Islamic bank vs. Dubai bank

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Chapter 1: Introduction

1.1- Introduction

This chapter discusses the aims and objectives of the project. A detailed background of the study, research rationale and theoretical framework has also been discussed in this chapter. At the end of this chapter, the report structure of this thesis is mentioned.

Research Title

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Islamic Bank of Britain vs. Dubai Islamic Bank (A Comparative Study)

1.2- Background of Study

Islamic banking is very different as opposed to conventional banking, as it works on the principles of Islam and Sharia which entails avoiding interest and gives more preference to invest in a business and in sharing of profit and loss.

There are several Islamic banks all over the world and all of them operate on the Sharia principles, however some progress to profit and some decline to loss and a prime example of this is the Islamic Bank of Britain.

The Islamic bank of Britain was founded in 2004 by a group of Middle East investors. This was the first Islamic Bank in the United Kingdom. The formation of this bank was based on the simple foundation of Sharia conduct with typical products and services, however the bank underperformed, more so than anticipated. Losses were evident from the initiation of its business in the United Kingdom. Moreover, according to Financial times and its 2008 income statement, a loss of was highlighting, displaying major cause for concern.

On the other hand, the Dubai Islamic Bank which was founded in UAE by Arabic investors and also adheres to Sharia principles has reported quarterly profit of US$ 122.5 million. This then raises the questions as to why Islamic Bank of Britain has been unable to attract the customers and what are the main factors causing losses for the bank every year.

1.3- Research Aim

The aim of conducting this research is to discover the factors and causes’ troubling Islamic banking in United Kingdom as one of the major Islamic bank has accumulated losses for a considerable period of time, although its entrepreneurs are from the Gulf where Islamic banking has been growing and prospering. Moreover the rules of Sharia apply whether the Islamic Bank is in the UK or in UAE.

After uncovering the underlying causes of the Islamic bankings’ plight in the United Kingdom recommendations will be drawn up to rectify the situation and highlight how improvements can be made. Circumstances will further be examined in form of comparisons between the United Kingdom and the UAE Islamic banks.

1.4- Research Objectives

The objectives of this research are as follows:

  • To investigate the performance of Islamic banks in UK and UAE
  • To explore the reasons that affect the performance of Islamic Banks
  • To study the investment portfolio of Islamic Banks in UK and UAE
  • To analyse the impact of risks on the performance of Islamic Banks in UK and UAE

1.5- Research Rationale

Islamic banking is a relatively new topic in the financial sector and especially in UK where the first Islamic bank started its business only in 2004.

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