Islamic Financing and Islamic Banking Harvard Case Solution & Analysis

Islamic Financing and Islamic Banking Case Solution

1 Introduction

Islamic finance and Islamic banking became recognized since three decades and became more accepted in the past years. For instance, in 2009 there were more than 300 Islamic banks globally. According to EY there are two trillion USD Shariah compliance. The basic concept of Islamic finance is based on the prohibition of interest; therefore, this emphasis introduced banking system that avoids interest which is named as Islamic banking. This banking system depends on trading where it shares profit and loss. Nowadays, Islamic banking system not only exists in Islamic countries but also it is established in western countries.

Introducing Islamic finance has played a key role in the economy and in the social development. It introduced various new investment and financial tools and mechanisms. Globally, the economy accepted Islamic finance for various reasons; first there is a large community that is reluctant or not dealing with interest based financial systems for religious purpose, second is the wealth of Islamic nations.Lastly, the credibility and the risk associated with the conventional finance especially after the credit crunch encouraged a lot of people to look for alternatives such as Islamic finance.

The reason behind using Islamic finance is the awareness of the community on those instruments and to define which instruments were widely used. This empirical research is quantitative research where data gathered through on-line questioners. This research is divided to five parts that include: introduction, literature review, research methodology, findings and data analysis and conclusion

The concept of Islamic finance is established on the basis of prohibiting of interest and avoids all types of interest.
What are the instruments used in Islamic finance?Why people choose Islamic finance?

Research Objectives:

1- To assess community awareness of Islamic Finance
2- To know what type of Islamic Finance instruments were widely used
3- To know why people use Islamic Finance
4- To determine how Islamic finance is perceived and used.
2 Literature Review

2.1 Islam

Islam as a religion is organizing and governing every aspect of Muslims life and behavior; it provides a guideline for morals, business, and politics, social and legal. This guideline named Shariah (Islamic law). For instance, Shariah views money as a medium of buying and selling, it does not view money as a commodity. Therefore, interest is prohibited. Economic development in Islam is not only about money creation but also about moral and social security. What differentiates Islam’s view of economy from the capitalist or the socialist is that it aims to fulfill society basic needs through reducing poverty, economic growth and wealth redistribution. Therefore, it encourages the productivity of both private and public sector (society) to achieve these objectives.
2.2 Islamic Finance

The Islamic economy and finance is derived from the Islamic law (Shari'ah) (Warde, 2010). In other words, it is based on two resources that which is promoted by the Qur’anic Scripture and the traditions of Prophet Muhammad, embodied in the authentic Sunnah, which includes all of his actions, sayings and approvals (Iqbal and Mirakhor, 2011). So, it means that all activities related to finance and economy should be compliant with the rulings of the Islamic Shari’ah. Therefore, Islamic finance is considered to be the only authentic source of finance for Muslims. It is noteworthy that Islamic finance nowadays is also used by non-Muslims due to the nature of the principles that govern it (Abdullah et al., 2012).


The basic principle in Islamic finance is the prohibition of the payment of or receipt of interest (called Riba), in other word it is an interest-free system. Basically, interest or usury means a guaranteed return achieved as outcome of the lending activities. Islamic scholars argued that Riba was prohibited because interest is both unjust and illogical (Ayub, 2009). The principle guarantees return because of the need to borrow is condemned in the Shari’ah. Only sharing of profits and loss or sharing risks is acceptable where lenders share profits or loss with the other party, according to the Shari’ah, The concept of sharing is enforced to ensure social welfare occurs between all parties (Visser, 2013)..................

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