Is an "interestFree" Bank sustainable and competitive?

survey of Dissertation, Islamic Finance, Analysis, Germany and Turkey

Research Paper (postgraduate), 2014
28 Pages



1 Introduction

2 Objectives and Methodology
2.1.) Problem Identification and Explanation
2.2.) Research Questions
2.3.) Methodology

3 Survey of Literature
3.1.) Islamic Finance
3.2.) Detail interest free
3.3.) detail helal
3.4.) internal view of banks
3.5.) external view of customers

4 Results

5 Discussion

6 References

7 appendices

1 Introduction

This work analyzes whether in recent years Islamic financial developments apply globally, for example to Germany. The author is interested in the reality of Islamic finance and its potential existence in non-Muslim environments?

In much of the extant literature, studies consider a theoretical model such as: “The stability of Islamic finance”.

The authors in these studies tend to focus on global Islamic banks. In the present study, the Author wants to examine the situation for a specific non-Muslim country like Germany. The second focus is to find out whether there is a relationship between the number of Muslims in Germany and the need for Islamic financial products. A detailed view of market entry and critical key indicators are analysed. The current laws and their handling by Islamic banks will additionally be examined.

To complete this research, a comparison with a country with more real market experiences in the field of Islamic finance, such as Turkey, will be undertaken.

2 Objectives and Methodology

Problem identification

There are, as in the Christian and Jewish world, many opinion leaders in the Islamic world. The publications display a consensus towards various theoretical objectives in an economic context. In most cases, however, there is little or no evidence base.

These publications display a use of old arguments, each side focused solely on the demand side or the supply side of economics.

Real challenges and developments may begin, from the author’s perspective, only by practical, bottom up, analysis. The two essential components of the market were included in this study.

As my "Hoca" (Preacher) once said in his prayer, “It is absolutely important to be honest and pure, but as Muslims we must start with ourselves!” I want to take these words and turn my focus to the world of Muslims, especially to the world of Muslims in so-called non-Muslim countries.

The problem that exists in the literature about facts and figures, for example, will be addressed through the creation of a separate factual basis.

The representative set of micro data will allow us to make a statistical interference, due to my work. This data is significant for a large number of people – for example, Muslims in Germany. The relevant questionnaire was distributed in an electronic form, with both residential and business customers involved. This result of the demand side has been reflected in workshops with banks.


The organization of this work is as follows. Initially, we started with an overview of research objectives. The research objectives are formulated into main objectives and secondary objectives (which are derived from the main objectives).

The analytical framework of the study begins with the integration of major theories and publications in the field of Islamic finance. Islamic finance is presented against conventional (traditional) finance in terms of their differing theoretical foundations and practices.

The basics of Islamic finance are presented, along with sources, and will assist comprehension of the concepts for non-Muslim readers.

This step will be added to with a detailed description of Islamic financial instruments and institutions, in comparison with the conventional instruments and banks. This analysis is based on the German market, with comparison made to the Turkish market.

Building on historic and recent elaborations, the key indicators of Islamic finance are analyzed. These indicators are further investigated by including the Muslim population as an external view and the internal view of banks as a whole in Germany and Turkey.

The empirical validation of these findings and their theories begins with the presentation of the research methodology. The corresponding assertion is reflected in the course with the results and analysis. The results of the empirical testing are related with the corresponding relevant hypotheses. Finally, limitations of this research are discussed and suggestions for future research projects are mentioned.

2.1. Objectives, Research Questions

After first examining the various sources, we felt the need for a clear description of the main advantages of Islamic finance for Muslims in Germany. Are there differences for Muslim customers in their choice of financial products?

If we look at the supply side, or as we call it, the internal view of banks, we find several arguments providing an impression of stable Islamic finance as an alternative to conventional banks.

Are these findings relevant to the specific markets of Germany and Turkey?

Furthermore, there is not at a present a voice in the Muslim world defining the results of communication, and the advantages and disadvantages of Islamic finance, particularly in regards to Germany or in Turkey.

If we proceed to look at the internal view of a bank, which makes the provision of financial services within a market, we must also examine the external view of demand from the perspective of potential customers in Germany and Turkey.

These questions of decision-relevant indicators, which characterize the financial behavior of Muslims in non-Muslim countries, such as Germany are one of the important pillars of this research.

In line with this background, the "demand" and "supply" side are represented in Germany, for analyzing the differences and factors influencing the choice of Islamic financial products or conventional products.

Questions and objectives

Main objective:

Is there a relationship between the number of Muslims in Germany and successful Islamic financial placement?

Derived Partial objectives

To achieve meaningful and differentiated models and measurable responses, we derive from the above target the following detailed issue positions. This method allows the author to achieve a quantitative and qualitative result range.

Islamic finance institution, detail "interest-free"

Is a financial system without "interest rate" practicable in a non-Muslim country?

Islamic finance institution, detail "Helal"

Can a "Helal" profit and loss participation system in a non-Muslim country

be profitable and sustainable?

Internal view of banks Is the difference between Islamic finance and conventional finance mainly found in improved product portfolios for customers? External view of customers Is the market success of Islamic finance dependent on the relative proportion of Muslims in non-Muslim countries such as Germany?

2.2. Methodology

The leading objective of this research is to identify key market factors within the German market and, if necessary, by comparative with the Turkish market, in order to determine the relevance of Islamic finance. For this project, earlier empirical research results such as the IMF working paper from 2008 and empirical analysis from Islamic Banks regarding their financial stability are included. This study examines the factors of supply and demand in order to identify possible details that display performance differences between Islamic and conventional finance. This study is structured towards finding a synthesis between theoretical real market aspects of finance.

Methods the Islamic financial data are empirically tested in a survey. The necessary data generation was achieved using a standardized questionnaire. Results of the questionnaire are provided in section four; the questionnaire itself is attached in Appendix, Part 8.

For the supply side, banks were analyzed in detail for both the German and Turkish market. Thirdly, we will analyze the global level of conventional banks and Islamic financial institutions through comparison to each other, using the database “BankScope”. The empirical data analysis follows a two-step approach; first, the reliability and validity of the data is tested using a comparison with other similar approaches, such as the model for national elections.

Second, the relevant hypotheses are analyzed for their relations issues. The influence of various factors on the different hypotheses is accomplished using correlation analysis.

3. Literature Overview

In this chapter, we will analyze the latest elaborations based on our questions in Chapter 2. We are starting with historical insights, and moving forward to the latest analyzes and publications.

Starting with the dissemination of the Qur'an by an order from ALLAH to our Prophet Muhammad (s.a.v.), a well-known illiterate wholesaler, he was brought into knowledge of the other two main religions, Christianity and Judaism. This was necessary in order to fulfill the foundation of Islam as a whole. This inspiration has taken place around the existing knowledge; the main sources come from regional, cultural and human behavior at the time.

Looking at the economic dictates of the Koran, we always find two essential conditions in several verses:

a) "Interest-free"
b) "Helal" (bypassing of "Haram")

Now, about 14 centuries later, we find that in many central banks such as the U.S. and Japan, the interest rate is at zero or only slightly above.

On July, 30th.2010, the three-month Libor was fixed at 0.46563 percent of dollar. Although not obviously unintentional, none of these countries has reduced its interest rate to zero for religious or ideological reasons. (Cizakca, 2011, p 230)

On the following pages, the findings are presented in clusters. Starting with the above-mentioned two main-conditions, they involve previously mentioned details, followed by market participants and the view of customers.

3.1. Islamic Finance

Islamic economic theory and Islamic finance are in accordance with Islamic law. Economies may relate the application of Islamic law to economic activity; this applies to countries where Islamic rules are already in force, as well as not.

3.1.1. Islamic economic thought

The early Muslim scholars have based their economic analyzes on the Koran and the Sunnah, the sayings and doings of Prophet Muhammad (s.a.v.).This important transmitting of original sayings and doings is based on an excellent procedure for filtering the outcomes by sources and contents, over more than many centuries by selected personalities.

The most well-known Islamic scholar, who has written about the national economy is Ibn Khaldun (1332-1406), who is considered the father of modern economic theory.

Ibn Khaldun wrote on economially and politically relevant theories in his introduction to "Mugadimah" and in his “Kitab al-Ilbar (History of the World)”. In his books he talks about "asabiyya" (social cohesion), which he developed as the cause of itself, to explain flourishing civilizations. Ibn Khaldun has found that many social forces behave cyclically, although there may be sudden, abrupt curves, which can break the overall development of a cycle.

His ideas about the benefits of the division of labor are also related to "asabiyya" (social cohesion); the greater the social cohesion, the more complex the successful division of labor. He has found that growth and development positively stimulate both supply and demand, which in turns determines the prices of goods. In macroeconomic terms, he also comes to the conclusion that macroeconomic forces stimulate population growth, develop human capital and promote technological development.

In fact, Ibn Khaldun wrote down that population growth is directly a function of wealth. In this context, it is noteworthy that "An investigation into the nature and Causes of the Wealth of Nations" was written by Adam Smith in 1776.

Results of Muslim economic thoughts

In the course of our research activity and in particular the reinforced view of historical literature, as well as current literature on our subject, we have obtained a lot of knowledge and selected examples of the fact that the original developments of e.g. economics, investments, stock exchanges originated in the first millennium from great intellectual Muslims.

If we take now the elaboration of Beck, Demirgüc-Kunt and Merrouche, we think that many current financial products could be labeled quite easily as Islamic financial products like e.g. investing through buying shares of companies. (Beck, Demirgüc-Kunt, Merrouche, 2010).

Detail “Helal”

According to the Kuyeyt Türk-bank managers, Mr. Yasar Ekinci and Mr. Mustafa Sisman, from the first Islamic bank presence Kuveyt-Türk in Germany, we have discovered that basically the offer and demand purposes from and for Muslims, compared with the conventional purposes, have a similar structure, except that the bans of Islam, according to the directives of ALLAH, are also banned in the basic construct of every Islamic bank.

The core principle of the Islamic bank is the profit and loss sharing system and and the interest ban. To introduce the most essential products, we choose in our working discussion the most widespread expressions, which stand for Profit and Loss Sharing "Mudarabah", or the islamic form of joint venture on time (Musharakah), or original trade with extra charge expenses (Murabahah).

3.1.2. Cornerstones of Islamic finance

The basic tenets of Islamic finance are clearly set out in the following two verses of the Kuran:


Excerpt out of 28 pages


Is an "interestFree" Bank sustainable and competitive?
survey of Dissertation, Islamic Finance, Analysis, Germany and Turkey
Mendel University
PhD., Economics and Management
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
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bank, dissertation, islamic, finance, analysis, germany, turkey
Quote paper
Mehmet Cosgun (Author), 2014, Is an "interestFree" Bank sustainable and competitive?, Munich, GRIN Verlag,


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