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CHAPTER ONE

INTRODUCTION

1.0. Background for the study

Mortgage lending has become a topic of particular interest to researchers because of the role played

by mortgage lending in the USA in triggering a global banking crisis. There are surely salutary

contributions by various authors who have studied the Islamic and Western Banks over the years

(Iqbal et al, 2005) and (Yaquby, 2005). Writers have investigated banking theories and practices; the

challenges of the legal and regulatory frameworks; the evolution and historical development and the

differentiation in Western and Islamic banks systems (Sole, 2007). Also, the growth of financial

markets in both Islamic and Western countries has been explored (Roslyn, 2007) and (Mian et al,

2008).

The Western banks have wider spread and acceptability in the western oriented countries, Islamic

banks also have upper hand in the Shar’iah-based economies and non-Islamic countries alike, while

some Banks have the combination of the two banking systems running side by side.

At the time of economic downturn within 2003 to 2005 the global phase of mortgage lending is well

underway. In 2004 and 2005, the innovation in the mortgage lending market also helped the growth

of the mortgage lending practices. Many mortgage products were introduce to the market, such as

Adjustment Rate Mortgage (ARM), balloon loans, interest-only loans, piggy back loans. Reasonably,

the borrowers with poor credit in the conventional standard also get loans in the subprime segment of

the home mortgage market. While comparing the period of 2005 to 2008 shows a fall in sale prices

(Gwilym and Nigel, 2009). The researcher report further that the Transaction volumes of England

and Wales have fallen dramatically from around 111,000 sales per month between 2007 and 45,000

sales per month between 2008, that recall a fall of 60 per cent. In this particular year it was recall

that Mortgage approvals had fallen by 44 per cent, this resulting in a substantial fall in housing

demand and this cause the reluctance of banks to offer new loans (Graeme, 2009).

However, it must be noted here that from series of argument that global economic downturn was

triggered by the mortgage lending practices of the western banks system (Peterson, 2009). This

resulted in overvaluation of asset in banking system across global in mortgage lending financed.

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During this period, it was recall that a lot of home financing were slump down that leads to both

residential and commercial housing crackdown. This was regard as the high rate of economic

depression since 1930s (Julio, 2009). This contributing to substantial markets declines in financial,

customer revenue and economic performance that was referred to government while these significant

risks threat still remain with the world economy till date.

The meltdown in mortgage lending practices was traced through bank solvency, this really damages

housing securities ranges and caused investors lose their focus, while the values of securities and

credit availability suffered during 2008 and 2009 in the financial markets across the global.

Economies worldwide slowed during this period as credit tightened and international trade declined.

Critics argued that credit rating agency and investors failed to accurately price the risk involved with

mortgage related financial products. Governments and central banks responded with unprecedented

fiscal stimulus, monetary policy, expansion, and institutional bailouts (Steven and David, 2008).

Due to all these financial difficulties, Islamic finance analysts have argued to challenge the concept

of modern banking by introducing Islamic banking as a solution to the economic downturn. It is

argued that the practice of Islamic banking is predicated on the principle of Islamic law; which in

essence requires ethical and socially responsible investments and discourages interest-

based banking and investments. That may lead to sustainable growth of economic development, and

may lead to realization of socioeconomic justice and well-being (Saiful, 2007). At a time when global

economic forces are facing great hardship of economic downturn for people around the world, it

presume that Islamic Banking may serve as a means of re-imbuing modern Banking with ethical

norms, and try to make it a concept anԁ products be acceptable for ethically minded Muslims,

Christians, Jews and others who are engaged in housing lending transactions (Charles, 2009). Islamic

Banks have been marketing their services aggressively in the Western world, to extent that

Western Banks may have has direct competition with the purely Islamic banks begun

offering Islamic structured products to their clients through Islamic banking windows.

The case studies, however, will reveal the operational system of Islamic and Western mortgage

banking and equally indicate the fact that Western and Islamic banks have not yet tapped some of the

sources of funds, nor have they used the variety of financial instruments adequately in accordance

with the precept of global economic needs.

All these issues were looked into critically in this study. Although the adoption of Islamic mortgage

system by the Western Banks with the concept of interest-free housing finance is still under criticism,

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thus the term "mortgage" is used here in the sense of collateral and as having the title of the property

in the names of those who provided the fund. The precursor to today's Islamic housing finance deeds

was a simple two page document that spelled out the shared equity and rental terms and they claim it

has Islamic system of mortgages and banking investment. All shall be given adequate and scholarly

attentions on how both will collaborate together to subdue mortgage lending from the economic

downturn and to avert a recurrence.

1.1 The Aim of the Research

The Aim is to compare the performance of Islamic and Western banking principles and practices, for

delivering the moral and ethical aspects and correcting the flaws in mortgage lending practices

through recent economic downturn.

1.2. The main Strategic Objectives of the Research:

To critically evaluates the activities of Western and Islamic Banks through the recent

economic downturn (2005 – 2010)

To examine critically the operations, theories and challenges of Islamic and Western

mortgage lending practices (2005 – 2010)

To investigates the effect of economic downturn on Islamic and Western Banking practices

(2005 – 2010)

To examines the impacts of economic downturn on Mortgage lending practices within 2005

– 2010

To examine how the integration of Islamic Banking system into Western Banking practices

will assist mortgage lending practices recovery from the recent economic downturn (2005 –

2010)

To assess how the increased awareness of Islamic banks has benefited the global mortgage

lending practices

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1.3. The Rationale for the Research

This work is aimed at comparing the activities of Western and Islamic Banking practices, for

correcting the flaws in mortgage lending practices, and creating an awareness across all financial

disciplines through integration of Islamic and Western Banks practices by incorporate moral and

ethical aspects in all dealing, so that mortgage lending practices will be prevented and escape from

the recent economic downturn.

Therefore some of theory expert has been considering the importance that Western and Islamic

Banking need to create very conducive financial environments in order for mortgage marketing to be

successful. So, this dissertation focuses on the marketing strategy that can be used for effectiveness

of mortgage lending practices within the context of policy maker and banks.

This can be achieved through creating a sound business internal security of customer awareness; in

line with the Balance scorecard to examine the multiplier effect of their operation with the special

focus on the different measures of how to evaluate and manage the symptom of Recessions by

improving investment in company start-up capital, inculcate training ability, understanding of social

needs and maintain moral and ethical aspects in all dealings of mortgages and finance system. Hence

a comparative assessment of the Western and Islamic banking system as a new approach in the

financial operations will be investigated. Therefore within the context of this objectives and the its

capabilities of contribution to knowledge by providing solutions to the problem facing the mortgage

banking, this project will be consider worthy of committing time and resourcing.

However, the evaluation of the Western and Islamic banking performance with the critical attention

on the different measures of mortgage lending characteristics would be identified and incorporated

into the questionnaire. Interview will be explored to capture unstructured questions; all would be

done through convenient sampling techniques that would be carefully drafted so that the true picture

of target sampling population within the policy maker and the banks will be reflected, so that the

special consideration to the research ethical issued, and all the necessary materials sources to be

implemented within the context of the mortgage banking lending operation.

Therefore, this research will be of benefit to stakeholders, policy maker and both Islamic and

Western Banks, Muslim and non- Muslim on their understanding and perception towards proper

ethical mortgage investment within banking and financial sectors.

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CHAPTER TWO

LITERATURE REVIEW

2.0 THE RECENT ECONOMIC DOWNTURN: AN OVERVIEW

2.1 Introduction

The global economic growth moved towards fluctuations by 2000, tilting toward downturn. It regards

as the high rates of economic downturn ever experienced. These recent economic mess was linked

with a recession in U.S, Company production in 2001. This damaged the U.S. dollar, which attracted

and contributed to an exceptionally large global housing deficit. This has been traced initially to

monetary excesses as the main cause of boom and resulting to downturn. The drastic declined in

financial sector from 2007 to 2009, through the peaked of recent economic downturn that also cause

a horrible effect of significant decline in the mortgage lending system, though Banks are known as

the major lenders for unfunded lending marketers (Bernanke, 2010).

In report of Victoria and David (2009), the UK financial crisis was also associated with a dropped

sharp in the U.S. dollar value exchange in relative to other world currencies, which led to dampen

competitive among the U.S., UK and across the globe. Carmen and Kenneth (2008) has investigated

that mortgage mess was characterized by an unpredicted excessive fraction of subprime mortgages

that boomed in 2005 which led to delinquent and foreclosure. They explain further that there was a

dilapidation of lending standard and deterioration in the mortgage lending escalated during the 2005-

2009 period. Edward, et al. (2010) attributed the origin of the mortgage lending downturn to higher

demand for private-label mortgage backed securities (MBSs) by the foreign and domestic

shareholders. He pointed out that it also attributed to loan characteristics, borrower characteristics,

and macroeconomic conditions.

The recent economic downturn has already resulted in serious sub-prime costs for many nations. The

crisis spurred massive media and the politicians’ attention on the downturn’s severe effects on

politics and businesses. While there has been question on how it has impacted mortgage lending

practices, questions are asked on how mortgage facing a decline in lending operation can be

recovered? And whether mortgage has been forced to reduce their services?

2.1.2 The causes of recent economic downturn

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In discussing the causes of the economic downturn, it is essential to distinguish between the

particular factors that precipitate the crisis and the structural weaknesses in the financial system that

propagated and amplified the economic downturn. In the report of Markus, (2009) he reported that

the basic factors that contributed to the current financial crisis can be reduced to two things:

1- The loans of money to high risk consumer such as(mortgage marketing) and

2- The debiting markets of certain commodity (Collateral Debt Obligations, Mortgage Backed Securities)

Masood et al, (2009) Chapra, (2008) and Richard (2008) argued further that the occurrence of

economic downturn is as a result of greediness, high level of risks, over-exuberant, currency

degradation, stock depreciation, deregulations in management, lack of liquidity, macro-economic

shocks, auditing maladjustment and excessive imprudent lending by banks. Many argument have

been mooted as the root cause of a sub-prime crisis that originated in Western banking and had a

direct and profound impact on global financial markets: these include mortgage lending to customers

with a poor or no credit history, hedging on asset, property in this case, price increases, bundling of

mortgage assets into debt form, creating sophisticated structures with or without credit rating and

selling them on to investors (Bernanke, 2010)

York (2009) pointed out that the structural weakness in the financial system before economic

Depression wave a large investing in the stocks market that prompt to unnecessary increase in high

rates of stock. These cause the driver of the shares that already being used as collateral for loans to

purchase more assets. He argues further that when the economy share price was stumble, these led to

an extensive huge damage. The investors lost their focus values and the loan on them "crackdown",

which throttled down a mess in the financial system and consequently affects mortgage lending

system.

2.1.3 The Effect of the Economic Downturn on Mortgage Lending Practices

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In a recent report Giwilym and Nigel (2009) have investigated the impact of recent economic

downturn on mortgage practices. They used empirical research to demonstrate that in UK average

house prices in reality rose during the downturn and this linked this with the fact that real interest

rates were remarkably low.

However James (2009) reported that it was not until March 2008 that initial of rapid slowdown in the

real and nominal levels of housing sector emerged. He held that in the housing market survey,

mortgage rates had deteriorated to the backdrop. On this account Goodman (2008) pointed out that

the approvals had fallen by 44 percent. He demonstrated further that nothing new about downturn in

housing cycles is as a result of an intrinsic aspect of capitalism, and it was concern about the market

restriction for producing the potential of promised benefits and as well as the implications of

widening inter-generational wealth inequalities.

Recently, Barth (2009) investigated that the increase in current account deficits has had subsequently

pushed up in external debt, which caused an adverse impact on the strength of the US Dollar in their

foreign exchange markets. This led the mortgager transfer the whole risk of default to the ultimate

purchaser of the loan security.

In this regards, Laura and Renee (2010) recall that, subprime debt crisis and the financial mess of

subprime borrowers, looking at crisis in the U.S. financial system in which the spill-over effects have

affect across the global. In view of this, Peterson (2009) substantiate that the economic downturn has

cause throttled down instead of steeping up the house benefits for most people across the global. He

pointed out that home officers and jobs provider makes it unbearable for those in low skill, low

income and temporary contract employer to retain a stake in housing sector, while the homeowner

also found it very harder to maintain their payment during a downturn. In another recent report

Stephens (2009) have demonstrated further that in UK housing market, the low income household

find it very touch to offer them loans on favourable condition without collateral requirement.

However, Richard (2008) reported that mortgage lending practices bearing a strong economic

consequence rather than just financial services, this called for a turnaround of the economic sectors

and the financial sector adjustments at the middle of the crisis to be appeared inevitable. He argues

further that the initially real impacts displayed in residential building and property lending not only in

the United States but notably also in the United Kingdom and Ireland, these were spread across

economies worldwide with substantial implications for future levels of output, investment and

employment. On the account of FSA (2009) reported that the resulting closures brought an excess

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lenders to the market that caused residential rates to stumble, that caused another mortgage crisis

which inhibiting refinancing of unaffordable mortgage payments. As the market value of mortgages

collapse, many banks and other financial sectors was called into attention, which postulate the

wholesale banker and banks plea for the Federal government Reserve, required them for bailout

system, which billions of dollars in liquidity was offered in 2008.

On the similar report, Laura and Renee, has investigated the consequent impacts in the residential

sales market has estimated to at least half of the 80,000 estate agents were unemployed. The high

rates of repossessions in the housing market as high as 90,000 in 2009, and additional 3.5 million

households fell into arrears. Most of the 85 Housing Associations which build estates heavily lay on

private residential sales to subsidise their rented apartments. With over 10,000 homes standing empty

and unable to commercialise during the downturn, a lots of Housing Associations are under threat of

foreclosure. The report goes further that the effects of the economic crisis have been felt severe in

specific sections of the mortgage markets (2010). They showed empirical evidence that downturn in

the housing market has seen a reduction in the number of new housing development projects which

has resulted in a decline in the creation of work. The shrink in jobs within lending has displaced a

number of lender and lending into neighbouring homeless, and jobless such as landscape, resulting in

a proliferation of foreclosure and redundancies within the residential marketing sectors.

A new study of Graeme (2009) highlighted some the regulatory problem that caused the crisis: that

the lapses in tax structure of mortgage regulation, the start-up capital demanding for bank is too

minimal, the excessive underwriting risk of marketing speculation that end up to credit default, and

the collateralized-based obligations on the securities debt were highly slumped. This led Bankers to

exorbitant repayment packages, while the response of the government also exacerbated and create

moral hazard because of not meet up with market expectation by big banks that crash the incentives

of investors to risky assets increment.

In the recent report Gorton explain that in the event of huge volume of mortgage defaults 2006- 2007,

the whole chain breaks down, the originators fail to collect the payment from the borrowers, hence

profits drop, investors sell out their bonds, the stock holders of the third parties sell their stocks, the

third parties face illiquidity. By 2008, the range of capital losses of bank were initially estimated to

$150 billion and a large number of specialized mortgages lending institution had been sold while

some went bankruptcy (2009).

However, in the report of Chapra (2010) it is argued that despite the impact of the downturn, that

some financial sectors that dramatic and contrasts still have some relative fortune of the banking

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sector and in the financial markets. They argue that the economic downturn is much more sector and

sub-sector specific effect in the some marketing fields. In a very useful account, the FSA, (2010)

pointed out that downturn also have some differential effect on financial services, assets, and lending

as a result of backdrop demand in some specific set of economic sectors. Even within mortgage

markets the effects of the downturn can be juxtaposed, for example the residential assets marketing,

and the residential lettings market still experience a pushed up in rates.

Nevertheless, there are various arguments that Islamic banking also hits by the financial crisis. This

has been critically debate by some economists that, once there collateral based agreement in Islamic

banks, and also they possessed more property assets even than Western banks do, and they were also

dealing with counter-part customer, automatically they share from the mess. Though, Islamic banks

in the Gulf area are not yet rattled with the mess due to the fact that their property ranges still

progress. But if those markets were to dive, certainly the system will crash (Faisal, 2009). In another

argument Islamic banker, (2009) revealed that Islamic investments are also sprinting along with high

streets of Western sectors across the global market. On top this Standard & Poor’s’ (2010)

substantiates that there are bleak drop of Shar’iah-compliant stocks markets value 23 percent,

compared with a 25 percent setback for non-Shar’iah-sanctioned stocks during the first three quarters

of 2008. They analyse clearly that Shar’iah compliance markets, just like conventional financial

markets, is vulnerable also reflects on customers’ creditworthiness.

2.1.4 The effects of Economic Downturn on Banking Systems

In this section, this is examined through the sectional effects of Islamic and Western banks during the

recent global economic downturn. That brewing for a certain period, it really started to show its

effects in the middle of 2007 and into 2008. The global financial markets have stumble, large stocks

markets have crackdown and bought the panic to the banking sectors, thinking on the way out led the

governments in the wealthiest nations come up with rescue packages in order to sustain their

financial markets. (BBC, 2010)

2.1.4.1 The effect on Western Bank

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At first glance, the popular severe recession across the global, threw economic into downturn as a

result of banking panic that fall around 2008. The seeds of this panic were sown in the credit boom

that peaked in mid-2007, followed by the downturn of sub-prime mortgages and all types of

securitized products (Richard, 2008). This downturn raised concerns about the solvency and liquidity

of financial institutions, becoming a full-blown banking panic following the failures of Lehman

Brothers and Washington Mutual; this led the government takeovers of Fannie Mae, Freddie Mac,

and AIG (Bruce and Deirdre, 2009). Although the panic subsided in the first half of October after a

variety of government actions to promote the liquidity, solvency of the financial sector, the prices of

most asset classes and commodities that fell drastically.

Also to curb the cost of corporate and bank borrowing that rose substantially, and financial market

volatility that also rose to levels that have rarely ever been seen. (Steven and David, 2008)

However, it was recall that the rates of lending that has drastically low in fourth quarter of 2008 was

47% lower than it was in the prior quarter and 79% lower than at the peak of the credit boom 2007.

Lending fell across all types of loans: investment grade and non-investment grade; term loans and

credit lines; and those used for corporate restructuring as well as those used for general corporate

purposes and working capital. (Standard and Poor’s, 2010)

2.1.4.2 The Effect on Islamic Bank

In the recent report, Standard & Poor’s has investigated the negative rating of banks that reflect their

adverse changes (2009). They pointed out the fact that Islamic banks didn’t invest in structured

products and so haven’t suffered from the drastic fall in some of instruments’ values through the

downturn. However, Masood et al, (2009) investigated the effect of the global economic crisis on

Islamic banks and came out with the following findings; Islamic banks were least affected. He

reported further that the Islamic banking system was not affected due to the fact that they were

protected from interbank liquidity problem associated with western banks money markets and

mergers and acquisitions. Secondly, there is absence of investment risks rating rather its investments

were protected because of reduced risks, the banks’ mortgage sector has no plight with fluctuation in

the stock values, and no fear of sub-prime mortgage.

More recently, Paul (2010) have argue that no matter how it is the knock-on effects of the recent

economic downturn have, some Islamic financial institutions have their conventional counterparts.

They pointed out that the deepening economic downturn in many countries through scarce liquidity,

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stock market declines, and plummeting real estate prices in some countries have hit the profitability

of Islamic banks, especially in Gulf Cooperation Council GCC countries, for example of Kuwait and

Dubai and even in Western countries in their direct and indirect effects on the real estate and also in

equity markets.

2.2 THE PERFORMANCES OF WESTERN BANKS

2.2.0 Introduction

The comparative nature of this study dictates that the general scope of performance of Western and

Islamic banks be explored in order to achieve the objectives of this study. The balanced scorecard

was used to achieve this since it has been argued to be an effective planning and management tool

that is used extensively in business and industry to prevent business from derailing from its stated

vision and strategy. It is also used to improve internal and external communications and to monitor

organizational performance and productivity vis-a-vis the strategic goals. The essence of the balanced

score card is to give policy makers the opportunity to have a broader view of the performance of their

organisation in relation to long term goals. It serves as a benchmark that gives a clear picture of

performance and also serves as a guide against future hitches in planning (Brewer, 2004).

In addition, it assists organisational players in executing their strategies to the latter. Furthermore, the

Balance score card can also be used to identify weak and vague management approaches that have

been used in the past and also proffer ways to avoid a recurrence in the future engagement while

maintaining a positive financial standing in the process. It gives those organizations that adopt it

opportunity to match their vision with actions and performance instead of mere rhetoric as obtainable

in non-performing organisations. It is designed to provide feedback for policy makers on both the

internal and external business processes and outcomes in order to have a cutting-edge advantage as

business continues, and to evaluate the decisions that need to be made to influence future products

and services (Kaplan and Norton, 2005). The apparatus below will give clues.

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2.2.1 The Financial Perspective of Western Banks

Previous studies in the literature review have demonstrated the orientation of western banks towards

profits making by purchasing deposits from the depositors at a low-interest rate, then reselling it to

the borrowers at higher interest rate, based on its competitive advantage on gathering information and

underwriting risk (Suarez, 2009).

However, Mahmud investigated banks financial reports using empirical research to demonstrate that,

in 2008, the Deutsche Bank of German recalls net loss of £3.5 billion, while the Citi also revealed a

loss of $27 billion respectively. In the report of Lloyds TSB that they sealed the sum £10.4billion, at

that point in term US, despite being one among the bigger investor in Western Banks still incurred

bailouts up to $2.98 Trillion towards the end of 2009. Looking at the slumped of HSBC over 60%

which affect the pre-tax income, most problem were minimise through fund raising that up to $18

billion in the beginning of 2009.

In another report, BBC reported that the UK mortgage approval fell in June as tighter lending

conditions and weaker confidence curbed housing demand. The report further noted that the loan

granted was 48,000 pounds, compared with 51,000 pounds in May, 2010 among the central Bank’s

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panel of six major lenders, by looking forward, to their demanding for secured lending to be flat over

the rest of the year (2010). They analysed further that the Council of Mortgage Lenders said in a

separate report that gross mortgage lending rose 15 percent in June from the previous month to 13.1

billion pounds ($19.9 billion). In addition, it found out that government’s spending-cut program

announced in 2010 will slice 85 billion pounds from expenditure; equivalent to 5.7 percent of gross

domestic product, all this data is based on reports from Santander SA, Barclays Plc, HSBC Holdings

Plc, Lloyds Banking Group Plc, Nationwide Building Society and Royal Bank of Scotland Group

Plc. The performance of the Western banking has been encouraging especially in terms of wealth

creation through high level profit and return on investment. However the activity of the Western bank

has been focussing on profitability as the sole objective that therefore seem to have concentrate more

attention on the interest. The sharp drop in financial performance has been indicated to be among the

factors accrued to economic downturn.

2.2.2 The Internal Business Process Perspective

This refer the real internal processing of banks to retain their profitability of getting attraction of their

targeted customers and able to meet the requirements of shareholders about financial revenue. It was

also indicated that any existing managers need to concentrate on customer need and satisfaction in

order to achieve their focus on the internal measurable control of banks. Arguably, through some

viewer reported that banks only pay attention to their existing customer through single process in

order to improve the existing operators, but it was advisable that should consider customers need and

shareholders requisition as a clue to be followed (Yansheng, 2009). In this regard, Western banks

enjoy several advantages due to a very long history and experience; they do not share loss with

clients nor ask for guaranteed collaterals in most transactions. They enjoy very huge capital, have

much more developed technologies, and have entered Islamic banking market with such banks as.

Citibank, Bank of America, Deutsche Bank, and HSBC, in both theoretical and empirical operations

(2010). They used empirical research to demonstrate further that Western banking have experienced

rapid assets growth nearly tripled between 2003 and 2008. Over the recent time, the banks have been

successfully implemented series of innovation, powered by technology and more profitable ideas,

product and services across the world.

2.2.3 The Customer Perspective of Western Banks

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The main focus of western banks is to create a management strategy, and make availability of variety

products to meet the customer need, which is real assessment of managers to enhance market of

competition's customers through market segments which required participation of customer. This will

allow banks to achieve the set goal through market share, customer retention rate, customer

satisfaction, and customer profitability level (Laudon and Laudon, 2010).

Robin et al 2002 argued that even though general banking activities have been changing and

widening well, banks are still showing very themselves as important player in the mortgage markets

of the world economy. The banks have this capacity because of their innovative trend which seems to

be moving them away from their traditional activities of handling deposits and providing loans to

business. More importantly, banking activities have become easier to operate but also come with a lot

of risks.

Because banks have to diversify their investment, they went into the exploration of hybrid products

in mortgage finance which eventually lead to the sudden collapse of the world economy. Despite the

critical global economic downturn, it could be said that Western banking had been performing better

in terms of customer satisfaction and range of product varieties that are appealing to customers within

the different financial capabilities. In a different view it could be argued that western banks had not

been fair in terms of risk sharing, it means that in case of any default the customers would face the

consequences alone.

2.2.4 The Learning & Growth Perspective

This shows ability of banks’ investments to determine the growth of organization and the process that

banks embark upon to achieve long-term activities of the banks, this including the ability of

employees to project, learning, and productivity fashion. In a recent study Austin (2008) reveals that

Western Banks have raised the performance level of banking and this has been translated into the

increasing financial success. The balanced scorecard was used to achieve this since it has been

argued to be an effective planning and management tool that is used extensively in business and

industry to prevent business from derailing from its stated vision and strategy. It is also used to

improve internal and external communications and to monitor organizational performance and

productivity vis-a-vis the strategic goals. The essence of the balanced score card is to give policy

makers the opportunity to have a broader view of the performance of their organisation in relation to

long term goals. It serves as a benchmark that gives a clear picture of performance and also serves as

a guide against future hitches in planning (Brewer, 2004).

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In addition, it assists organisational players in executing their strategies to the latter. Furthermore, the

balance score card can also be used to identify weak and vague management approaches that have

been used in the past and also proffer ways to avoid a recurrence in the future engagement while

maintaining a positive financial standing in the process. It gives those organizations that adopt it the

opportunity to match their vision with actions and performance instead of mere rhetoric as obtainable

in non-performing organisations.

2.3. The Performance of Islamic banks

Prior studies have examined banks performance used financial ratio method, this compensate and

removes the disparities in sizes but cannot capture general overview and long-term (Dewi etal, 2010).

In which the Balance Scorecard could be used to generalise the depositors, investors, Bank Managers

and regulators. The performance evaluations of Islamic banks are important for all parties. In a highly

competitive financial market bank performance provides signal to depositor-investors whether to

invest or withdraw funds from the bank. Depositors may also be interested in evaluating the

performance of the bank as they are not entitled to fixed returns and the nominal values of their

deposits are not guaranteed. Managers are keen to know the outcomes of previous management

decisions as well as to evaluate whether to improve loan service or deposit service or both to improve

its finance. Similarly, it also help Shar’iah Supervisory Boards and other regulators to understand the

performance of banks and to ensure only transparent and clear information is available and used.

Finally it helps investors to identify chances and investment opportunity and ensure that the best

decision regarding use of funding is being taken, since Islamic banking practice is now uncharted

territory for most practitioners and policy-makers (Yansheng, 2009).

2.3.1 The Business Process Perspective of Islamic banks

In this study, an attempt have been made to investigates the performances of Islamic Banks, though

there has been a paucity of empirical studies in BSC Islamic banking as it is a fairly new and small

industry in comparison to the Western banking system. It was recall that financial markets throughout

the world have plummeted caused by the US credit crunch from 2007 and the subsequent world-wide

financial crisis from October 2008. Yet annual reports of most Islamic banks show encouraging

results. They became the biggest winners in the world financial system as many of the Western banks

endured massive losses in share prices and profits. (Abdel-Hammed, 2008)

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Hanudi et al, (2009) and Masood et al, (2009b) have reported that Islamic financial institutions began

expansion about 20 years ago. And have since become an important player in the global financial

system, international economies and the social sectors of the countries that operate them strictly on

the principle of Shar’iah. However, the rapid expansion of the Islamic banking system was a result of

the need and desire to expunge interest rates. Islamic banks were founded under the profit and loss

sharing system (PLS), they demonstrate further that basic responsibilities of Islamic Banks are to

ensure that the banks’ products, instruments, mode of operations, orientation and management style,

are Shar’iah compliant.

New study reveals that due to the rapid development of the Islamic banks across the world, an

attempt has been made to examine bank’s comparative performance by focusing on its efficiency in

profitability, increase in fund to be managed, bank size, market power asset quality, better services at

reduced charges and lower bank’s risk through the increase in retained earnings/liquidity (Dewi,

2010).

However Khanfar have reported that the way the Islamic financial system has progressed so far is

only partly, but not fully, in harmony with the Islamic vision. It has not yet come out of true picture

of Western finance (2009) He demonstrated further that the use of Equity and PLS modes has been

insignificant, while that of the debt-creating sales and lease based modes has been predominant. He

argued further that in the case of debt-creating modes, all Islamic banks and windows of conventional

banks may not necessarily fulfil the conditions laid down by the Shar’iah.(Islamic Law)

However, Al-salam (2009) opined that the strategies adopted by Islamic banks are the reason for its

maintenance of strength, increased banks’ financial position while maintaining increasing market

share. These have eventually led to the optimisation of the profits of shareholders and depositors and

also maintain and increase the ethical practices, performance standards, and retention of customer

confidence. This practice comes with gradual adoption of the necessary tools to maintain market

leadership, increase customer patronage, while aggressively creating more awareness about the gains,

performance and the varieties of Islamic products available for customers for their future securities.

The adoption of modern Information Technology, improved training for staff support the banks quest

for improved development and performance. Al-salam (2009) reiterated that the availability of highly

skilled personnel from the western banking sector provide added advantage for Islamic banks to tap

into. They are as well supported by the public and the private sectors.

2.3.2 The Financial Perspective

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In a recent report Jobst argued that many Islamic financial institutions appear to have

been insulated from the global financial crisis, which is likely attributed, to their

Islamic principles that prohibiting interest, and also didn’t invest in structured

products (2009). They used empirical study to investigate that the total assets of

Islamic financial institutions in Gulf Cooperation Council (GCC) countries grew

continuously between 2003 and 2008, representing $288.2 billion at year-end 2008.

In this regards, Paul have investigated further that the emerging GCC dual banking system (Islamic

and Western), of most sophisticated regional Bank (2009) He pointed out that a 66% drop in net

income down to $541m from $1.6bn in 2007, largely because of their $586m provisions and $316m

goodwill costs. He used empirical evidence that Samba and Riyadh banks have experience smaller

falls in profitability as they reported drops of 7.6% down to $1.18bn and 13.3% down to $704m

respectively.

Islamic Banker (2008) has actualised the fact that UK, a largely Christian, albeit secular country, has

done more for facilitating Islamic banking and finance in the UK than many Muslim countries have

done in their own jurisdiction. Explain further that the British financial expertise with the Muslim

world and the Commonwealth, has married well with Islamic banking and finance, forming indeed a

formidable partnership. Now, there are at present 22 banks offering Islamic financial products in the

UK, including five that are fully Shar’iah- compliant.

It was recall that over the last five years UK Government has made series of reforms to establish a

level of amendment in tax and regulation between conventional and Islamic banks. These include

products such as Shar’iah compliant Mortgage, Individual Savings Accounts and Child Trust Funds,

with depth of skill, experience and connections all around the world (Standard and spoors, 2010). In

addition, Minister McCarthy-Fry, also have reported that there are some key principles underpinning

Islamic banking and finance that could help shape to the new benchmarks, to reject the speculative

activities and encourage an ethical approach to financial market and sustainable growth (Islamic

banker, 2010).

2.3.3 The Customer Perspective

In another survey, Mosood (2010) found that Islamic banks fill an efficient and effective gap in

developing the economic and social activities of Muslims and non-Muslims alike. He showed

empirically that the growing number of people who deposited their earnings with the Islamic banks

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help the banks in channelling these deposits towards bigger investments, future securities, job

creation and community development. The growth rate of the customers who took part in the banks’

interest-free loans rose to about 144,000 in 2009 in Uk alone, while the value of the loans given

reached over 90.91 million pounds. He pointed out further that with the mission of the bank which is

to reach all citizens of the UK, definitely, the banks will grow further as the years pass by.

FSA, (2010) revealed that Islamic banks have grown in size and capacity leading to a network of 22

branches that offered Islamic products. Worthy of note is the fact that the Bank of London & the

Middle East plc (BLME), the wholesale Shar’iah-compliant bank authorised in 2007 by the Financial

Services Authority (FSA) in the UK, closed a UK£6.8m in mezzanine financing on Murabaha

transaction in 2010. In addition, the Bank has successfully established correspondent relationship

across the globe.

In the recent report Siddiqui argue that human resources and expertise in Islamic banking are

somewhat scarce and lacking behind (2009). He demonstrated further if not for the fact that Western

bankers and financiers expertise couple with the backgrounds that brought Islamic banks sector

forward. He reveals further that one of the common complaints that Islamic customers have is that

turn-around-times are slow.

On another account Islamic Banker (2010) pointed out that documentation requirement from

customers is traditionally high in Islamic banks and this led to the biggest causes of credit approval

delays and customer heartache.

Recently, Mahmud (2010) substantiates that the main objective of Islamic banks besides making or

maximizing profits, their aim is to achieve economic and social welfare stability without undue and

unnecessary exploitation of the customers.

This is indicating in the work of Dewi pointed out that Islamic Bank of Britain offers saving

accounts, terms deposit accounts and treasury deposit accounts and they invests their money into

trade in Shar’iah-compliant investments (2009). He demonstrates that customers are fully satisfied

with investment criteria of bank officials. He pointed out that profits and risks from investments are

mutually shared between the bank and its customers, which ensure equitability and also repose

confidence in the customers. These services are also offered to the non-Muslims alike who wishes to

avoid such industries as tobacco and alcoholics.

However, Mosood, et al (2009) reveals that Islamic bank of Britain is the first of its kind in the west

to starts providing basic Islamic financial products. Keeping in view the increasing demand in Islamic

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banking have opened windows with many conventional banks such as the Saudi British bank and

other big players in the global financial sector (HSBC, Citibank). They have opened Islamic banking

units in their various branches across the world. Mosood explained further that bank like Lloyd TSB

also increase the need of customers by expanding their Islamic banking services capacities to satisfy

the yearnings many of their customers in the UK. Many varieties of account were made available for

those interested in Islamic banking. They include Islamic current account, home finance products,

and all are fully designed to meet Shar’iah law. The Islamic current account is operated such that the

banks do not pay interest to account owners who is in credit they are denied the opportunities of

overdrafts. For home finance the bank uses diminishing Murabahah (co-ownership share make -up)

and Ijarah (Leasing) scheme to complete property purchase agreement.

2.3.4 The Learning & Growth Perspective.

In a study by Al-Salem (2009), it was reported that Islamic banking spread from the Arabia Gulf and

proceed to England during the late 70s and the early eighties. Most of the international and national

Islamic banking institutions were established around this period. Al-Salem stated further that during

this period, the USA’ and Europe’ branches of these banks, including those of Asia have been

opened. In other countries such as Iran, Bahrain, as well as Sudan, the activities of the entire banking

operations was converted to the Islamic mode of banking. This was reported, as one the boost to the

spread and the growing number and sizes of the banks globally. He used empirical research to justify

that the growth and accelerated rate of Islamic banking which was reported to be an annual rate of

15% in the last five years. He associated the growth of the Islamic banks to their successful

operation. It is worthy of note to state categorically that Islamic banking system is part of banking

system of the countries where they operate and are therefore subject to the country’s standard and

same banking rules and regulations.

In another vein, Faisal et al (2009} reported that it is not only Islamic Banking of GCC that have seen

positive net income figures. The largest UAE bank, the National Bank of Abu Dhabi in Western

world enjoyed a 20% increase of net income $821m. Recently from the wider market, another report

from Masood show that number of 180 Islamic Banks based on Islamic principles operating in Asia,

Europe, America and Africa (2009), also reveals that the growth rate for the largest 100 Islamic

Banks was 26. 7 % as in outstanding growth shown by Islamic Banks is $350 billion in 2008.

In a recent report Jobst, showed empirical evidence that Islamic banking interest rate currently is

more than US$ 800 billion worth of deposits and investments lodged in Islamic Banks, mutual funds,

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insurance schemes and Islamic branch of western banks. (2009) He illustrates further the concept,

scope and principles of Islamic banking around the globe is a universal concept in the conventional

banking and specifically in the United Kingdom, which is in effective operation with many Islamic

products in many banks in the UK such as Islamic Bank of Britain, Lloyd TSB, including HSBC.

More recently, Islamic banker, (2010) has reveal that due to hurdle in financial engineering expertise

in Islamic banks, the London-based chartered institute for securities & Investment(CISI) has signed

an agreement with the Securities Industry Development Corporation(SIDC) of Malaysia to become a

training partner for CISI’s Islamic Finance Qualification, by structuring and offering tailored Islamic

finance educational and training course.

2.4. Mortgage Lending Practices in Western Banks

2.4.0 Introduction

The mortgage lending market has grown rapidly in the past decade. It debt has reach percentage of

GDP from 40-50% in 1990s to more than 70% in 2003 and 2004. The growth is attributable to the

homeownership encouragement policy that the government adopted. Several programs were

established to foster mortgage lending, construction and encourage home ownership. (Stephens,

2009)

In the traditional mortgage process, the lending institutions (banks and non-banking financial

institutions) lend money to home buyers directly from the deposits received from customers. The

lending institutions were very prudent in the property valuation and borrowers credit status. They

lend money only to prime borrowers who are qualified with all necessary criteria. However, if the

borrower of a mortgage loan defaults on loan repayments the lender will institute legal action to

obtain a court order to repossess the relevant property and to auction it to any prospective buyer at a

forced sale price to recover the loan and costs in the recovery. (Suarez, 2009)

2.4.1 The Theories of Mortgage Lending practice in Western banks

Existing studies on this area reported that there are two feature of public law that overlapping the

regulation of mortgages, one of them function under the Financial Services Authority (FSA) through

the Financial Services and Markets Act 2000 (FSMA). Mortgages monitor by the FSA are known as

regulated mortgage contracts (RMC). The second system is operated by the Office of Fair Trading

(OFT) under the Consumer Credit Act (CCA) (Suarez, 2009)

In the recent study Bernanke has pointed four features that accrue to mortgage lending practices:

market determination, public awareness, and securities of consumers and the deterred of financial

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crime (2008). He demonstrate further that the effectiveness in mortgage market

began in 2005 considered lending requirement in term of sub-prime, interest

rate, self-certified Mortgages, retirement of lending and the consumer’s

assessments to afford a mortgage, in order to raise standards of the industry.

However, standard and spoors (2010) in their report highlight the FSA regulation that comprises

mortgage lending practices, including mortgage administration, counselling on mortgages, and

arranging mortgages. They explained further that in order to determining the most appropriate way to

regulate, the FSA identified the variation in markets forces which might inhibit the achievement of its

aim. In the mortgage transactions, FSA have highlighted the main reason for enforcing the senior

management responsibility because of poor provision and the lack of accurate information about

mortgage lending practices, which caused confusion to customers on the market risk benefit and its

products. This intervention will restore transparency and create lucid information about the cost and

ensure competitive efficiency through the authorization of FSA and their proper counselling on

mortgages endowment.

2.4.2 The operations and structure of Mortgage lending in Western Bank

In this regards McAuslan (2008) reported that there is a banks charges on any provision of fund that

lender gives out in advance to the borrower. The lender must present the evident for the source of

income, references to that Credit and within 65 birthdays the loan must be return. On this study, Peter

substantiates that there long duration of property values are always determine by the many lender

that stipulated up to 125% of the assets (2009). He held that they lay more emphasis on Life

insurance and assets frequently, despite that the property not yet in possession of the lender within

the 40 years of the instalment period, the payment has Multiples Up to 5times of primary yearly

income of the applicant, on the basis of £500 fee usually agreement depend on the Banks policy. He

explain further that in western mortgage system the customer owns the property and it is provided as

a security on a first or second mortgage basis to the institution. The implication is that it will incur

less of a huge of money to be repaid, but is a matters of interpretation. On a similar work Yilan and

Jipeng pointed out the contract to be held on the mortgage lending agreement (2010). He explains

that A contract is a ‘regulated mortgage contract’ if, at the time it is entered into, the following conditions

must be met:

The provision of credit must be from lender to trustee and also as the custodian of contract files contract

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The contract comprises the legal rules and regulation on the occupant of the property based on the schedule payment.

At a point and during the completion of agreement, minimum of 40% of the property will still be in used or intended in the hand of the borrower in possession of the property.

In the modern mortgage lending practices Sinnakkannu (2008) reveals the banks stand as the

intermediary between the house purchaser and the investor that was incur of mortgages

documentation through Collateralized Debt Obligations (CDOs) of the markets securities bond that is

already buy from the banks. Through this process the banks and lending institution are generate a

large lending fund to numerous home buyers.

He illustrates further the steps in the new home mortgage process are as follows:

In many occasion banks provides loan to the borrower through broker. Once the agreement is reached between the banks and the customer, it likely culminates the future consultation from the Mortgage Broker.

After the MBSs or CDOs sustained a mortgage from the banks, then they set-up the instalment repayments through an appointed officer in charge.

The Issuer sells the MBSs and CDOs in the form of securities to investors in the securities and bond market. This can be ease through the aids of the sale officer, the Credit securities Provider and the officer in charge of securities rating transaction at the initial stage.

The issuer of mortgage documentation received the arrange payment from Servicer, collects monthly repayments from the Borrower and remits the payment to the Issuer. The rules and regulation that bases the loans are bind between the officer and the trustee as it set in the Servicing and Pooling Agreement.

2.4.3 The Challenge of Western mortgage lending practices

The challenge to interpret the high subprime rate or mortgage lending lies in the absence of the credit

information and the loan outcome information. The high prices charged by the lenders could be

legitimate risk premium for high-risk borrower pools, or compensation to the long distance

associated with increased transaction fees, monitoring and servicing costs, or it could be the

discrimination from the lenders. Without proper information such as borrowers’ credit scores, loan

delinquency, default and foreclosure, the true credit quality of the loans cannot be distinguish. (James

et al, 2009)

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Similarly, standard and spoors (2010) revealed that Western banks’ lending secured by collateral

substantially divorces bankers from their clients’ risks, and causes heavy conflicts of interest. They also

skew the provision of funds to those who are already rich, while the Poor people with good ideas but no

collateral often fail to attract finance under this system, with the result that wealth inequality increases

from one generation to another.

In another work, Adrian et al (2008) argue that the most powerful destabilising challenge in modern

mortgage markets is the activities of money creation by the Western banking system. By creating money

out of nothing and putting it into circulation. He explains further that the Entrepreneurs and western banks

do increase excessive risk, and then insulate themselves from it, in order to increase their return on

capital. This practices consequences make their clients suffer the inflation and boom-bust cycle of

interest-based banks system.

2.5. Mortgage Lending practices in Islamic Banks

2.5.0 Introduction

Acquiring a mortgage is among the first financial decisions that an individual makes in order to lead

an economically secure life. It has immediate influence on health, education, and environment,

political and social life of the society. The Islamic mortgage lending practices is new to many people

across the world especially in the western country, and its emergence has brought a new set of

challenges, especially given the global economic downturn that resulting from the widely criticised

practice of western mortgage lending practices (Dar, 2003).

However, Islamic mortgages that also known as Shar’iah or Halal mortgages practice were

introduced to combat the interest rate charge problem and provide a method of obtaining finance

from a lending institution without paying interest (McAuslan, 2008).

In contemporary, mortgage lending was mostly bought by cash, or by using consumer and

commercial loans. Previously, only government sponsored mortgages Banks lending and it is only

since the late 1990s, that private institutions entered the playing field, resulting in a wider choice and

greater volume of mortgage finance (Islamic banker, 2007).

Similarly, it was recall that Islamic mortgage industry has been growing at a rapid pace with the

broader growth of the Islamic finance sector. This trend has been particularly significant in the GCC

and recently in Western country due to the much talked about boom in the economic and real estate

sector. The aim of Islamic mortgage lending practice is to promote affordable home ownership by

making housing more available for the country’s middle and lower income population in Shar’iah

compliant residential mortgage (Standard and spoors, 2009).

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2.5.1 The Theories of Islamic Mortgage lending practices

More recently, Islamic mortgage is defined as a type of financing that is secured by real property and

provides a schedule of payments of profit rate and repayment of the principal to a bank. The

researcher demonstrated further that Islamic mortgage provides profit rate instead of interest rate and

that the pricing policy is considered as fixed and higher at the commencement of a contract between a

customer and the bank, whereas the rate will not fluctuate, even during inflation. (Hanudin, et al,

2009)

In a recent report Robin (2009) have investigated the difference between the market price [cost

price] and the mark-up price [selling price] is the profit for the bank, which is permissible in an

Islamic home financing context. In view of this, McAuslan (2009) recall that charging interest is not

permissible in an Islamic home financing context, as it leads to an inequitable distribution of income

in society, that why Islamic banks promote a more equitable pricing to their customer.

More importantly, there are exists scarce study that investigating choice criteria for choosing Islamic

mortgage providers selection. In this respect, Hanudin et al found that the banks service quality is the

most important element for lending criteria. (2009)

However, Graeme have reported that Islamic mortgage is considered to be only sub-set of

conventional mortgage system (2009). He maintained that Islamic banks’ mortgage financing is the

standard method appropriate for commercial and residential mortgage financing without the payment

of the full value of the house upfront. In the further report of Masood et al, investigated that Islamic

mortgage were considered as painstaking in its early days, they have investigated that there was only

Halal mortgage providers in UK (2009) they demonstrate further that until 2002 that customers

realise that to select their mortgage providers by looking at product attributes, access, interest rates,

loan availability, communication, and previous relationship with the bank.

In a recent research Mosood etal, argue that Islamic mortgages are more expensive than Western

mortgage (2009). They find out that it was due to the allocation of funds in Islamic bank that is not

obtained from investments in non- Shar’iah industries. Masood also pointed out the view of Paul

Sherrie, held that, Lloyds Islamic financial services, who maintained that Islamic mortgages are

costly due to the nature of Islamic banks risk-sharing and Shar’iah complaint mortgage. He also

reported that due to the many high street banks that have started the operation of Shar’iah complaint

mortgage financing and the remover of the double stamp duty in 2003, with the changes in the

Gordon Brown’s budget speech in 2004 that cost Islamic mortgage more competitive and cheaper in

the market.

2.5. 2 Operations and structure of Islamic Mortgage

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The Practitioners, Researcher and the Banker have pointed out that, the activities of an Islamic

financial institution benefited from additional operational checks and balances in comparison to a

Western financial institution. That Islamic Mortgage lender operates irrespective of whether they are

in Islamic or Western country in basic principles of prudent lending practices to mitigate risk,

assessing the customer’s ability to pay and security, with credit risk and management techniques.

(Islamic Banker, 2009)

Generally, Islamic mortgage lending practices is structured into two contracts, viz; Murabaha- (cost

plus profit margin) and Ijara-( leasing, that grouped in contract Ijara and Diminishing Musharaka--

(co-ownership plus rental concept) both model are designed and structured in order to avoid the

payment of interest. (Masood et al, 2009b)

In this respect Khanfar (2008) have investigated that in Islamic mortgage lending practices, the

bank’s customer specifies the house he wants to acquire and the banks purchases the house from the

supplier/ developer at its normal price, for cash and resells it to the client at a higher price in which

the mark- up is applied, while the customer then pays back the price on an instalment basis.

In the report of FSA, (2009) that Islamic mortgage lending practices is based on the principle that the

transaction must be backed by an asset, i.e. the property must be owned by the lender prior to

providing mortgage finance for the customer. This is exactly contrary to the situation in Wetern

banking where money is given as loan and the asset may be used as security, depending on whether it

is a secured or unsecured loan. As a real asset underpins Islamic mortgage finance, the end result of

the funds can be more clearly appreciated.

2.5.3.1 Murabaha (The financing of a sale at a determined mark-up)

In the recent report Islamic banker, explain that in case of mortgage lending practices the purchaser

(customer) finds a property and agrees a purchase price with the seller in the usual way. The bank

then purchases the property on behalf of the buyer and immediately sells it to the buyer with an

agreed profit, added it to the actual price or cost (2009). Held further that a percentage of the

purchase price (the deposit) is paid to the bank immediately and the remainder is paid in monthly

instalments over the term. The instalments are fixed over the life of the term. Masood et al

substantiates further the advantage and disadvantage of the Murabaha type of mortgage lending

practices (2009). They explain that the payments are fixed throughout the period of the term and

there is no change of agreement in case of sharp rise in interest rates and customer found default in

the install payment as well no benefit from any decrease in it. Also pointed out further that there is

minimum deposit of 17- 20% depending on the value of the property and the status of the customer.

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The period of outstanding balance repayment is between 5- 15 years at any given time in term of the

arrangement.

2.5.3.2 Ijara (Lease financing. The purchase of the leased asset at the end of the rental period is optional.)

In the principle of Ijara this refers to ‘transferring the usufruct of a particular property to another

person on the basis of a rent claim from him’ (Masood et al, 2009). In a similar work, Islamic Banker

has investigated the operation of Ijara in case of Islamic mortgage lending (2008) the work

demonstrates that the Ijara involves a lesser (Banks) purchasing a specified property and thereafter

renting it to a customer (lessee) with an agreement on a specific period.

However, it has been argue that Ijara are more flexible than Murabaha because it characterised the

lease financing and hire-purchase arrangements. It was regard as most attractive method of property

finance that the customer to repay the mortgage early payment or overpayments. (Islamic Banker,

2008)

In a recent study, Masood et al pointed out that the two types of Ijara practices: Contract Ijara and

Diminishing Musharaka are particularly useful in mitigating the risk to the finance institution in the

event of customer default (2009). He explains further that Contract Ijara is structured in such a way

that the financial institutions (lesser) usually transfer the ownership of the property to the customer

(lessee). Diminishing Musharaka is a shorter term leasing which the financial institution and

customer are partners: both keeping the possession proportion of the property and commensurate

with the amount of their contribution. This substantiates further that Ijara type, payments are

reviewed annually and will increase and decrease in line with interest rates.

In a recent work, FSA reported that the Finance Act of 2007 is a breakthrough of Ijara Mortgage into

the government regulatory framework and followed by Murabaha type of Mortgage. In their

analyses, Ijara Mortgage refers as a type of equity release product, and it was designed for elderly

homeowners to enable them to survive and enjoy their home value without foreclosure. In their

further report, it was argued that Murabaha- based Mortgage have the same risk as that of Western

mortgage practice where the risk is weighted at 50%. While the Ijara-based Mortgages risk is

weighted at one hundred percent which makes it a bit more expensive compared to the Western

Mortgages.

2.5.4 The challenges of Islamic mortgage lending practices

In a recent work, Masood has investigated the element of psychology traces in Islamic Mortgage

practices (2009b). He argues that as the customer does not own the property at the time of financing,

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they may harbour a ‘fear’ that the property, which is often for their own personal use, does not

belong to them and that they may lose it. In a similar work, Robin et al analysed the greater

challenges of Islamic financial institution on mortgage lending that has similar benefit in comparison

to a conventional institution in the aspect of additional operational checks and balances. They

explained further that as all its activities are reviewed or monitored by a Shar’iah board, as well as a

Shar’iah auditor. These additional layers of control make it difficult for an Islamic financial

institution to step outside its framework of predetermined rules and regulations on mortgage lending

practices (2009).

However, for the entire Scenario, Islamic mortgage lending faces definite challenges. The most

obvious is one of maturity and sophistication. As comparative new comers, Islamic financial

institutions lack standardisation in terms of what constitutes of products and services in Shar’iah

compliance. In addition, the full-fledged of managerial and technological system of Islamic mortgage

were lacking, which are standard for the industry. There is a concern of far greater long-term that

threatens the core of Shar’iah compliance itself, because of the element of differences in religious

interpretations (school of thought) (Issam and Robin, 2009).

Recently, discussions have been taking place with the Bank of England and the financial services

authority (FSA) on the issues HSBC (Amana Finance) can begin offering Islamic financial products

in year 2003. On that note it was pointed out that the joint document signed by Barclays Group,

HSBC, Union Bank of Switzerland, Ihilal UK, and United Bank of Kuwait lists the following major

barriers to provision of Islamic mortgage lending practices in the UK:

(a) Through current regulations on lease agreements, the product has to be 100% risk weighted to risk

weighting of only 50%, bringing them on par with Western Mortgage (b) While the Western

mortgage, as set a strategy plan through English law that require two sets of solicitors due to the two

conveyances documentation. Institutions of Islamic finance, are requesting an exemption from the pr

-requisite to have a second set of solicitors. (c) Double stamp duty was great hinder to Islamic

mortgage development, which the UK Treasury removing the provision due to the fact that the

Shar’iah compliant structures involve a double conveyance. This makes Ijara contract uncompetitive

and costly compared to the Western mortgage because these taxes have paid by the house purchaser.

But as soon the law has been rectify it now sufficient to make them an economically- viable niche

product to reflect the reality of the scheme (Islamic banker, 2010)

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CHAPTER THREE

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RESEARCH METHODOLOGY

3.0 Introduction

The concern of this choosing topic of this research work is mainly about what will be a befitting

research methodology? Since the idea of incorporation of western and Islamic banking operation is a

newly growing industry across the globe, as we trying to compare their performances through recent

economic downturn with a focus on mortgage lending practices. It was deduced from literature

review that there is a scarce of research done on the business and the market performances of both

banking on the mortgages lending practices, especially at the financial crisis. Thus, this research has

been arrived on what will be an accurate marketing strategy for mortgage lending practices across

global, in order to recovered mortgage from the downturn during the economic recession.

The research work focuses on some banking sectors and the policy maker from Islamic and western

Banks branches in UK. It has been argued that perfect marketing strategy has been traced through

creating internal process strengths of customer awareness and awaking the mortgage lending

practices within the context and the result could be useful for both the banking sector and the policy

maker.

To achieving the set objectives of the research question, the research aims and objective that was

raised must be able to justified the adopted methodology, also corroborate and juxtaposed the

literature review and as well answering the research question, that was highlighted in chapter one of

the study. Furthermore, this chapter will give details of the selected topic and explain how the

research question was propounded in conform to objectives, as well educating how the data is

collated. This section will also discuss the population and the sample size techniques to be carried out

in the research work, as well the limitation and benefit of the methodology.

3.2 The Research Philosophy

Mark, et al 2008 argued that, the relationship between data is an issue that has been hotly debated by

philosophers for many centuries, and failure think through philosophical issues such as this research

work, that if not cater adequately, can seriously affect the quality of management research and they

are central to the notion of research design.

Research paradigms are of two main types; phenomenological and positivistic. Brockbank explains in

class lecture that, alternative terms could be used by different authors to describe these main

paradigms in different time. Though the most commonly and alternatively used of these terms are

quantitative research and qualitative research methods for positivistic and phenomenological method

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respectively (2010). The positivistic paradigm originated from the natural sciences to increase

understanding of natural phenomena, hence the confirmatory and deductive nature. The

phenomenological paradigm came out from the social sciences to facilitate the researchers

understanding of social and cultural issues leading to its exploratory and inductive nature

(Brockbank, 2010).

The methodological approach of these studies will make use of two data strategy for conducting the

research methods as sources of evidence: i-e phenomenological - qualitative data collection, and

positivistic- quantitative data collection. The paradigm is very important because it gives you a right

path to use the right methodology. Mark et al (2007) stated that “Regardless of the type of paradigm

employed, attention must be paid to the features and to avoid contradictions and deficiencies in the

methodology”. In this research the paradigm are quantitative research methods for positivistic and

qualitative for phenomenological. The use of phenomenological in this research is because it tends to

produce qualitative data. Therefore the quantitative research is objective in nature that involves

analysis of numerical data by applying statistical tests (McMament, 2003) While the qualitative

research is much more subjective in nature, both are concerned with generating the insight, the

opinion and the theories of the Western and Islamic Banks and this can be used to generalized the

customer understanding and perception of the phenomenon and positivistic to compared the

performances of western and Islamic Bank through economic downturn on the mortgage lending

practices.

3.3 Research Strategy: Quantitative and Qualitative Approaches

In qualitative and quantitative research methods it is easy to get detailed, conceptual and rich ideas

because these methods provide the results that how respondents feel and what they think because

they feel comfortable to all the provided information because the participants feel no hesitation to

discuss matters in details on the specific subject matter. In this work, it is comfortable to make use of

both quantitative and qualitative method due to the relationship to banks operators and banking

customers. The interviews with banks operators give access to easy information about the

performances and growth of Islamic and Western banks and as well understanding of the cases of

mortgage lending practices between banks and customers. This generalisation information will be use

full for both the banking sector and the policy maker as well. Due to some demerits in qualitative

research methods, being unable to produce the exact figures on the number of people of a society

have awareness of Western and Islamic Banking performance on mortgage and peoples’ expression

is also difficult (http://marketing.about.com). The nature of qualitative research method is difficult to

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collate and it is also time consuming. Therefore these researches will heavily lay more emphasis on

the quantitative that is positivistic of the research that emphasizes the views and the opinion of the

consumer perceptions, policy maker and behaviours on the performances of both banking towards

mortgage lending practices.

3.4 Data Collection: Primary Data

3.4.1 Interview

For the collection of primary data, in-depth interview will be used. Interviews was conducted across

the banks that gave a clear facts and figures about their performance towards mortgage lending

practices with such Muslims and non- Muslims who are customers of the western and Islamic banks.

This activity facilitated the research by providing the information on why they took up Western and

Islamic banking, advantages and disadvantages of this system, including the scope and extent of

Islamic banking operations in the UK. In case of Muslims and non-Muslim that are not using Islamic

banking product, it was helpful to investigate the reason for the decision not to take Islamic banking

product despite being the outcome of their faith.

I spoke to the non-Muslims who were using the Islamic banking products that will provide the best

information for the performances, growth and principle of Islamic banking, as well as Western

banking. The interviews were conducted by sending questionnaires and emails to bank authorities,

customer services department, market traders, pastors, Imams, cab operators, students and lecturers.

In taking interviews from customers and non-customers of the western and Islamic bank, the

interviewer used poster advertisement in the mosques, churches, colleges, libraries and bob arena.

The interviews went ahead with the permission of organisation head in order to record their views

with the use of the voice recorder.

3.4.2 Questionnaire

To get a general insight and opinion that will be generalized on this subject matter. The research shall

also emphasis on the views of customer understanding and perception towards mortgage lending

practices during the economic downturn using different measures of western and Islamic banking

characteristics which are identified and incorporated into the questionnaire.

3.5 Benefit of the Primary Research

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Secondary Data: The using of secondary data is to solve design problem of the research through

critical depicting of different information that will explore general clue of the finding. This includes

both the raw data and published materials, which comprise written documents that include: minutes

of meeting, diaries, reports of shareholders and also contain journal, books, magazines articles, web

sources and newspapers. The secondary data also includes non- written materials such as voice,

picture, drawings, television and film. Its main advantages is create heavily saving of sources, remain

quality sound and reliable, it save time and money, similarly it useful to help triangulation to

discovered fact through interviews and questionnaires. It also used to justify the report of primary

data because of the usual constraints in time and lack of accurate figure and fact of information due

to the privacy policies of many firms and banks.

The theoretical approach of secondary data was explored in order to blends inputs from different

disciplines relevant to understand and deal with the subject matter of this thesis, including value

creation and capability-building literature, technology implementation literature, mainly books,

article, published journals, internet, seminars, conferences, official website of selected banking sector

and to made an attempt to peep their business privacy for some crucial findings of different Western

and Islamic banks and some involved once, such as Islamic Bank of Britain Lloyds TSB, Hsbc, and

Beckley .

3.6 The Population of the Research

The study pursuit the primary and secondary design through the choosing Lloyds TSB and Islamic

Bank of Britain (IBB) as a case study being financial based organisations.

UK bank, Lloyds TSB was chosen because it was regards to be the first high street Islamic business

financing and Banking services window. Equally, claimed to be one of the UK’s largest fourth banks,

with a wide variety offer from both national and international since the 1970s in banking services. It

covered almost 2,700 branches in UK and approximately 500 branches across the global. And with

the total workforce estimated value of £21,394 million, Lloyds offered two variations of the account,

one for business with a turnover of over £2 million that eligible for Islamic business Account, and in

the Murabaha facility in estimation of over UK£ 100 million. While Islamic bank of Britain is the

first British bank claimed to be structured and practices with fully Shar’iah compliant banking and

finance system. As at end of 2006, its customers totalled 30,814, increasing by 120% from the

previous year. With the start-up capital raise of £14 million by 2003 (Islamic banker, 2009)

As a matter of fact that both case studies is operating in line with more of financial and marketing

research problem of the subject matter. Therefore, this research method concentrated more on bank

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employees and the customers of both Lloyds TSB and Islamic Bank of Britain (IBB). These formed

the target population which was identified to the research question.

3.7 Sample Size

This study adopted a convenient sampling technique. Its adoption involves the selection of a large

population from where the sample was determined (Mark et al, 2009). In case of some restriction that

were encountered through (time, money and access) the need for this type of selecting samples

methods will provided a series of technique that assist in reducing the quantity of information that

were collated. In which one hundred (100) people across the different departments of the categories

were accurately sampling. This is the sample size obtained through the convenient sample techniques

adopted for the study.

3.8 Triangulation

This method is used to counter the critique levelled at researchers for their approach and also provide

the method through which analyse the motive of some suspicion people will be disclosed (Myers and

Klein, 1999) This need to be cognisance about the biases speculation between the researchers and the

respondents in order to reduce cohesion and mis-representations Elayen et al, (2010). When research

is been design and interpretation is been stipulated; the questions and propositions are key logic links

of the findings that need to be considered worthy while developing research method.

3.9 Research Ethics

Mark et al (2009), describes research ethic as referred to an appropriation tool forgetting access with

the right of the population used for the study and that determined the success of research outcome.

For the purpose of this type of research finding, the deontology and teleology are the two dominant

standpoints. It has been argued by the deontological perspective that the finally justification of any

researcher yet to be adequate used of proposal which is considered unethical. This connotes the

ineffective and deceptive of data to implement the fact and figure. Teleological views on the other

hand stated that the end justifies the means. This implies that a cost-benefit analysis is conducted on

any research, and the cost does not matter once it serves a good benefit (Saunders et al 2007). For

this dissertation, the deontology view was applied so as to strengthen the validity findings. And

through politeness approach in contact the individual views were also used to produce a credible

result.

3.10 Limitation to Methodology

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The methodological approaches propose to get an accurate data that is capable of providing

information. However, getting a clear instinct of people opinions is not ease to discover. This method

does not representing the selected sampling of the target population (Golfshani, 2003).

The bulk of the data gathered were secondary reports from the existing literature so as to establish

understanding of the different strategies employed by the Banks concerning the subject matter of this

research work. This will give a clear cut for an improved, effective and sustainable performance of

the banks and policy makers. Though the over excessive use of information could result to a

formidable dilemma to the study. Therefore no restriction of time limit in order to come out with the

real fact of the data required (Cowton, 1998).

Similarly, it can also encounter a limitation of the challenges of getting across to the banks in order to

extract any useful information for the research work. This has been classified as a confidential

documentation, that it very difficult to access. Also the use other materials such as journals, median

and films can only be accessible through subscription, permission from operators. Even the limit time

to this work also contributed to constraints.

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3.11 Pilot study

A pilot which is also known to as feasibility study represent the small fraction of research questions prepared to test the methodology adopted in testing for logistic and gathering of information before to the main research work in order to create room for further improvement, quality of and efficiency. It is capable of exposing the lapses in the question designed before the resource and time are assigned to it in the real research. Through this, the capability of the research question in term of ability to offer solution or supplying data required , address ethical issues that could affect the validity and to detect the flaws of the research methodology in good time. When piloting the questionnaire it will check that the instructions given to respondents, looking at correctness of question in term of structures and respondent time management (Lancaster GA, Dodd S & Williamson PR, 2004)

Piloting of the questionnaire was carried out through some of the academic staff and some research students in the Greenwich school of management and also in my branch of banking. Valuable comments were received because is a contemporary study that epidemic across the global, I opportune to approach one of the banking staff that is my colleague, she is soundly loaded and familiar with the research topic. Some of the academic staff and my project supervisor also provided support in drafting the content and analysis of the questionnaire. (David and Sutton et al, 2004).

Other respondents from the piloting questionnaire reacted to the length of certain questions and suggested an elimination of certain questions which were similar to existing ones. Thus some questions were which had similar meaning to existing ones were discarded from the questions in order to reduce the length to an acceptable level. Another important change concerns the ambiguity found in the questions relating to the Banks’ Mortgage lending financed offered. The pilot questionnaire did not indicate the mortgage lending in which the respondents were supposed to give their opinions on. As trainees may have taken more than one training and development programme and with possible different outcomes, it was necessary to be more specific. Also the second phase of the pilot study was done in London.

Ten questionnaires were mailed each to some selected samples for the pilot survey at the Lloyds TSB and Islamic Bank of Britain, these samples included one branch manager, two operation managers, two marketers, three account officers, and two members of staff from the administrative department. The questionnaires were returned and four respondents gave their views. Comments from the director matched those already revealed that the questionnaires were asking repetitive questions, just as specified from the MSC students in the school. Two respondents (admin staff) noted that the questions could be simplified to specify more clarity in order to reduce ambiguity based on the questions on mortgage lending practices. In general all sample selected gave perspective views based on the pilot study. However these piloted respondents were excluded in the real sample of the main study.

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3.12 Summary for the Chapter

This section provided an elucidatory strategically processes to be familiar with in this research. While

the subsequent chapter will test and discuses the presentation of finding for the research work,

through a deep cognisance feedback and reviewer outcome on how integrated of western and Islamic

banks has assisting recovery from mortgage lending practices through recent economic downturn.

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CHAPTER FOUR

4.0 Presentation of findings

4.1 Introduction

This section analyses the presentation of findings that collected from the respondents at Lloyds TSB

and Islamic Bank of Britain. Prior to the actual survey, a pilot research study was conducted to assess

the views of the respondents through the use of questionnaires, to discover the unexpected incidences

and obstacle encountered at the point of assignment.

4.2 Lloyds TSB and Islamic Bank of Britain: As Case Study of the Research

 

Britain has many banks, of which Lloyds Bank PLC is the fourth-largest. This bank, through its

affiliates, offers a wide array of banking services, including international banking and essential

innovations in financial services. It has been providing these services for over four decades. It has a

multiple streams of revenue obtainable from the different services provided. The sources include

interest and fees on a broad range of financial services products, current and savings accounts,

personal loans, credit cards and mortgages, loans and capital market products, including commercial,

corporate and asset finance customers; life pensions and investment products. It also specialises in

private banking and asset management. The bank has over 2500 branches across the United

Kingdom, with its international focus in 47 countries, including the world’s major economies like the

United States, Japan, and Brazil. http://www.referenceforbusiness.com/history /LLOYDS-BAN k

In addition, Lloyds TSB Bank Group adopted a very strong market strategy which is built on strong

customer franchises and in-depth customer relationships which eventually led to achieving good sales

growth and improved productivity and efficiency. As a result of this strategy, the bank’s core

business values have continued to perform well, taking a larger chunk of market shares in many

important business areas. Lloyds TSB is the first high street Islamic business account in the country.

The bank has Islamic business account, corporate account across all its branches in the United

Kingdom. Its services also include other Shar’iah compliant products, including Murabaha facility,

Islamic current account, student account, and mortgage and investment fund. (Islamic banker, 2009)

Islamic Bank of Britain plc, on the other hand is registered as a commercial bank in the United

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Kingdom. It was formed by a coalition of investors from the Middle East in 2002 to offered shar’iah

compliant financial service (FSA) products specially designed for British Muslims and non Muslims.

There are six branches of Islamic bank across the United Kingdom ranging

from London, Birmingham, Manchester and Leicester. It is the first bank in Britain claiming to

operate, in its entirety, shar’iah banking principles.

The bank has a start-up capital raise of £14 million by 2003, with 120% and 76% increment in the

number of customers and deposits growth respectively, while the total customer financing advanced

by 131% within the same year. The bank runs on four core values of faith, value, convenience and

trust. The bank was granted by the Financial Services Authority (FSA) in August, 2004, while being

incorporated and registered in England and Wales with the aim of providing a friendly, inclusive and

personal service for all its customers (Masood, 2009).

Islamic banker, has reported that several other banks are offered Islamic mortgage including Lloyds

TSB and Islamic banks of Britain (2007) pointed out that both offering it off the shelf Alburaq

Diminishing Musharakah products (co-ownership shares) (2010).

4.3 The Research Findings and Analysis

4.3.1 The Respondents Information

One hundred well-constructed questionnaires were design and despatched to the London branch of

Islamic Bank of Britain and Lloyds TSB. However, within the collection periods, a total of eighty

(80) i.e. 80% were adequately filled and returned. The rate of response, coupled with the opinions

was design in form of tabulation charts and apparatus. This indicated by numbers and showed in

percentage. Below, the tables present distribution of questionnaire according to different specified

areas including respondent’s main characteristics, academic qualifications, stakeholders approach and

perception and other specified areas of the questionnaires in-line with the objectives of the research.

The questionnaires were sub-divided into different categories. The questionnaires contained open

ended and closed ended questions. The figures were presented in percentage in order to reduce large

numbers in print.

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Section A

Respondents’ characteristics

This section is aimed at collating information on the respondents’ demographic characteristics in

order to have an insight into the gender, age and the educational attainment dominating the

organisations used.

Table 1: Response grouping according to gender

Gender/ SEX No. Respondents Percentage

Male 50 62.5

Female 30 37.5

Total 80 100.

Figure1. Shows the gender percentage of the respondents in pie-chart

The above shows that 62.50% (50) of respondents were male, while 37.5.0% (30) of respondents was

female. Essentially this data shows that male represent a larger percentage of the respondents than

females which further indicate that more male are likely to be taking mortgage than female.

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Table 2: Distribution respondents according to age

Age Number of respondents Percentage

Below 21 years 6 8

21-30 years 15 19

31-40 years 35 43

41 and above 24 30

Total 80 100

Table 2 above shows that 8% (6) of the respondents fall below the age of 21, 19 % (15) of the

respondents fall under ages 21-30, 43% (35) respondents fall under ages 31-40 while 30% (24) of the

respondents fall fewer than 41 and above age group. This table clearly displays that bulk of the

respondents are within ages 31-40 group. It further indication of the age bracket base of our research

bank. This age seem to be age at which people think of mortgage except where the mortgage

ownership is passed to the respondent through inheritance.

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Table 3: Distribution of respondents according to marital status

Marital Status No. Respondents Percentage

Single 18 23

Married 37 46

Divorced 20 25

Widow 5 6

Total 80 100

Figure 3: Chart representation the marital status of the respondents

Table 4.4 shows that 23% (i.e.18) of the respondents are single, 46% (i.e. 37) of the respondents are

married, and 25 (20) of the respondents are divorced, while 6% (5) of the respondents are widows.

There were no separated among the respondents. Thus, this table certainly shows that majority of

respondents are married.

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TABLE 4: Distribution of respondents based on levels of education

Education level Frequency Percentage (%)

SSCE/ A Level 25 31

College /University Degree 42 53

Masters and others 13 16

Total 80 100

Figure 4 represents table 4 with graphical interpretations

Table 4 shows that 31% (25) of the respondents have SSCE/ A Level qualification, 53% (42) of the

respondents / college/University and other tertiary education while 16. % (13) of the respondents has

their master’s degree and other higher educational qualifications. From the table above, it is clear that

majority of respondents are literates.

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Section B

Respondents’ Activities

This section aims to gain an insight on various factors including the years the employees have spent

in the organisation as employees who have spent longer period of time would be able to give quality

information about the organisation. It also looks at the respondent’s opinion based on their perception

to Mortgage lending Practice.

Table 5: Distribution of respondents according to years of relationship with the Banks

Years of employment Frequency Percentage

6 month - 1yr 19 24

1yr – 5yrs 16 20

6-10 yrs 23 29

11-15 11 14

16 & above 11 14

Total 80 100

Figure Distribution of respondents according to years of relationship with the Banks

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From the table above, 24% (19) of the respondents can be said to have spend less than one year and

20% (16) said they have spent 1- 5 years. Also 23% (29) of the respondents said they have spent 6 –

10 years, while 14% (11) of the respondents said they have spent 11 – 15 years. 10 of the respondents

i.e. (14%) claimed to have spent 16 and above years with the company. The table shows that workers

who have spent less than one year are the lowest in the survey, while those that have spent 6-10 years

are the largest population of the respondents.

Table 6: Distribution of respondents Involved in the survey based on their relationship with the

bank levels

Managerial Status Frequency Percentage

staffs 9 11

Customers 25 31

Investors 19 24

Policy makers 27 34

Total 80 100

Figure 6 Distribution of respondents Involved in the survey based on their relationship with the

bank levels

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This table clearly shows that majority of the labour force took part in the survey. At least 11% are

staff, 31% are customers while 24% of the respondents are classified to be investors while 34% of

respondent are policy makers.

Section C

This section aims to gain an insight into the availability Islamic Mortgage lending system for the use

by respondents and also to analyse the opinion of the respondents on the activities of both Western

banking and Islamic Banking on Mortgage lending practices. It also analyse the level of involvement

of the Western banks Mortgage lending practice in the economic downturn.

Table 7: Distribution of respondents’ opinion based on the awareness of Islamic mortgage

lending practice

Are you aware of the existence Islamic mortgage lending practices?

Respondents Percentage

Yes 70 88

No 10 12

Total 80 100

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Figure 7 shows the diagram of the opinion on the availability of Islamic mortgage lending practices

in Lloyds TSB and Islamic mortgage lending practice

The table 7 and Figure 7 above signify the level of awareness of Islamic mortgage lending practices.

70% of the respondents aimed to be aware of the Islamic mortgage while 10% of the respondents are

not aware. Though the awareness those not represent the view of the opinion of whether they have

taking mortgage policies or not, but the awareness was base on mere information through

advertisement and other medium

Table 8: Illustrates the respondent opinion on the activities of the Western bank through the

economic downturn

The activities of the western banking practices has impact on the

economic downturn

Respondent Percentage

Strongly agree 8 11

agree 9 13

Disagree 32 46

Strongly disagree 18 26

Cannot say 3 4

total 70 100

.

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The table shows the respondents opinion on whether The activities of the western banking practices

has impact on the economic downturn 11% of the respondents strongly agreed while 13% are

agreed. 46% disagreed with 26% disagreed. Only 4% of the respondents are not sure

Table 9A opinion of the respondent on the performance of the western banks

How will you rate the performance of the western bank through mortgage lending over the last five years

Very

effective

effective Fairly

effective

Non effective

Not sure

Customer satisfaction 7 15 28 11 9

Financial performances 11 16 29 5 9

Business processes 28 30 11 1 -

learning and growth 15 28 15 8 4

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The table and the diagram above are used to assess the performance of the western banks on mortgage lending

using balance score card approach.

Customer satisfaction: only 7% and 15% of the respondents opined that customer satisfaction has been

very effective and effective respectively, 28% are of the opinion that it has been fairly effective with 11% of

the opinion ticked not effective and 9% not sure of their view.

Financial performances: respondents that of the view of fairly effective are of the highest percentage with

29%, the total 27% of responding are of the view that their performances in term of financial assessment had

been either very effective or effective. 5% argued not effective while 9% are not sure of their views.

Business processes: the greater percentage of the respondents agree that performance of the western Banks

had been effective with 30%, 28% opined of the performance very effective in term of business processes

with 11% agree fairly effective only 1% are of the view of not effective

Learning and growth: 15% of the respondents argued that; the performance of the western bank in term of

organization learning growth has been very effective with the support from the 28% opined that it has been

effective,11% agree it has been fairly effective while 8% argue it not being effective with 4% not sure

Table 9A

How will you rate the performance of the Islamic bank through mortgage lending practice over the last five years

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50

Very

effective

Effectiv

e

Fairly

effective

Non effective

Not sure

Customer satisfaction 6 16 26 13 9

Financial performances 26 18 18 5 3

Business processes 10 15 28 9 8

learning and growth 30 20 12 - 8

The table and the diagram above are used to assess the performance of the Islamic banks on mortgage lending

using balance score card approach.

Customer satisfaction: only 6 and 16 of the respondents opined that customer satisfaction has been very

effective and effective respectively, 26 are of the opinion that it has been fairly effective with 13% of the

opinion ticked not effective and 9 not sure of their view.

Financial performances: respondents that of the view of fairly effective are of the highest percentage with

18. The total 44 of responding are of the view that their performances in term of financial assessment had been

either very effective or effective. 5 argued not effective while 3 are not sure of their views.

Business processes: the greater percentage of the respondents agree that performance of the Islamic Banks

had been effective with 15, 10 opined of the performance very effective in term of business processes with 28

agree fairly effective only 9 are of the view of not effective with 8 of the opinion that are not sure

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Learning and growth: 20 of the respondents argued that; the performance of the Islamic bank in term of

organization learning growth has been very effective with the support from the 30 who opined that it has been

effective. 12 agree it has been fairly effective while 8 of the respondents are not sure

Table 10: the respondents’ opinion on whether the activities of Islamic bank

Practices has impact on the economic downturn

The activities of the Islamic bank practices has impact on the economic

downturn

Respondent Percentage

Strongly agree 17 24

Agree 23 33

Disagree 13 19

Strongly disagree 14 20

Cannot say 3 4

Total 70 100

Table11: the opinion of the respondent on the integration of the Western banking and the Islamic bank

mortgage lending practices

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The Islamic mortgage lending practices should be integrated with western

mortgage practise.

Respondent Percentage

Strongly agree 23 33

Agree 17 24

Disagree 13 19

Strongly disagree 14 20

Cannot say 3 4

Total 70 100

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This table show that 33% of the respondents strongly agree that the Islamic mortgage lending

practices should be integrated with western bank mortgage practices the view is supported by another

24% who are also agree. 19% or the respondents disagree in their opinion with 20% strongly disagree

with 4% who cannot say

Table 12: the opinion of the respondent on Integration of Islamic bank into western bank and how

it has assisted in recovery of mortgage lending from economic downturn.

Integration of Islamic bank into western bank has assisted to recovery

mortgage lending from economic downturn

Respondent Percentage

Strongly agree 15 21

Agree 23 33

Disagree 14 20

Strongly disagree 13 19

Cannot say 5 7

Total 70 100

.

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This table I and the pie-charts use to collate the respondents’ opinion on whether the integration of

Islamic mortgage lending into western bank has assisted the recovery of mortgage lending form the

economic downturn. 21%are strongly agree with 33% agree. 20% and 19% disagree and strongly,7%

of the respondents cannot say

Table13: the opinion of the respondent on the awareness of the potentiality of Islamic bank could

benefit global mortgage lending practices

This above table and the bar chart are used to interpret the respondents opinion on the awareness

potentiality of Islamic bank could benefit global mortgage lending practises. The total 61% of the

respondents are strongly and agree respectively, 21% disagree and 4 strongly disagree while 14%

cannot say.

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The awareness of the potentiality of Islamic bank could benefit the

global mortgage lending practices

Respondent Percentage

Strongly agree 20 29

Agree 22 32

Disagree 15 21

Strongly disagree 3 4

Cannot say 10 14

Total 70 100

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CHAPTER FIVE

5.0 Results and Discussions

5.1 Data Analyses for finding

This section related, juxtaposed and compared the research of the primary sources finding with the

secondary data (literature review) in order to establish actual position for comparison between the

findings and the views of the other researchers which had been reviewed at the chapter two of the

study, to evaluate the performance of Western and Islamic banks on Mortgage lending practices

during economic downturn. The objective behind this section aims to gain an insight into Islamic

Mortgage lending system as observed by respondents and also to analyse the opinion of the

respondents on the activities of both the Western and Islamic Banking on Mortgage lending practices.

It also discussed the level of involvement of the Western and Islamic banks on Mortgage lending

practice through the economic downturn.

Table 1, 2, 3, 4, 5, and 6

The findings from the table 1 to 4, show the personal characteristics of the respondent’s in terms of

age, gender, educational status. 62% of the respondents were male while 37.50 of the respondents are

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female. These confirm the ethical standard of the research in terms of gender equality. It also

revealed that male are likely to be taking mortgage than the females. Though, it seems to be part of

the fundamental objective of the research work. It could serve as source of information in

investigating the accessibilities of the mortgage facilities among the genders. This might also have an

effect on the Islamic lending practices when considering the ethical issues on the women in Islam on

entering into financial activities with the full consent of her husband irrespective of their financial

capabilities which have tendencies to influence Islamic, mortgage lending practices (quran)

The finding from the table two indicated the age distribution of the respondents, 62% of the

respondents which are aware of the mortgage lending practices are between 21 years to 40 years of

their age except where such ownership is due to inheritance. In examining the implication of marital

status on the mortgage lending practices, Table 3 revealed that greater percentage of customers on

mortgage lending are single and divorces while only 23% are married. This reflects the family

situation of the mortgage lending customers which could be argued to be the result of reflection of

the societal situation in term of marriage and civil partnerships in UK.

Table 4 the level of education attainments among of the mortgage customers and how it reflects in

their approaches in differentiate of their opinion on the western bank and the Islamic banking system.

Though the table indicates that the greater percentage of the correspondents are graduate which

implies that they are likely to have full knowledge or basic understanding of mortgage lending this

seem to support the finding in table seven as the level of education reflected on their awareness of

mortgage lending practices. However the scope of this research work seem not to make further

clarification on whether the level of circular education influence the awareness of Islamic mortgage

lending practices. Table 5 and six indicate the relationship with the Bank, the table; indicate 29%

percentage of the staff years in mortgage lending practises are within 6 to 10 years. This seems to

confirm the level of staff retention in the mortgage department which could be argued to be due to

sustainability in the sector. This further supported in the analysis of table six where the involvement

of the targeted population based on their relationship with the bank are analysed

Table 7, 8, 9, 10, 11, 12, and 13

Section C

5.2.1. The objective behind this section aims to gain an insight into the availability Islamic Mortgage

lending system for the use by respondents and also to analyse the opinion of the respondents on the

activities of both the Western and Islamic Banking on Mortgage lending practices. It also discussed

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the level of involvement of the Western and Islamic banks on Mortgage lending practice through the

economic downturn.

5.2.2 Table 7: Distribution of respondents opinion based on the awareness of Islamic mortgage

lending practice.

Figure 7 shows the diagram of the opinion on the availability of Islamic mortgage lending practices

in Lloyds TSB and Islamic bank of Britain. The table 7 and Figure 7 above signify the level of

awareness of Islamic mortgage lending practices. 70% of the respondents are aware of the Islamic

mortgage while 10% of the respondents are not aware. Though the awareness does not represent the

view of the respondents’ opinion on whether they have taking mortgage policies or not, but the

awareness was base on mere information through advertisement and other medium of information.

Equally, the research view that the increasing awareness of the inherent strengths of Islamic banks on

Islamic mortgage lending practices and its tremendous potential for advancement has ignited interests

in the global financial community to venture such as Lloyds tsb, and Hsbc, into this new sphere of

finance was immediately during the trigger of a global banks crisis. (Islamic banker, 2009)

5.2.3 Table 8: Illustrates the respondent opinion on the activities of the Western bank through

the economic downturn

To receive the required findings about the activity of the Western banking practices, the questions to

interviewees is about the impact on the economic downturn, and how they rate the performance of

the western bank through mortgage lending over the last five years?

The table shows the respondents opinion on whether the activities of the western banking practices

has impact on the economic downturn 11% of the respondents strongly agreed while 13% are agreed.

46% disagreed with 26% strongly disagreed. Only 4% of the respondents are not sure. The highest

respondents disagreed on the activities of Western banks has no impact economic downturn. This

finding from the result is almost against the arguments of Markus due to the fact that impact of

western banks in lending money is high risk to the customer and also the trading style of debt as a

commodity has basic contribution to the downturn (2009). This is also subsequently result to banking

panic in 2007-2008, threw economics around world into severe recession, the cost of banks

borrowing rose substantially and financial market volatility rose to unreasonable level (Steven and

David, 2008). The response from the majority may of the opinion that also corroborate the argue by

Chapra, (2010), that impact of the downturn the financial services of Western bank sector has

dramatic and contrasts relative good fortune in the finance function, proven that economic downturn

has much more of sector and sub-sector in specific impact. The argument of the FSA (2010),

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substantiate the Chapra that the impact of residential property sale market and the residential

property lending market continue to grow even as other sector like financial services, economic

sector, and mortgage lending contraction as a result of reduction at the level of demand.

5.2.4 Table 9A opinion of the respondent on the performance of the western banks

The information in table 9A, are used to assess the performance of the western banks on mortgage

lending using balance score card approach.

5.2.4.1 Customer satisfaction: only 7% and 15% of the respondents opined that customer

satisfaction has been very effective and effective respectively, 28% are of the opinion that it has been

fairly effective with 11% of the opinion ticked not effective and 9% not sure of their view. The 28%

most rated was indicating the fairly performance of bank that may be due to the fact that the strategic

plan of Western banks to restrict for producing the market potential of promised benefits and the

entire risk of default to the ultimate purchaser of the loan security. That equally led to the average

house prices rose and deteriorated to the lowest point, the homeowner find unaffordable mortgage

payment that resulting to the lender and lending into neighbouring homeless, and proliferation of

foreclosure and redundancies within the residential marketing sectors (Barth, 2009, Laura and Renee,

2010). The reason behind this may be that, low income household found it difficult to find lender

without prohibitive collateral pre-requisite, which led to given attention to richer than poorer. This

finding is also in line with the view of Robin that 7% and 15% of the respondents claimed that

customer satisfaction of bank has been effective because of the fact that Western bank quickly

response to offering range services to their customers within different financial capabilities by

providing loans for customer gradually (2002). More so, bank calls for Federal Reserve to bailout

system for their customer with several hundred billion dollars in liquidity 2008 (FSA, 2009)

5.2.4.2 Financial performances: respondents that of the view of fairly effective are of the highest

percentage with 29%, the total 27% of responding are of the view that their performances in term of

financial assessment had been either very effective or effective. 5% argued not effective while 9%

are not sure of their views. This could be understood from the point of view of the respondents that

financial performance of Western banks has been fairly effective, this may be correspond with the

argument of Suarez (2009) that Western banks has been focussing and concentrating on the

profitability, on only wealth creation through higher interest rate, based on their competitive

advantage on collation of information and underwriting risk. This has been arguing further in relation

to BBC, that it was one of the factors that led to downturn, tighter lending conditions and wreaking

confidence in mortgage demand. This was indicated that the mortgage loan granted was 48, 000

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compared with 51,000 in 2009 (2010). The second part of respondents are of the view that the

financial assessment of western bank is either effective. The finding is in supports of FSA that the

residential property sales market and residential property lettings markets are performing credibly

growing. However, the opinion of respondents that they are woefully, can be juxtaposed with the

view of Standard and poor (2009), that the volume of lending drastically low to 47% from 79% at

peak of the credit boom in 2007 to 2008.

5.2.4.3 Business processes: The greater percentages of the respondents agree that performance of the

western Banks had been effective with 30%, 28% opined that the performance has been very

effective in term of business processes. This seems to concur with standard and spoors overview that

due to the fact Western Banks have several advantages of a very long ages and experience, and their

policy of not share loss with clients, also ask for guaranteed collaterals in most transactions, with

large capital, spread wider, have technologies advancement, and have also enter Islamic banking

market successfully, with this they were able to dare and curb the downturn shortly.(2010) While

11% that agree fairly effective only 1% are of the view of not effective, this may be traced due to the

fact that Western bank customer bear the highest level of risk, and given privileged to the rich than

the poor (Harvey et al, 2010)

5.2.4.4 Learning and growth: 15% of the respondents argued that, the performance of the western

bank in term of organization learning growth has been very effective with the support from the 28%

opined that it has been effective, this has been relates to conceptual framework of Austin that western

banks has raised the high level in the financial sector, improve product quality and asset turnover into

the ultimate success. Nonetheless 11% agree it has been fairly effective while 8% argue it not being

effective with 4% not sure. This can be substantiated with the fact that seven of 91 Western bank

failed British banks pass recession stress test aimed at measuring their strength in case of up- coming

economic downturn (Cole, 2010)

5.3. Table 9b: The objective behind this research is the opinion of the respondent on the

performance of the Islamic banks

5.3.1. Customer perspective: This test the respondents opined that customer satisfaction of which

only 6 and 16 has been very effective and effective respectively. This opinion of the respondents

seem to established the fact that Islamic bank increase its network to reach citizens that have interest

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in Islamic banking and products and to ensure that there is no exploitation of the customers in

financial sector, and that profit from investment must be share between the Banks and its customer

(FSA, 2010). While 26 are of the opinion that it has been fairly effective, this can be relates to the

report that human resources and expertise dealing with customer in Islamic banks are scarce and

lacking behind. This view may led to the 13% of the opinion ticked not effective and 9 not sure of

their view due to the fact that customer complaint about the turn- around –time of Islamic banks are

very slow, and it seem that traditional documentation styles of Islamic bank is high that led to the

biggest cause of credit approval delays and make customer uncomfortable (Siddiqui, 2009).

5.3.2 Financial performances: The response from the respondents that shows fairly effective are of

the highest percentage with 18. The total 44 of responding are of the view that their performances in

term of financial assessment had been either very effective or effective. This view seem to support

the argument that Islamic banks appear to have insulated from the global financial crisis, due to the

fact that they didn’t invest in structure products, and also the principle of prohibiting interest (Riba)

in any transaction, that led them maintaining the strength of the bank’s financial position and also

increase the markets share (Jobst, 2009). While 5 argued not effective and 3 are not sure of their

views. This can be related to an empirical analysis of Paul argument that scarce liquidity, stock

market declines and plummeting in real estate prices have also hit the profitability of Islamic banks

(2010).

5.3.3 Business processes: the greater percentage of the respondents agree that performance of the

Islamic Banks had been effective with 15, while 10 opined of the performance very effective in term

of business processes with 28 agree fairly effective. This means that the finding is in line with an

analysis that Islamic bank has played an important role in financing, economics and social sectors in

compliance with the principles of Shar’iah rules and regulation. This finding seems to support the

view of Masood et, al that the abolition of fixed interest rates and the Islamization of financing

system was a main reason why Islamic banks were founded under the profit and loss sharing (PLS),

they demonstrate further that basic responsibility of Islamic Banks is to making sure that all the

products, instruments, operations, practices, management, are with Shar’iah compliance (2009b).

However, the opinion of the respondents has proven beyond a reasonable doubt that the triumph

incur by Islamic bank through a reduce charges and lower bank’s risk by increase retained

earnings/liquidity and also increased their customer base, the Islamic banking products, by adopting

all the new financial and investment tools, IT, training for their employees through hiring skills staff

from Western banking that make them became the biggest winners in the world financial system (Al-

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salam, 2009). While only 9 are of the view of not effective with 8 of the opinion that are not sure due

to the fact in relation conceptual literature that Islamic banks system has progressed so far is only

partly, but not come out in fully picture of Western banks, and that the use of Equity and PLS modes

has been not effective, while that of the debt-creating sales and lease based modes has been

predominant. This also marched the argument of Khanfar, (2009) that, in the case of debt-creating

modes, Islamic banking and Western banks operating on the windows of Islamic mode may not

necessarily fulfilling the conditions laid down by the Shar’iah (Islamic Law).

5.3.4 Learning and growth: 20 of the respondents argued that, the performance of the Islamic bank

in term of organization learning growth has been very effective with the support from the 30 who

opined that it has been effective. The opinion of respondents corroborate with the report of Jobst that

Islamic banks has sign an agreement with the securities industry development corporation (SIDC) for

learning and development in financial engineering expertise, in order to become a training partner of

Islamic finance education in CISI’s ‘Islamic finance Qualification’. This means that the greater

percentage still indicate the fact Islamic banks showing outstanding growth within the concept, scope

and the principles, till it’s become universal concept in the western banking around the global, which

most high street banks stand in better example: HSBC, Lloyd TSB and as well as Islamic Bank of

Britain (Jobst, 2009). The 12 agree that it has been fairly effective while 8 of the respondents are not

sure. This opinion pull could be generalised and applicable to virtually all the business factor of both

banking sector during the economic downturn. This could be argued to be true about Islamic banks

because, is still new in the banking venture.

5.4 Table 10: The objective behind the respondents’ opinion on whether the activities of Islamic

bank practices has impact on the economic downturn

Table11: show the opinion of the respondent on the integration of the Western banking and the

Islamic bank mortgage lending practices. The Islamic mortgage lending practices should be

integrated with Western mortgage practice.

This table show that 33% of the respondents strongly agree that the Islamic mortgage lending

practices should be integrated with Western bank mortgage practices. The view is supported by

another 24% who are also agreed. This seems to substantiate the fact that the rapid grown of

mortgage lending practices is attributed to the homeownership encouragement policy that was

integrated by the government (Stephens, 2009). This also supports the report that the British financial

expertise with the Muslim world and the Commonwealth, has married well with Islamic banking and

finance, forming indeed a formidable partnership. Equally this also relates to the Islamic mortgage

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enjoyment under UK Government reforms establishment that level the amendment of tax and

regulation between conventional and Islamic banks on mortgage lending practices (Islamic banker,

2008). This seems also illustrate the report of UK Treasury removing the provision for double stamp

duty on Islamic Ijara mortgages and reducing the risk weighting to 50percent on par with Western

mortgages. While 19% respondents disagree in their opinion with 20% strongly disagree with 4%

who cannot say. This result show the respondents opinion may be of the view that the principles of

the shar’iah law concept may not easily understand by the western due to the lack of familiarity and

also the lack of uniqueness in interpretation of the Islamic law by Islamic school of taught may

hinder the integration.(Siddiqu, 2009)

5.5 Table 12: The set objective behind the opinion of the respondent on Integration of Islamic

bank into western bank and how it has assisted in recovery of mortgage lending from economic

downturn. Integration of Islamic bank into western bank has assisted to recovery mortgage lending

from economic downturn.

This table showed the respondents’ opinion on whether the integration of Islamic mortgage lending

into western bank has assisted the recovery of mortgage lending from the economic downturn. 21%

strongly agree with 33% agree. This seems to be related to Table 11 report that Government have

work hard to create a level of integrated field between Islam and Western banks by amending tax

legislation to avoid panelising Islamic finance models and to introducing new regulation to govern

product such as Islamic mortgage (Masood, 2009). The report seems support the view of Stephen that

Islamic mortgage is set to grow hugely with long-time opportunities in western world, due to fact that

Muslim are showing interest and increasing readiness to invest in the stock market and pumped cash

into Islamic equities and other products. He further explained that Islamic mortgage are not for only

Muslims but for all ethically- minded investor, banking and borrower. While 20% and 19% disagree

and strongly respectively, 7% of the respondents cannot say, may be due to the fact that Western

bank is meant for profitability as the paramount objective that led their customer bear the highest

level of risk, while Islamic bank are concern about the maturity and sophistication, it was relate

further that Islamic banks lacks standardisation in term of full-fledged of software in product and

services (Robin, 2009).

5.6 Table13: the opinion of the respondent on the awareness of the potentiality of Islamic bank

could benefit global mortgage lending practices.

The awareness of the potentiality of Islamic bank could benefit the global mortgage lending practices

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This table are used to interpret the test of respondents opinion on the awareness potentiality of

Islamic bank could benefit global mortgage lending practises. The total 61% of the respondents are

strongly and agree respectively, however, this seems to relates the view of Masood that when the

global market crashed by financial meltdown, Islamic banks are unaffected by the global crisis, due

to the fact that the rating of complete investment risks instead of mere credits. This postulate the

report of Minister McCarthy-Fry, also have said that there are some key principles underpinning

Islamic banking and finance that could help build to the new benchmark, to reject the speculative

structure and encourage an ethical approaches to financial market and sustainable growth, since the

increasing awareness and appreciation of the inherent strengths of Islamic finance this was re-iterate

in table 12 also, and that it tremendous potential for advancement have ignited interest among the

global financial community to venture into this new sphere of global financial crisis (Islamic banker,

2009). However 21% disagree and 4 strongly disagree while 14% revealed that they cannot say. This

may be related to the report that Western banks concentrated on the financial speculation and the

Islamic operational terminologies system is ambiguous and confuse due to the different opinion of

Islamic thought (McAuslan, 2008).

CHAPTER SIX

6.0 CONCLUSION

In this work, is an attempt at compared the performance of Western and Islamic banks through

economic downturn on Mortgage lending practices across the world between 2005 and 2010. This

work comes out with the result that the western banks performed worse during the recession. The

causes has been arguably emphasized that the role of banking systems more exposed to the U.S. fared

worse and reach across the global. The results emphasize the principle and operation of Western

banks that are interest- based–finance which really focussing on the profitability and their policy of

not share loss with clients, also ask for guaranteed collaterals in most transactions that fragile banks

mortgage financed lending to downturn.

By late 2005, however, the combination of higher interest rates and higher housing prices finally

triggered into mess. Within the period of two years, sales starts plummeted, prices stumble, and

mortgage market crackdown. By 2006, existing home sales felt drastically. These declines

accelerated in 2007 as falling home prices and the recession deepened the crisis. By early 2008,

housing market decay had spread across the global. The back drop in home building, the excessive in

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the credit and stock markets, and the impact of falling home prices on borrowing and consumer

spending all contributed to the downturn. In the early 2008, there was decline in job that strip out to

redemption and repayment, and there is increment in risks that couple with high price delinquencies.

During this period caused the conduction deep cracked that result falling in supplier of new building,

this put numbers of housing held closure and escalating and that put consumer spending in a tighter

squeeze across the global.

In a recent report, it revealed that mortgage lending hits new low as prices slide in 2010 and advance

are expected to slump further during 2011, net lending, which strips out redemptions and repayments,

totalled just £8.15 billion during last 2010 down from £11.33 billion in 2009 into lowest level since

Bank of England records began 1987. See Metro, Wednesday, February 2, 2011.

However, this downturn has been linked with the activities of Western banks that impacted of high

risk of lending and also the trading style of debt as a commodity that has subsequently result to

banking panic in 2007-2008, threw economies around the world into severe recession. This

precipitated the quickly response of Western bank to offering range of services to their customers

within different financial capabilities by providing loans, and also calls for Federal Reserve bailout

system for their customer with several hundred billion dollars in liquidity.

Nevertheless, this new sphere of finance led to increasing awareness and integrated of the Western

banks into the inherent strengths of Islamic banks on Islamic mortgage lending practices that have

ignited interests in the global financial community ventures such as Lloyds TSB, and HSBC,

immediate after the trigger of a global banks crisis and downturn.

However, Islamic bank is the component of Islamic finance that still new in financial sectors. it

appeared that is not affect through the global rescission, due to the fact that they didn’t invest in

structure products, and also the principle of prohibiting interest (Riba) in any transaction, this

strengthens their financial position, such as Islamic mortgage which is the product of Islamic banks

that was structure under the Ijara ( leasing), Mudaraba (Make –up profit) profit and loss sharing

system (PLS), to making sure that all the products, instruments, operations, practices, management,

are with Shar’iah compliance not for only Muslims but for all ethically- minded investor, banking

and borrower in a global market.

Brockbank, opined that Islamic mortgage is preferable for residential while Western for commercial

transaction. However, this finding so far has been arguably proved that Islamic mortgage was good

for both the residential and commercial purpose, due to the fact that since its network has improve to

reach globally and they ensure that there is no exploitation of their customers. Also the profit from

investment must be shared between the Banks and its customer which could promote long

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relationship and stability and high rate of customer retention, similarly, the removing of hurdle of the

provision for double stamp duty on Islamic Ijara mortgages has reducing the risk weighting to 50 per

cent on par with Western mortgages. In culmination, it seem to be no much different between the two

banking approach regarding the classification base on residential and commercial purposes of

mortgage practices as both of the banking system are now targeting the profitability, with ethical

standard as the only shifting ground which could be addressed.

However, if this potential principles underpinning Islamic banking and finance that could be

integrated into western banks, which already have several advantages of been a very long history and

experience, occupied a large capital, spread widely, maintain high technologies advancement and

expertise skilful engineering that has raised them to high level in the financial sector, improve

product quality and asset turnover into the ultimate success. Couple with the readiness of Muslim

world to invest in the stock market and pumped cash into equities, certainly, this will help shape the

new landscape, to reject the speculative activities and encourage an ethical approach to assist

mortgage lending practices recovery from the recent economic downturn in financial market and

forming indeed a sustainable growth.

6.2 Recommendations

6.2.1 Western banks

Western banks has enjoys a very long experience and spread wider across the global and the real

player in the field of expertise. But due to the unpredicted crackdown in mortgage lending have

awake series of way-out and bailout. It is recommended that; they need to shift from concentrating on

quantitative analysis of market profitability, liquidity and safety, but need to create effective

qualitative analysis about bank risk control, internal management, customer service levels in the

services of the bank management. In order words the financial analysis should not be based on

calculation figures and integration of monetary variables.

Hence the adoption of balance scorecard based on the conclusion, the interest-based system cannot be

used to create long-time activities with customer or clients in business transaction, but collaboration,

and co-operation in order to create sense of business venture is recommended, this will create mutual

understanding that would enhance long term relationship and stability and high rate of customer

retention.

Also, it is recommended that Western banks need to inculcate in their financial services the habit of

healthy and ethical operations, that will requires qualitative share of profit and loss or compensation

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in order to maintain customer retention and forming a sustainable growth in financial markets to be

closely integrated.

More importantly, it is highly recommended steps in Western to embracing Islamic finance products

into their system and the Islamic mortgage in particular, it is also advisable to liaisons with more

specialists from legal and Islamic financial term to have more insight in academic background and

its practicability with the specialist in that field ( Islamic bankers).

It will be an advantage to establish an umbrella organisation here and across the world to co-ordinate

and regularise the legal and financial system in respect to the Islamic and Western mortgage.

6.2.2 Islamic banks recommendation

Islamic banks are still at a relatively lower competitive edge with the western banks and that makes it

in term of internal business process there is no bases of comparative between them. As matter of fact,

series of report have proved beyond reasonable doubt that, there are lot of advantages in Islamic

banking system, as result of which efforts need to be made to reach out to existing and potential

banking customers in regarding to the benefits of the various product and services. Islamic Banks

need to boost their reputation by appealing to customers. In order to do this, they can take steps such

as advertising by various forms of media, increase in staff strength particularly in the area of

Marketing, customer services and Information technology.

However, Islamic bank need to place better consideration of market competition strategy into a sound

management structure and planner, in order to improve in real picture of the bank's operational

development through the bank's market share, mortgage acquisition rates, and customer retention. Of

course, they should constantly updating and improve the means of communication and security

techniques, this will enhance Islamic banks to maintain a sustainable innovation of new trend

financial products, and this will enhance them inescapable transformation in service pattern and able

to meet-up with the modern trends of competitiveness across the global.

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Similarly, Islamic banks should speed up and increase the standard of supervision in financial

operation in order to conform to standard of the new banking system and able to curb with changing

in marketing environment. The financial institutions also need to maintain the transformation of

service delivery pattern, to speed up the momentum of mixed services between Western banks in

order to enhance international competitiveness and operational integration.

In addition, both banking sector (Western and Islamic) with the aids of Balanced Scorecard can

relates the potential risks of services, to create effective future plan for the banks, this will enhance

the long-time development of banks into account, and eventually it will place banks into a high

esteem of adaptability and long-term strategy through the rejection of speculation in market and be

honestly adhere to ethical approach towards financial market by creating and maintaining financial

stability with an equal consideration to all other stakeholders perspectives.

Finally, the financial institutions and government should improve and presents more accurate Islamic

mortgage product with uniform information and database materials for Muslim and non- Muslim. As

well create an avenue in order to of familiarize and agree on consistent terminologies of Islamic

financial products. This will facilitate better understanding and solid integrated between Islamic and

Western banks through mortgage lending practices.

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Appendixes I

Questionnaire

This questionnaire is design in order to obtain relevant data from Lloyds TSB and Islamic Bank of

Britain for the purpose of the academic research. Therefore the entire information gather shall not be

used for any other purposes but for academic reference only.

Section A: General Respondents Information

Respondents’ main characteristics

This section aims at gathering information based on the respondent’s main characteristics in order to

gain an insight into the gender, age and the educational status dominating the organisation as one

variable might be gaining training and development more than the other. However, this is not

necessarily relevant for this research but can be used for future research work

Question 1: gender: please tick the appropriate box

Gender/ SEX No. Respondents Percentage

73

74

Male

Female

Total

Question 2: Age: please tick the appropriate box

Age Number of respondents Percentage

Below 21 years

21-30 year:

31-40 years

41 and above

Total

Question 3: marital status: please tick the appropriate box

Marital Status No. Respondents Percentage

Single

Married

Divorced

Widow

Total

Question 4: Education level: please tick the appropriate box

Education level Frequency Percentage (%)

SSCE/ A Level

College /University Degree

Masters and others

Total

74

75

Appendixes I1

Section B

Respondents’ Activities

This section aims to gain an insight on various factors including the years the employees have spent

in the organisation as employees who have spent longer period of time would be able to give quality

information about the organisation. It also looks at the respondent’s opinion based on their perception

to Mortgage lending Practice.

Question 5: Years of employment: please tick the appropriate box

Years of employment Frequency Percentage

6 month - 1yr

1yr – 5yrs

6-10 yrs

11-15

16 & above

Total

Question 6: relationship with Banks: please tick the appropriate box

Managerial Status Frequency Percentage

staffs

Customers

Investors

Policy makers

Total

Appendixes I11

75

76

Section C

This section aims to gain an insight into the availability Islamic Mortgage lending system for the use

by respondents and also to analyse the opinion of the respondents on the activities of both Western

banking and Islamic Banking on Mortgage lending practices. It also analyse the level of involvement

of the Western banks Mortgage lending practice in the economic downturn.

Question 7: please tick the appropriate box

Are you aware of the existence Islamic mortgage lending practices?

Respondents Percentage

Yes

No

Total

Question 8: please tick the appropriate box

The activities of the western banking practices has impact on the

economic downturn

Respondent Percentage

Strongly agree

agree

Disagree

Strongly disagree

Cannot say

total

Question 9A: please tick the appropriate box

How will you rate the performance of the western bank through mortgage lending over the last five years

Very effective Fairly Non Not

76

77

effective effective effective sure

Customer satisfaction

Financial performances

Business processes

learning and growth

Question 9B: please tick the appropriate box

How will you rate the performance of the Islamic bank through mortgage lending practice over the last five years

Very

effective

Effectiv

e

Fairly

effective

Non effective

Not sure

Customer satisfaction

Financial performances

Business processes

learning and growth

Question 10: please tick the appropriate box

The activities of the Islamic bank practices has impact on the economic

downturn

Respondent Percentage

Strongly agree

Agree

Disagree

Strongly disagree

Cannot say

Total

Question 11: please tick the appropriate box

77

78

The Islamic mortgage lending practices should be integrated with western

mortgage practise.

Respondent Percentage

Strongly agree

Agree

Disagree

Strongly disagree

Cannot say

Total

Question 12: please tick the appropriate box

Integration of Islamic bank into western bank has assisted to recovery

mortgage lending from economic downturn

Respondent Percentage

Strongly agree

Agree

Disagree

Strongly disagree

Cannot say

Total

Question 13: please tick the appropriate box

The awareness of the potentiality of Islamic bank could benefit the

global mortgage lending practices

Respondent Percentage

Strongly agree

Agree

Disagree

Strongly disagree

78

79

Cannot say

Total

79