Challenges Facing Islamic Banks: Evidence from Iraq and GCC Countries
Abstract Islamic banking is a new system that has started operating several decades ago. Its principles emanate from the religion of Islam and it is different from conventional banking system. Due to its characteristics and novelty of the system, it faces many challenges wherever it operates in various degrees. While many studies have been conducted on the subject in general, there is insufficient research on Iraq. The objective of this research is to investigate challenges facing Islamic banks (IBs) in Iraq and GCC countries in terms of Shariah, Legal and regulation, institutional and operational aspects. For this purpose, Semi-structured interviews and open-ended survey questions have been used to collect data. Participants included academics, IB CEOs, managers, Shariah advisors, Shariah supervisory board (SSB) members, customers and Central Bank employees and a total of twenty eight face-to-face interviews are conducted in Iraq. In addition, seventeen completed survey questions were obtained from GCC countries and Iraqi respondents. To the best of the researcher’s knowledge, this research is the only study that investigates this topic which includes Iraq and GCC. The data has been analysed using thematic analysis. The results show that IBs in Iraq face more challenges and are exposed to greater impacts of the challenges compared to IBs in GCC. According to the respondents, challenges such as legal and regulation, Shariah supervisory board related challenges, payment default and penalty, lack of Central Banks’ support, liquidity challenge, political and economic instability, customer awareness and trust, lack of qualified staffs, Shariah rules violation, monopoly and lack of online banking are more detrimental than the others. Therefore, a conclusion can be drawn that the authority in Iraq, in order to develop the Islamic banking system, must take several fundamental steps. It should amend the Islamic Banking Act No. 43 of 2015, to such a degree that comprise all the legal and Shariah governance requirements for the industry, be supportive and act as the lender of last resort. Moreover, it should also eliminate all kinds of monopolies to provide a level playing field for all banks. On the other hand, IBs must strive to overcome challenges such as customer awareness and trust, lack of qualified staffs and Shariah violations.
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