LUẬN văn THẠC sĩ (KINH tế) can ireland become a centre of centre of excellence for islamic finance

44 5 Discussionsandrecommendations 5.0Introduction………...485.1 Researchobjectivediscussed………... Chapter 1: Introduction... 2.2 Principle Islamicfinancestressestheimportanceofmaintaining“m

cetoDublinBusinessS c h o o l a n d

L i v e r p o o l JohnMoore‟sUniversity

May2013

Ideclaret h a t noportionoft h i s dissertationhasbeensubmittedf o r assessmentt o D u b l i n D u b l i n BusinessSchooloranyotherinstitutions.Ialsodeclarethat

alltheworkinthisdissertationi s entirelym y ownexceptforspecificresourcest

h a t hasbeenplacedi n invertedc o m a s andarereferencedtotheoriginalsourceavailableinthebibliography

Signed:

……….Date:

………

InthenameofAllah,MostBeneficent,MostMercif ul

ListofFigures………

….ListofTables………

Acknowledgement………

……… Abstract………

………

1 Introduction 1.0Background………

….1 1 Interestinthesubject………

… 1.2Researchframework………

………

1.3Organization………

i ii i ii i 2 3 3 4 2 LiteratureReview 2.0IntroductiontoIslamicfinance………

7

2.1Principle ofIslamicfinance……… 7

2.2SignificanceofIslamicfinance………

9

2.2.1DevelopmentandgrowthofIslamicfinance………

92 2 2 Potential………

10 2.3Islamicfinance models……… 12

2.3.1 Isl amicfinanceinPakistan……… 13

2.3.2 Isl amicfinanceinMalaysia……… 13

2.3.3 IslamicfinanceinUnitedKingdom………

14 2.3.4Conclusion……… 15

16 2.4.1Islamicfinance products………

16 2.4.2Regulation……… 21

2.4.3Sharia Bodies……… 22

2.4.4Education……… 23

2.5IslamicfinanceinIreland………

24

3 ResearchMethodology&Methods

3.0 Introduction……… 273.1 Researchquestion……… 27

3.2 Structureof Research

3.3 Researchphilosophy……… 28

3.4 Researchapproach……… 29

3.9 Dataanalysis–Groundedtheory……… 323.10Coding……… 343.11Validity

andreliability……… 343.12Ethics……… 36

4 Findings

4.0 Introduction……… 384.1 Datacollection……… 38

4.2 Dataanalysis……… 384.3 Validityand reliability………38

4.4 Findings……… 39

warenessofIslamicfinance……… 39

4.4.2 Whatisneeded to bea“Centreofexcellence”for Islamicfinance?40

4.4.3What hasbeendone?………

424.4.4ComparisontootherIslamicfinancialmarkets………

4.4.5Whatelsecanbedone?……… 44

5 Discussionsandrecommendations

5.0Introduction……… 485.1 Researchobjectivediscussed………

515.3Limitations……… 525.4Contributiontotheindustryandfutureresearch………

7 Self-reflectiononownlearningandperformance

7.0Introduction……… 577.1Background……… 577.2L e a r n i n g style……….57

Acknowledgement

Firstly,Iwouldliketoexpressmygratitudetotheintervieweesthathasbeennothingbutniceandcooperativeduringtheconductoftheinterview

Tomylovelysupervisor,Mr.CormacKavanaghthankyouforalwaystheretoprovideguidanceandsupport

Mostimportantly,Iwouldliketosincerelythankmyfamily-fromAbahtoLiafortheirnevere n d i n g support.Iwouldn‟thavedonethiswithoutyou!

SpecialthankstomytwinTiniforaccompanyingmethroughthesleeplessnights.Thankyoutom y bestfriendsandhousematesfortheendlessencouragementandfinallyPco,thankyouforsuggestingthistopic.Youguysarethebest!

Finally,thankyoutoDublinBusinessSchoolanditsfantasticlecturersfortheopportunityandg r e a t experiencewhileIstudiedhere

Thisresearchwasundertaken targetingthe IrishfinancialmarketwhereIslamicfinanceisthem a i n focus.ItisaresearchinstigatedbytheIrishgovernment‟sannouncementinthesummerof2 0 1 2 whereitaimstobea“Centreofexcellence”forIslamicfinanceinEurope.Therefore,thisresearchwillhelpidentifyhowIrelandcanachievethisobjective

Threei n t e r v i e w s w e r e c o n d u c t e d w i t h professionalst h a t ared i r e c t

l y i n v o l v e d i n t h e IslamicfinancesysteminIreland.Findingsfromdata‟scollectedaretranscribedandcodedtoprovideguidanceforinterpretations

Thestudyshowst h a t t he re is a veryslowprogressoft he developmentofIslamicfinancein Ireland.Thecorrelationbetweentheprimaryandsecondarydataofthisresearchshowsthatinidentifyingwhati s neededt o bea “Centreo f Islamicfinance”a n d w h athasbeend o n e forIslamicfinanceinIreland,atthemomentthereislittledonebyIrelandtoachievethisobjective.ThussuggestingthattherearealotmoreIrelandhastodotofillthisgap.TheresearchfindingsshowthegovernmenthasabigroleinthedevelopmentofIslamicfinance.Participantsfeelthatt h e governmentshouldbetheonetoinstigatethemarketasprovenbyothersuccessfulmaturemarkets

Chapter 1:

Introduction

1.1 Background

Followingtheeconomiccrisisin2008,manyfinancialinstitutionsacrossAmericaandEuropestruggledtosurvive.Howeverinthiswake,theMiddleEastinparticularhasshownlittleeffectfromthe propertybubble.Expertsa rg ue t h

a t t hi s ma y bed u e t o adifferentfinancialsystemc a l l e d Islamicfinance.Sincet h e n , non-

Muslimcountriesi n Europel i k e Ireland,FranceandLuxemburghaveshowninterestintheIslamicfinancingmarket

InIreland,TánaisteandMinisterforForeignAffairsandTrade,Mr.EamonGilmoreTDattheInternationalFiscalAssociationIrelandS e m i n a r i n April2 0 1 2 addressedt h e i n t e n t i o n oft h e IrishgovernmenttoventureintotheIslamicfinance market.Whenaskedwhatmotivatedthem o v e , hesaid“thisGovernmentisdeterminedtodealwiththecrisis,topromotegrowthandj o b creation,andtore-gainoureconomicindependence”

Thisventureisalsopartofthesixstagesofgovernment‟seconomicstrategy.Headdedthat“ o n e ofthemanylessonsofthecrisisforIrelandistheneedfordiversification.Wecannoteverrelyonthedomesticeconomyasmuch aswedidduringthepropertyboom,andwecannoteverrelyagainonanyoneindustrysectoror m a r k e t ” , thus r ea li zi ng the r o l e ofIslamicfinancein Ireland.EndaKenny,Ireland‟sPrimeMinisteralsostresseshisintentiontomakeIrelandasa“ c e n t r e o f excellence”for Islamicfinance inEurope

Reddan(2012)arguesthatbyprovidingaShariacompliantproduct,Irelandwillabletoattract“wealthyinvestors”fromtheMiddleEast.PricewaterhouseCoopers(PwC,2012)reportedthatIslamicfinanceisahighgrowthmarketandtheyestimatedthatIrelandisalreadyalocationfor2 0 % ofIslamicfundsdomiciledoutsideoftheMiddleEast

Inaddition,IrelandhasagoodrelationshipwithotherexistingIslamicfinancemarketsuchasMalaysia,TurkeyandBahrain(Reddan,2012)throughthetreaties.OnNovember2011,Ireland‟sC e n t r a l BanksignedaMemorandumofUnderstanding(MoU)withtheSecuritiesCommissionofMalaysia,marksanewpa

TheIrishgovernmenthasbeenworkingontoaccommodatetheIslamicfinanceinIrelandforsomet i m e now.F o r ex am p le, in th ei r FinanceB i l l 20 10 regulationadjustmentsw a s ma d e t o accommodateSharialaw(Islamicwayofdoingbusiness).Reddan(2012)statedthattheg o v e r n m e n t havepublished„extensivetaxlegislation‟inthe FinanceBilltofacilitateIslamicproductssuchasdebtcapitalmarkets,securitizationandinvestmentfunds.Thearticlefurther

explainedthatSukukorbondshavebeenactivelytradedintheIrishStockExchangesincethel e g i s l a t i o n changes,forexamplea$2billionSukuklistingbyGoldmanSachsin2011.

1.2 Interestinsubject

Beforecomingtodecideonthisresearchtopic,the researcherhasalreadyobtainedaq u a l i fi c a t i o n forCIMADiplomainIslamicfinance.Inaddition,theresearcherlivedinMalaysiaandasaMuslim,Islamicfinanceis afamiliar topicfortheresearcher.Thetop ic cametotheresearchers‟attentionwhenlookingforadissertationtopicwhichsincethenenticedtheinterestt o exploreIreland‟seffortinbringingthesystemtoitscountry

However,astheannouncementfortheventureisfairlynew,thereislittleinformationavailableonhowthisinitiativewilltakeplace.TherearealsoquestionsonwhatbenefitdoestheIslamicfinancebringsespeciallyaccordingtoWorldBankandThejournal.ie,Ireland‟sMuslimpopulationaccountst o only4 9 , 2 0

0 peopleoutofi t s 4 , 4 8 7 , 0 0 0 population.Ina d d i t i o n , i t i s reportedt h a t BankofIrelandandAlliedIrishBanks( A I B ) t h e t w o IrishbiggestbankshaveconfirmedthattheydonotofferanyShariacompliantproductstotheircustomer

Hence,t h e researcherrealizedt h e potentialandopportunityfort h i s topict

o beexplored.Furthermore,th is researchi s importanta s it h e l p assessw hetherIrelandca nb ea “Centreo f excellence”forIslamicfi n a n c e andhelpexplainwhatt h i s phenomenoni s reallyabout,andperhapsreducingtheskepticismofthepubliconIslamicfinance.Inaddition,whiledoingthisresearchtheresearcherhopestogainfurtherunderstandingofIslamicfinanceandalso

sharethisinteresttothepeoplearoundher

1.3 Researchframework

Saundersetal(2007)definesresearchasasystematicwaypeopledotofindoutaboutsomething.Inordertoachieveasuccessfuldissertation,a“clearpurpose”or“setofthingsthaty o u wanttofindout”hastobemadewithmuchin-depthreading,analyzingandframingthewholeobjectiveofthisresearch

ThisresearchiscarriedoutasaresultofIreland‟smissiontobea“Centreofexcellence”forIslamicfinance.Theresearcherwishestostudyontheissuesregardingwhatisneededtobea“ C e n t r e ofexcellence”forIslamicfinance,toidentifywhathasbeendonetoachievethisandtostudyotherwaysIrelandcanexploretobecomeasuccessfulIslamicfinancemarket.

Literaturesi n t h i s industryarebasedont h e studyoft h e m a t u r e m a r k e t s andaret a k e n a s a benchmarkt o showhowthesem a r k e t s haveevolvedt o bewhattheyaret o d a y Hence,t h i s dissertationcouldidentifythegapsintheIrelandcontextoftheliterature.

Chapter1–Introduction

Thefirstchapterprovidesabasicbackgroundoftheresearchandshowsabriefintroductiontot h e developmentofIslamicfinancei n Ireland.Thischapteralsoidentifiedt h e researchers‟reasonandinterestt o studyt h i s subject.Theresearchframeworkandorganizationoft h e dissertationwasalsodiscussedinthischapter

Chapter2-LiteratureReview

AliteraturereviewofIslamicfinancewasdiscussedinthesecondchaptertogivemorein-

depthunderstandingofthehistory,principles,modelsandcomponentsoftheIslamicfinancesystem.Worksbyotherscholarsareresearchedtoachieveamoreunderstandingofthesubjectmattert h a t couldhelpanswertheresearchquestionaswellasachievingtheresearchobjectives

Theoverallresearchm e t h o d o l o g y i s outlinedi n t h e thirdchapter.Thischapteroutlinest h e researchquestionandtheobjectiveittriestoachievewhilepresentingthemethod,philosophyandapproachthatwasundertakentoperformthisresearch

Meanwhile,t h e lastchaptersummarizedandc o n c l u d e d t h e researchobje

ctivet o reflectt h e overallresearch

Chapter7-Self-reflectiononownlearningandperformance

Thischapterprovidesaninsightontheresearchers‟skillanddevelopment.Th

eresearchers‟learningstyleareevaluatedi n t hi s reflectiveexerciset o assesshoweffi

cientande ff e c t i v e the researcherhasbeenthroughouttheentirecourseofth

Chapter2:Lit eratureRevie

w

IslamicfinanceoperatesinaccordancetoSharia(Islamiclaw)thatisbasedontheprinciplesandv a l u e s derivedfromthreeprimarysources-

theHolyQuran,HadithandSunnah.Hadithreferst o t h e c o l l e c t i o n ofnorm,a c t i o n s orw o r d s oft h e ProphetMuhammadort h e earlyMuslimc o m m u n

i t y , notfoundintheQuranandwasderivedfromshorttexts,storiesorsayingsastolda n d recordedby„sahabat‟(companionstotheProphet).MeanwhileSunnahisthepracticesandrulingsresultingfromthosenarratives(Warde,2000).However,Hadithh a s i t s criticismsa s i t i s deemed“apocryphal”o r seemedfabricated“ t o supporta particularpoliticalfactionoropinion,anda l o n g processofa u t h e n t i c a t i o n d i d notdispelalldoubtsabouttheveracityofcertaintexts”.Islamicgroupshaveovertheagesdisagreedt o someoftheinterpretationsas“differenttraditions authenticatedifferentHadiths”andthusc r

e a t i n g different“schoolofjurisprudence(fiqh)”.Fourmainschoolsemergedsincethetenthcentury:Hanafi,Shafii,MalikiandHanbalito“fill”inareasthatwasnotdiscussedintheQurano r theSunnah.Today,theschoolsaregeographicallyspreadtoreflectorsuitthe“favour”ofthelocals.HanbalicanbemainlyfoundinSaudiArabia,MalikisintheNorthandWestAfricaandShafiisinIndonesia,Malaysia,EastAfrica,YemenandsomepartsofEgypt(Warde,2000).Inorderto facilitatethe differences oft ho ug ht s in theseschools,Warde(2000)explainst ha t talfiqorpatchingprinciplecouldbeusedto“authorizedjudgestochooseaninterpretationfromschoolsofjurisprudenceotherthantheirown”.Thepurposeoftalfiqissothatsocietaldevelopments,innovation,exceptionsandloopholesaretakeni n t o accountwhereorwhenrequired.Thisprincipleisthereforec a t e g o r i z e d intothreewhicharet o accommodate–

localcustom(urf),thepublicinterest(maslaha)andnecessity(darura).Today,Islamicrulingsaremadeb y secularexpertso r t h e S h a r i a Boardst h a t w i l l issue“ f a t w a ” w h i c h willthenb e usedi n i t s l e g i s l a t e d area

2.2 Principle

Islamicfinancestressestheimportanceofmaintaining“moralpurity”ofitstransactions(DuranandLopez,2012) andisbasedonfourprinciples-

the prohibitionofribaorusury( interest), avoidanceofgharar(amb ig uousord oubtful contracts),preventionofinvolv ing inanyharam( i l l e g a l ) productsandencouragementofg i v i n g outz a k a t (donations)

( S h e r i n , 2 0 0 9 ) Warde( 2 0 0 0 ) singledouttwoaspectofIslamicfinancewhichisthe“risksharingphilosophy”,“achievemento f socio-

economicd e v e l o p m e n t ” (Sherin,2 0 0 9 ) a n d z a k a t (almsgiving)w h

e r e

Fromtheabove,aprinciplethatstillposesasamainchallengeinthemodernworldisRibaorusury(excessiveinterest).Ri b a orusurycanbeexplainedfromth

“Oyouwhohavebelieved,donotconsumeusury,doubledandmultiplied ,butfearAllahthatyoum a y b e successful.”(3:130)

“If yedoitnot,Take noticeofwarfromAllahandHisMessenger:But if ye turn

back,yeshallhaveyourc a p i t a l sums:Dealnotunjustly,andyeshallnotbede altwithunjustly”.(2:279)

Thebanoninteresthasalreadyexistedinthepre-Islamicworld.DuringtheMesopotamianera,“ t h e Hamurabicode(1800BC)placedlimitsoninterestratesandbannedcompoundinterest”.Aristotleontheotherhandarguedthatinterest“shouldbeameansofexchangeandshouldnotb e allowedtomultiply”meanwhiletheRomansallowedinterestbutregulatedtheinterestrates(Algabid,1990;Warde

2000).AccordingtoWarde(2000)allthree

religion-Judaism,Christianitya n d Islaminthe earlier yearsconsideredthatthe

“prosperous (the lender)had a duty

toassistthen ee d y ,

ifnotbygifts,atleastthroughinterest-freeloans”.Althoughitisinitiallybannedbyallthreereligions,the“denigrate”ofinterestbytheChristians,loopholes

and“growthincommerce”(Hassana n d Lewis,2007)h a v e i n v o k e d innovatio

nt o f e e d “ n e w financialn e e d s ” a n d finallyi n fl u e n c e d thefinancialsystemtoday(Warde,2000)

RibacanbedescribedinIslamasatransactionbetweentwopartieswhereitinvolvestransferofv a l u e (commodityorcurrency)w i t h o u t a samevaluet o match.Therefore,i t i s describesa s “ w r o n g d o n e ” t o t h e otherpartythrought

h e “unearnedo r unequallydistributivei n c o m e ” (Ismail,2013)

Sohowd oes Islamicfina nce profit?

Udovitch( 1970) explainstha t Muslimcomm unity inthe earlyy e a r s designedc o n t r a c t s t o prohibitribabyemphasizingont h e profitandl o s s sharingmechanism,alsoc a l l e d asmudharabaorq i r a d Othera l t e r n a t i v e alsoincludesimposingfi x e d chargesoractingasabuyingagentforafee

However,Islamicfinancef a c e d w i t h a l o t ofc h a l l e n g e s whenm o d e r nfinanceandwesterncolonialexpansionenteredtheIslamicworld(Issawi,1996).Atthetime,fundsweresuppliedfromforeignbankstoIslamicgovernmentsthroughloans,thusinvolvinginterestpayment.Buti t i s n o t u n t i l t h e e n

d o f colonialism,Islamiccountriesh a s t a k e n a c t i v e measurest o “controld e

v e l o p m e n t a n d economicp o l i c y ” b y nationalizingb a n k s a nd t h e establishmento f “ n a t i onalm o n e t a r y authoritiesandcentralbanks”ofthenewlyindependentstatesthatissuestheir owncurrencies.Thise ff o r t , a l s o c

a l l e d a s “Islamicizing”t h e e c o n o m i c systemsm e a n s t h a t a l l t h i s w h i l

e Muslimandthegovernmenthave“learnedtolivewithinterestandwithmodernfinance”a n d wasjustifiedbyMuslimscholars‟consensusthatitisacceptabletodealwithconventionalbanks(withinterest)ifIslamicinstitutionsisnotaccessible(Warde,2000)

(Wilson,1995)

Later,IslamicDevelopmentBank(IDB)wascreatedbytheOrganizationoftheIslamicC o n f e r e n c e (OIC)in1974toactasthe“worldbankoftheMuslimworld”to“fostereconomicd e v e l o p m e n t andsocialprogress”ofits56membersinaccordancetotheSharia.Theestablishmentofthebankisafoundat