Exploring Challenges and Opportunities of Islamic

Banking in the Arab World

Submitted by:

Ahmed Sameeh Abdel-Rady Hassan

Research Methodology Paper

Submitted to the Management Department

Faculty of Management Technology

The German University in Cairo

Student registration number: 28-9287

Group number: T17

Name of Supervisor: Dr. Raghda El-Ebrashi

Name of TA: Ms. Rasha Rushdy

Date: Thursday, December 18, 2014.

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Table of contents:

1. INTRODUCTION 3

2. LITERATURE REVIEW 5

2.1 Overview on Islamic banking 5

2.1.1 Definitions and origins of Islamic banking 5

2.1.2 Principles of Islamic banking 6

2.1.3 Reasons of the emergence of Islamic banking 6

2.1.4 Islamic forms of deposits 7

2.1.4.1 Mudarabah (capital trusts) 7

2.1.4.2 Wakala 8

2.1.5 Islamic types of financing 8

2.1.5.1 Murabaha 8

2.1.5.2 Musharakah 8

2.1.5.3 Ijarah 9

2.1.5.4 Istisna’a 9

2.2 Comparing Islamic banks to conventional banks 9

2.2.1 Differences 9

2.2.2 Similarities 10

2.3 Challenges facing Islamic banking in the Arab context 11

2.3.1 Liquidity risk management 11

2.3.2 Inconsistencies between Conventional Regulation and Islamic Finance Principles 12

2.3.3 Legal framework 12

2.3.4 Insufficient expertise 12

2.4 Opportunities of Islamic banking in the Arab context 13

2.4.1 The role of Islamic banks in achieving financial stability 13

2.4.2 Other opportunities 13

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3. RESEARCH GAP 15

4. METHODOLOGY 16

4.1 Background about the concepts used 16

4.2 Instrument design 16

4.3 Sample 17

4.4 Procedures 18

5. REFERENCES 19

6. APPENDIX 21

6.1 Appendix 1: The interview questions 21

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1. Introduction

Islamic banking, which is the banking system that complies with Islamic law (Sharia’a),

witnessed a notable renaissance globally in the last four decades. The emergence of the Islamic

banking system dates back to the 1970s (Vahed and Vawda 2008: 453). Economists and

financial experts can argue about the reasons that led to such a renaissance, but the main reason

that made the Islamic banking sector a success is its steady performance during major financial

crises (mainly the oil crisis of 1973 and the real estate crisis of 2008) (Bassens et al 2011: 327).

The emergence of Islamic banks is associated with a lot of challenges and opportunities, which

differs according to contexts and different financial systems of each country (Volk and Pudelko

2010: 192).

This study is exploring the challenges and opportunities of Islamic banking in the Arab world by

investigating the major threats or problems that may hinder the progression of the Islamic

banking sector and also examining the major opportunities that may help to improve the financial

performance of this sector if they were used well (Rammal 2010: 189). We are mainly focusing

on the Arab context by taking the Islamic banking sector in the United Arab Emirates (UAE) and

Egypt as an example. We believe that focusing on such challenges and opportunities will enable

Islamic banks to enhance it financial performance through offering better financial solutions,

products, and services (Bassens et al 2008: 339).

The paper is divided to six sections, which are organized as follows: The first section is the

introduction. The second section, which is the literature review, is divided to four main

subsections. The first subsection gives an overview on Islamic banking; in this subsection we

illustrate the definitions and origins of Islamic banking, its principles, reasons for its emergence,

forms of deposits, and types of financing in Islamic banks. The second subsection is mainly a

comparison between Islamic and conventional banks in terms of similarities and differences. The

third one discusses some challenges that face Islamic banks in the Arab countries. The fourth and

final subsection illustrates the opportunities associated with Islamic banks in the Arab context.

The third section, which is the research gap, illustrates the research question that we built our

study around; it also illustrates the type of our research.

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The fourth section is the methodology. This section is divided into four subsections. The first

one gives a brief overview about the concepts used in the research. The second one explains the

instrument that we are going to use in order to collect data for our research and its design. The

third one sheds the light on the sampling process, approach, and technique. The fourth and last

subsection illustrates the procedures of the study. The last two sections in the paper are the

references and the appendix, which includes the questions that we are going to use in our

interviews with the sample we chose.

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2. Literature review

2.1 Overview on Islamic banking

Islamic banking is considered - by many credible economists and financial experts all over the

world as a rising star in the global financial sector, especially after the global financial crisis of

2008. It is one of the most important products of the Islamic financial system, which is the

financial system that abides by Islamic law (Shari’ah) in all its transactions. The topic of Islamic

banking is multidimensional, as it has various aspects to deal with. This chapter is going to

provide a background about the origins and definitions of Islamic banking, principles of Islamic

banking, reasons for its emergence, and its forms of deposits and types of financing.

2.1.1 Definitions and origins of Islamic banking

There are many different definitions of Islamic banking, however all of these definitions delivers

the same message, which is that Islamic banking is simply applying Islam on banking. According

to Volk and Pudelko (2010: 191), Islamic banking is the way of banking that operates in

accordance with Islamic Shari’ah principles (Islamic law). Rammal (2010: 189) defines Islamic

banking as the system which bans the charging of interest in any financial transaction. Vahed and

Vawda (2008: 453) agreed with Rammal by defining Islamic banking as the system that prevents

Muslims from engaging in transactions that include riba (interest). Another definition of Islamic

banking is that it is the appropriate way to do business for Muslims who want to be consistent

with Islamic teaching (Bassens et al 2008: 328).

The emergence of Islamic banking dates back to the 1970s. There were some social banks in

certain Arab countries that started to offer some Islamic financial products (IFPs) and services.

Some famous examples of these banks are “Met Ghamr Savings Bank” and “Nasser Social

Bank”. “Nasser Social Bank”, which was established in Egypt in 1971, offered IFPs including

interest-free loans to the poor, student scholarships and small business credit on a profit/loss

sharing basis (Gait and Worthington 2007: 1). The Islamic banking sector continued to evolve

until the first Islamic bank in the world Dubai Islamic bank (DIB) was established in March,

1975 in the UAE (Vahed and Vawda 2008: 453). However, the idea of establishing a complete

Islamic financial system (IFS), which Islamic banking is part of, is a little bit older. It came out

earlier in the late 1930s and early 40s. In that time, Islamic economics was seen as an alternative

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for capitalism and communism, which were the economic systems that the world was applying at

that time. Mohammed Baqir al-Sadr, a famous Iraqi jurist, saw Islamic economics as a “proper

ideological alternative to existing paradigms”. Baqir al-Sadr also stated that Islamic economics

could replace the free market economy and the centrally planned economy as an “entirely

separate system” (Bassens et al 2008: 328). The principles of this system are illustrated in the

next point.

2.1.2 Principles of Islamic banking

Principles of Islamic banking have been extensively studied by many scholars and economists in

recent years. We will just state the most important principles briefly because it is not the main

focus of this paper. Gait and Worthington (2007: 9-15) stated the basic principles of Islamic

banking as following:

- Prohibition of usury or interest (riba): Allah said in the Holy Quran a verse that

delivers the following meaning: “Allah has permitted trade and forbidden usury”.

Metwally (2006: 17) said that usury is an “addition above the principle lent”, which is

prohibited by Islam.

- Prohibition of Gharar (uncertainty): Gharar means engaging in economic activities

that are risky and include a high level of uncertainty about the return. So, it is regarded as

a sort of gambling according to Ariffin et al (2009: 154).

- Prohibition of gambling

- Prohibition of dealing in forbidden commodities: Islamic banks must not invest in

certain products, such as: alcoholic drinks, pork meat, and drugs.

- The sharing of business profits and risks

- Islamic insurance (Takaful): offering financial support to investors in certain cases.

These principles, as well as other determinants, led many Muslim economists and financial

experts to be advocates for the concept of Islamic banking, which has emerged strongly in the

last three decades. The coming subsection illustrates the reasons of the emergence of this concept

globally in recent years.

2.1.3 Reasons of the emergence of Islamic banking

Between 1997 and 2009, the value of total assets owned by all Islamic banks and financial

institutions around the world increased from just US$147.7 billion in 1997 to more than US$1

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trillion in 2009 (Vahed and Vawda 2008: 454). There are many reasons that led to this immense

improvement in the performance of the Islamic banking system in many countries around the

world. The need for Islamic banks was increasing among Muslim populations around the world

because they do not want to engage in transactions that include usury (riba). The increasing

number of Muslims in the western countries forced many conventional banks there to offer

Islamic financial products beside conventional ones (Volk and Pudelko 2010: 192). An empirical

study in Malaysia was done by two scholars in finance (Dusuki and Abdullah) showed that the

majority of Muslims in Malaysia prefer to deal with Islamic banks rather than conventional ones

because of Islamic banks offer better service quality and they have a better reputation (Al-

Tamimi et al 2009: 236).

In addition to the previous reasons, there is another one that many economists and financial

experts consider as the most important factor that helped the Islamic banking sector to flourish

more rapidly; this reason is that the financial performance of Islamic banks was not negatively

influenced by the global financial crisis of 2008 (Rammal 2010: 189). The main cause for this

crisis was something called the “real estate bubble”, which led to catastrophic problems in the

US mortgage market (Allen and Carletti 2009: 43).

After examining the reasons of the emergence of Islamic banking, let’s take a look at the

different forms of deposits and types of financing that are offered by the Islamic financial sector.

2.1.4 Islamic forms of deposits

There are a lot of different forms of deposits offered by Islamic banks and other Islamic financial

institutions. In this section we are going to illustrate the most common forms, which are

Mudarabah (capital trusts) and Wakala.

2.1.4.1 Mudarabah (capital trusts)

Gait and Worthington (2007: 15) define Mudarabah by two definitions; the first one considers

Mudarabah as a “form of profit and loss sharing”, which was used in Makkah even before Islam

was there. The other definition is that it is a contract between an investor –which can be regarded

as the Islamic bank or financial institution- and an entrepreneur; this contract makes the investor

offers financial support to the entrepreneur to help him undertake a certain project, while

demanding a portion of the profit. In case of loss, the entrepreneur is responsible for the

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operational loss, while the investor’s responsibility is bearing other financial losses. There is

another name for Mudarabah, which is Muqaradah (derived from qard, which means loan)

(Manan and Kamaluddin 2010: 104).

2.1.4.2 Wakala

According to the official website of Abu Dhabi Islamic Bank (ADIB), wakala can be a two-way

financial instrument, because it can either be a form of deposit or a method of finance. Wakala

happens when a borrower (in this case investor) authorize the bank to invest his money in certain

projects that comply with the Islamic Shari’ah, and if the project turns out to be profitable, the

bank will grant a portion of this profit according to a certain ratio; in this case wakala is

considered as a form of deposit. As we said, wakala can be also used by banks as a method of

finance; this means that the bank gives the client a permission to invest in a certain project

owned by the bank and giving him a share of profits as a reward for his efforts.

2.1.5 Islamic types of financing

There are several types of financing in the Islamic banking system. In this section, we are going

to tackle four of these types, which are Murabaha, Musharakah, Ijarah, and Istisna’a.

2.1.5.1 Murabaha

Murabaha is an Islamic instrument for buying and reselling the purchase or import of capital

goods and other commodities by institutions, including banks and firms. When an entrepreneur is

engaging with an Islamic bank in a Murabaha contract, he sends the bank an offer that includes

the prices and specifications of the goods he wants to invest in, the bank assesses this offer and

appraise it from all aspects. If the bank finds that offer a proper one, it simply purchases the

goods that the entrepreneur wants and then resell them to him with a markup (profit margin) for

the bank (Gait and Worthington 2007: 16-17).

2.1.5.2 Musharakah

Musharakah is a contract written between two or more parties; this contract means that those

parties agree to contribute factors of production (land, labor, and capital) in a certain investment

or business activity, with the intention of sharing profit or handling loss by distributing that profit

or loss among them as partners (Manan and Kamaluddin 2010: 104). According to Gait and

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Worthington (2007: 16), Musharakah contracts are suitable for financing projects and private

firms.

2.1.5.3 Ijarah

Ijarah (leasing) is a contract between the lessor (the owner of the asset) and the lessee (the

person/entity who wants to lease the asset); according to this contract, the lessor leases a capital

asset to the lessee for a certain period of time, and the lessee pays a monthly or annual rent in

return (Gait and Worthington 2007: 19).

2.1.5.4 Istisna’a

Istisna’a is considered a manufacturing contract usually used to “cover work progress in the

manufacturing and building industries” (Gait and Worthington 2007: 18). This contract usually

involves three parties: the bank, the firm or individual, and the manufacturer, who is always

considered as the third party. The idea behind this contract is that the firm or individual asks the

bank to make a certain good to use it in the business; if the bank agrees, it asks the manufacturer

to produce it; then the bank delivers the manufactured product to the client (Ariffin et al 2009:

154).

After examining the different forms of deposits and types of financing that are offered by Islamic

banks, the coming subsection will provide you with a simple comparison between Islamic banks

and conventional banks.

______________________________________________________________________________

2.2 Comparing Islamic banks to conventional banks

Although Islamic banks differ from conventional banks to a certain degree, they do have

common characteristics. The following chapter explores the main differences and similarities

between Islamic banks and conventional banks.

2.2.1 Differences

There are notable differences between Islamic and conventional banks in products and financial

characteristics. The first obvious difference is that Islamic banks follow the Islamic law

(sharia’a) in all dealings and transactions, while conventional banks do not do this. There is also

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a difference in function between the two types of banks; for example, when lending money,

Islamic banks seek to form a partnership with the borrower and share profit or loss with him. On

the other hand, the main concern of conventional banks when they offer loans is how to

maximize the spread of the bank by restoring the initial loan plus compounded interests from the

investor (Al-Tamimi et al 2009: 233).

The previous example leads us to discover another main difference between Islamic and

conventional banks, which is that Islamic banks do not charge interest on loan borrowers or

receive it from depositors, because riba is prohibited in Islam, unlike conventional banks in

which interest is the main determinant of their profitability (Soylu and Dormaz 2013: 176).

There is also another difference between the two types of banks, which is the mechanism of

house financing (mortgages), which means providing individuals with funds to enable them to

buy houses. Conventional banks offer this service by giving loans to individuals and receive

them back plus the interest. If a person cannot meet his/her interest obligation, the bank puts its

hand on the house. On the other hand, Islamic banks provide housing finance through what is

called “diminishing musharakah”. This means that at the beginning of the process, the bank and

the client purchase the house together. What the bank owns in the house is divided into

segments; the customer pays installments to the bank and with each installment paid, the

ownership of certain segments is shifted from the bank to the customer. Finally, when last

installment is paid, the ownership of the house is transferred totally from the bank to the

customer. “Diminishing musharakah” can contribute to avoiding any real estate crisis, like the

one that led to the global financial crisis of 2008; as if the market share of the house decreases,

the burden will not be placed only on the client; both the customer and the bank will bear the

burden according to the share of each party in the property (Hanif 2011: 174).

The comparison between Islamic and conventional banks is not limited to differences only, as

there are some similarities between the two types of banks. The coming subsection sheds the

light on some of these similarities.

2.2.2 Similarities

According to Hanif (2011: 166), Islamic banks and conventional banks have a few certain

characteristics in common. They both act as a financial intermediary between savers who have

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excess funds and borrowers or investors who are in need of funds to engage in investments and

business activities. Another similarity between Islamic and conventional banks is that they both

provide these services: funds transfer, safeguarding of assets, contributing to the movement of

international trade, and offering financial consultancy services. Another common feature in

Islamic and conventional banks is that economies of scale do not differ between the two types

(Abdul-Majid et al 2011: 2036).

After comparing between Islamic and conventional banks, let’s now move to another part of our

study, which is exploring challenges and opportunities facing Islamic banks, with an emphasis

on the Arab context.

______________________________________________________________________________

2.3 Challenges facing Islamic banking in the Arab context

There are a lot of challenges associated with Islamic banking in Arab countries. These challenges

are either related to the Islamic banking sector itself or related to the conventional banking

sector, which is considered the main competitor for the Islamic banking sector (Volk and

Pudelko 2010: 196). This chapter we will briefly go through some of these challenges.

2.3.1 Liquidity risk management

A study written by Ariffin et al (2009: 153) states that Islamic banks should be more transparent

than conventional banks when it comes to reporting risks, because investors want to monitor

their money on a regular basis. The same study also argues that the lack of liquid instruments

that are in compliance with Islamic law (sharia’a) is one of the major reasons that make liquidity

risk management in Islamic banks more difficult than in conventional banks. This lack in

liquidity instruments lead to two things:

1) Financial assets cannot be transformed into financial instruments.

2) Marketable securities (mainly stocks) cannot be traded except in par value.

In addition to the previous points, there is another thing that make Islamic banks riskier than

conventional banks in managing liquidity (Ariffin et al 2009: 155). This thing is that clients of

conventional banks have a fixed claim on the bank’s assets, so their money is somehow

guaranteed; while in Islamic banks, depositors are not totally sure that they will get their money

back, because the contract between the client and the Islamic bank is based on the principle of

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profit sharing and loss bearing. So, the client of the Islamic bank is more likely to lose his money

if the bank invests in losing projects (Al-Tamimi et al 2009: 233).

In contrast to the last point, Čihák and Hesse (2010: 113) argue that Islamic banks is less risky

than conventional banks in terms of liquidity management, because risk sharing arrangements

between Islamic banks and customers make the potential effects of loss less sound on both

parties, as the two parties will bear the loss, unlike conventional banks, in which one party bears

all losses.

2.3.2 Inconsistencies between Conventional Regulation and Islamic Finance Principles

Because the financial systems in most Arab countries are on conventional basis not Islamic basis,

there are many financial and non-financial regulations that hinder applying Islamic finance

principles on the money markets in Arab countries. This made Islamic money markets in Arab

countries pretty immature (Ariffin et al 2009: 156).

2.3.3 Legal framework

This sub-section is slightly similar to the previous one. The legal framework that organizes

financial systems, either conventional or Islamic, in Arab countries is underdeveloped. An

important element of the legal framework in any country is “corporate governance”, which

represents a tough challenge on Islamic banks, because Islamic corporate governance is

associated with a higher risk than conventional corporate governance (Hamid et al 2011: 2).

Volk and Pudelko (2010: 198) state that Islamic banks need governments’ support through

enforcing laws and regulations that help to improve the Islamic financial sector in their

respective countries.

2.3.4 Insufficient expertise

This sub-section is somehow related to the previous one through a “cause and effect”

relationship. Changing legal framework from conventional to Islamic will result that most

employees in the banking field will be reluctant to such a change because they do not have the

required knowledge and experience to work under the Islamic legal framework (Volk and

Pudelko 2010: 198).

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2.4 Opportunities of Islamic banking in the Arab context

There are a lot of opportunities associated with Islamic banking in the Arab countries. In this

chapter we are going to examine the role of Islamic banks in achieving financial stability and

some other opportunities.

2.4.1 The role of Islamic banks in achieving financial stability

Islamic banks has a huge role in achieving financial stability. This role was very clear during the

global financial crisis of 2008, as one of the Islamic finance principles (diminishing musharakah)

was the key factor in restoring financial stability in the real estate market, as it proves to be a

successful substitute to conventional mortgages (Hanif 2011: 174).

2.4.2 Other opportunities

Volk and Pudelko (2010: 195-199) note some other opportunities associated with Islamic banks

in the Arab context; these opportunities are:

1) The huge Muslim population in Arab countries, which represent a considerable demand

on Islamic financial services. This demand will create what is called the pull-effect,

which means that the increasing need of Muslims for Shari’ah-compliant financial

services cannot be ignored anymore, whether by Arab governments or the banking

sectors in their respective countries.

2) Many banks and financial institutions are willing to invest huge sums of money in order

to expand the Islamic banking sector in the Arab world.

3) A lot of Arabian financial institutions are willing to offer Islamic financial products to

Muslim and Non-Muslim clients in the Arab world as soon as possible, because the

Arabian financial market needs this expansion in the Islamic financial sector, as it is a

healthy sign for improving the financial and economic performance of Arab counties.

Also, the experts in those financial institutions know that after bearing a considerable risk

during the preliminary stages of developing and offering Shari’ah-compliant financial

products, a lot of financial gains and profits for these financial institutions will be yielded

based on the famous saying in finance “the higher the risk, the higher the return”.

4) Societal conditions in the Arab countries are more than proper and convenient for Islamic

banks, unlike in European countries where things are not so smooth for Islamic financial

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institutions, because of the different culture in Europe and the perception of Europeans on

Islam.

5) The legal framework in Arab countries can be easily modified in order to accommodate

more investments in the Islamic banking sector. Obviously this will not happen

overnight, as modifying the legal framework of the banking sector in any country

requires time and, more importantly, a true governmental will.

6) Another opportunity associated with Islamic banks in the Arab context is the ability of

Islamic banks to withstand economic downturns both regionally and globally. This ability

was proven during the economic downturn in the USA in 2008, which did not only affect

America, but also the whole world as well (Rammal 2010: 190).

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3. Research gap

From exploring the previous literature review, we can note that there is available information

about the differences between Islamic and conventional banks, principles of Islamic banking,

challenges, and opportunities facing Islamic banks in both the global context and in some Gulf

countries, such as the UAE and Saudi Arabia. However, we found a huge gap in investigating

challenges and opportunities facing Islamic banks in Egypt and other Arab countries which are

not located in the Gulf region, because the literature is focusing mainly on studying Islamic

banks in the global context and the Gulf area. So, further research on the Islamic financial sector

in the other Arab countries, mainly the ones that are located in Africa and Western Asia, is

recommended.

The research question of our study was: “What are the challenges and opportunities that face

Islamic banks in Egypt?”, and this research is considered an exploratory research, because

the research question does not contain independent or dependent variables and it aims to increase

our understanding of the factors affecting Islamic banking in Egypt.

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4. Methodology

In order to answer the research question of our study, which is “What are the challenges and

opportunities that face Islamic banks in Egypt?” we need to use a qualitative method, in order

to reach in-depth understanding for the topic in hand (Cooper and Schindler 2008: 147). The

qualitative method that we are going to rely on is using interviews. According to Cooper and

Schindler (2008: 157), an interview is “the primary data collection technique for gathering data

in qualitative methodologies”. We chose interviews because they will enable us to gain valuable,

deep, and detailed information with regard to our topic.

4.1 Background about the concepts usedThe main aim of our study is to examine the concept of Islamic banking and understand the

challenges and opportunities of applying this concept in the Egyptian context. The concept of

Islamic banking has various definitions, but the operational definition that we will use for our

methodology is that Islamic banking is the way of banking that operates in accordance with

Islamic Shari’ah principles (Islamic law) (Volk and Pudelko 2010: 191).

4.2 Instrument designThe interviews that we are going to conduct with the elements of our sample will be mainly

expert interviews, because we are going to interview people who are knowledgeable about the

issue being discussed (Cooper and Schindler 2008: 94). The interview will consist of a minimum

of twenty (20) questions, which are classified to administrative and target questions.

At the beginning of each interview, two (2) administrative questions will be asked, in order to

identify the participant, interview location, and interview conditions. The interviewee will be

asked to introduce him/herself by stating his/her name, previous experiences in banks, and the

position he/she is currently occupying; the aim of doing this is to make sure of the credibility and

competence of the participant, in order to ensure that he/she is able to answer our questions

sufficiently.

Target questions, which will be the core questions of the interview, will be asked as well.

Target questions will enable us to address and investigate the research question of our study

(Cooper and Schindler 2008: 302). Our plan is to ask a minimum of eighteen (18) target

questions during the interview, which will be divided to three sections: Overview on Islamic

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banks in Egypt (7 questions), Comparing Islamic banks to conventional banks in Egypt (2

questions), and Challenges and opportunities facing Islamic banks in Egypt (9 questions). The

overview section of the interview is answering the part in the literature which was discussing the

basic information that we need to know about Islamic banks; this section is also discussing the

origins of Islamic banks in Egypt (Vahed and Vawda 2008: 453-454). The second section of the

target questions, which is the comparison between conventional and Islamic banks section, is

shedding the light on the differences and similarities between both types of banks; this part was

discussed in the literature by (Volk and Pudelko 2010: 192), (Al-Tamimi et al 2009: 236), and

(Allen and Carletti 2009: 43). The third section of the target questions is mainly illustrating the

challenges and opportunities that face Islamic banks in Egypt; the section represents the

investigative question that our study is focusing on. This section was discussed in depth in the

literature by (Ariffin et al 2009: 153-156), Čihák and Hesse (2010: 113), and (Volk and Pudelko

2010: 198); however, this discussion was from a global perspective not an Egyptian one. It is

important to note that we did not need to use classification questions in our interview, because

this type of questions is not relevant to our study.

The answers to these questions are supposed to cover most of the data we need to deal with

regarding our research question, because the interview questions were developed and ordered

based on the flow of our literature review. Although the interview consists of twenty pre-

determined (structured) questions, we are willing to make it a semi-structured interview. The

reason behind this is that we expect the answers of our subjects not to be sufficient enough for

us, so we will need to use probing and ask new questions during the interview in order to grasp

all the data we need.

4.3 SampleThe population that we are going to get our sample from is all the chief executive officers and

upper management directors (mainly Finance, Marketing, Operations, and Legal managers) from

all three Islamic banks in Egypt (Al-Baraka bank, Faisal Islamic bank, and Abu Dhabi Islamic

bank). A sample consisting of ten (10) population elements (CEO plus the Finance, Marketing,

Operations, and Legal directors) will be drawn from the three Islamic banks in Egypt,

particularly from the headquarters of each bank, which are located in Cairo. We chose this target

group because the CEOs and upper level managers of Islamic banks have a wide range of

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knowledge and experience with regard to the challenges and opportunities that face the Islamic

banking sector in Egypt, as they are exposed to a wide range of these challenges and

opportunities on a daily basis, because of the nature of their work. Our sample will not be limited

by age or gender, because we want to interview people occupying the positions we stated earlier,

regardless of their age or gender.

The sampling approach that we are going to use is the non-probability sampling approach,

because it is feasible for our study and it represents lower costs as well as less time needed. The

sampling technique that we are going to rely on is the judgment/purposive sampling technique,

because we will choose to conduct interviews with the upper level managers who conform to our

criteria, which is being a person occupying one of the five positions we have mentioned before.

4.4 ProceduresThe interview questions will be developed during the first week of the research. Afterwards, we

are going to send formal mails to the three Islamic banks in Egypt illustrating the purpose of our

research and asking for appointments with the subjects we need to conduct interviews with. The

process of setting appointments is likely to take two weeks. Conducting the ten interviews that

we need, in order to gather data for our research, is likely to take three weeks, given the fact that

we will conduct interviews only in normal working days. After finishing interviews, we will

need about two to three weeks to accumulate all data gathered, analyze information, reach

conclusions, and finalize our research paper. This means that our research process is likely to

take about two months.

Before starting any interview, the interviewer will inform the subject being interviewed that all

data, which will be collected from such an interview, will be used only for research purposes; the

interviewer will also ensure the confidentiality of any information regarded as classified by the

interviewee. The interview will be recorded in order to make all the data collected during the

interview reachable at any time; we will not do so unless the subject being interviewed agrees.

Each element of the population will be interviewed individually, in order to get sufficient details

about our topic from each interviewee; the minimum time of each interview will be two hours.

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5. References

- Abdul-Majid, M., Saal, D., & Battisti, G. (2011). The impact of Islamic banking on the cost

efficiency and productivity change of Malaysian commercial banks. Applied Economics,

43(16), 2033-2054. doi:10.1080/00036840902984381

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6. Appendix

As we stated in the methodology section, we are going to depend on interviews as a method for

collecting data to meet the objectives of our research. Here are the interview questions;

6.1 Appendix 1: The interview questions

Administrative questions

1. Would you please tell us about your previous work experiences?

2. How long have you been working in “x” Islamic bank?

Target questions

Overview on Islamic banking in Egypt

3. In your opinion, what are the reasons for the emergence of Islamic banks in Egypt?

4. How do you assess the state of the Islamic financial sector in Egypt?

5. What are the types of Islamic financial products that “x” Islamic bank offers?

6. Does “x” Islamic bank offer all types of Islamic financial products? If no, why is that?

7. Would you please illustrate the origins of Islamic banking in Egypt to me?

8. How much is the numerical value of the total assets that “x” Islamic bank owns?

9. Why is the Islamic banking sector in Egypt experiencing this unprecedented growth?

Comparing Islamic banks to conventional banks in Egypt

10. If we compare Islamic banks in Egypt to conventional banks that offer branches for

financial transactions that are complied with Islamic law (Sharia’a), what are the main

differences and similarities between them?

11. Do the increasing number of conventional banks – especially foreign ones- pose a threat

to the Egyptian Islamic financial sector?

Challenges and opportunities facing Islamic banks in Egypt

12. What are the difficulties that “x” Islamic bank faces with regard to liquidity risk

management?

13. What are the benefits (incentives) that “x” Islamic bank offers to its clients in order to

accept the possibility of loss bearing in some investments?

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14. How can Islamic banks help to achieve financial stability in the Egyptian banking sector?

15. How do inconsistencies between conventional regulation in Egypt and Islamic banking

principles affect the flow of work in “x” Islamic bank?

16. To what extent does the legal framework in Egypt affect the Islamic financial sector?

17. What are the mechanisms that “x” Islamic bank uses to apply the concept of “Corporate

Governance” in it?

18. Do you face difficulties in recruiting employees to work in this bank? If yes, then why is

that?

19. How do changing societal conditions in Egypt affect the Islamic financial sector?

20. Do Egyptian people, especially Muslims, seek to invest their money in Islamic banks

because they are efficient or just because they are Islamic?

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