey where Al-Baraka Turkish Finance House works as an Islamic bank in a secular country with a predominantly Muslim population. The major findings are: 1 The study shows that while P.L.S. is central to the theory of Islamic banking, in practice it is peripheral. None of the banks studied looked at P.L.S. contracts as a contract which should dominate their transactions because it was perceived to be too risky to be adopted and it had too many loopholes from a commercial point of view. Morabaha was the main type of transaction adopted by all three banks. 2 Islamic values do shape strategic goals and determine the priorities of the Islamic banks. Islamic banks do not violate Islamic law, even for guaranteed profitable deals. The three criteria by which Islamic banks assess a possible financial project are: (i) that it does not violate Islamic law; (ii) that it should maximize the bank's profit; (iii) minimize perceived risk. 3 Whether the Islamic banks are operating in an Islamic banking system is not a decisive factor in their success or survival, what is decisive is that the peculiar nature of Islamic banks is to be secured by specific legislation. 4 One of the major problems facing Islamic banks is to find long, medium and short-term investments which are at once commercially effective and Islamically acceptable. In particular, Islamic banks will, at least in the foreseeable future need to focus on a complementary role, providing an avenue for Muslims to save and invest in an Islamically acceptable way.
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