Category: Banking

The national Australia bank has many programs which help it to adhere to the ethical regulations which govern all businesses in Australia. For example, in 2004, the bank launched a customer relationship management system which enabled it to win the Cap Gemini financial innovations award in 2006. It also launched what it referred to as Ubank, a system which provides customers with an option of transacting business online with the aim of making them more satisfied by accessing banking services right at their homes or any other places of their convenience.

The bank has also invested in providing its customers with services and products which help them understand their environmental challenges and how to mitigate risks associated with the environment. It uses this approach because it believes that for sustainability purposes, it must build the capacity of the customers to enable them understand their environment and take good care of it.

The bank also has a program of motivating its employees based on the concept of employee voice, which has to do with employee engagement, employee involvement, and employee participation. In the field of management, employee engagement has to do with treating employees as organizational assets not as liabilities. Some of the employee engagement initiatives used by the bank include effective communication, cooperation, quality line management, and respect of the employees.

Effective communication involves using the correct language in communication between employees and their seniors. The language used should be neutral and inoffensive. For effective communication to be realized, managers should avoid discrimination of employees based on employees positions, age, gender, level of education, race, and religion. Cooperation has to do with establishment of teams which work together. These teams give themselves a social identity which bonds them together. Cooperation also leads to innovation because the employees are committed to the success of their organizations.

Quality line management, equitable pay, and respect for each other have to do with establishing policies which ensure that there is a good work environment for all employees to be productive.Employee involvement has to do with involving all employees in decision-making while employee participation has to do with treating the employees as important stakeholders through ongoing consultations.

The concept of employee voice has enabled the bank to increase its efficiency and effectiveness due to increased employee motivation and loyalty. It has also led to a cohesive organizational culture. Many organizational researchers agree that a cohesive organizational culture is one in which all members of organizations have similar beliefs and values which hold them together.

These programs on environment, customer service, and employee motivation are in line with the banks overall business strategy. The objective of the bank has always been to transform itself into a leading player in the banking industry. Over the last 12 months, it has taken measures aimed at boosting its position at the global level. At the local level, it has taken various measures aimed at boosting growth in Australia. It has also taken initiatives to strengthen its foundation and improve customer satisfaction. In addition, it has taken serious campaigns to expand its international market. The banks positioning initiatives are likely to remain the same over the next 12 months. The reason is that it aims at delivering quality and affordable products and services to all its customers over the next three years.

Through the mentioned programs, the bank has been able to realize impressive results. According to the Chief Executive, the focus of the bank over the last 3 years has been to strengthen its foundation by investing in areas which improve customer satisfaction. According to his assessment, the bank has made good progress, even though it has faced some hurdles. Some of the factors which have positively or negatively affected the performance of the bank include increased cost of promotions and production, efficient supply chains, inflation, and effective management of promotions.

The bank has also done well as far as corporate governance is concerned. Corporate governance is defined as the manner in which corporates are regulated, either by governments or other institutions. Since corporates play an important role in the economy of a country, there is need for them to be regulated so that their operations lead to maximum realization of returns, which in turn boosts the economy of the country. Different countries have different corporate governance frameworks, which are depended on the countries economic, legal, and cultural backgrounds. For instance, Australias system of corporate governance is based on principles not on rules and regulations.

The framework operates under the principles of the combined code of conduct. The code outlines what constitutes good corporate governance in terms of organizational structure, organizations boards, and the composition of various committees at various levels of organizations. It also allows organizations to decide which model of corporate governance is best depending on their prevailing internal circumstances. However, the code requires organizations to explain to their shareholders about the organizations internal governance and how it affects the profit margins of the organizations. This approach is market oriented and it gives the shareholders of an organization a big say on administrative matters of the organization.

The national Australia bank has been acknowledged by its shareholders for its excellent corporate governance model, which has ensured that there is transparency and accountability at all times.

One area where the bank needs to improve its policy on consumers is in regard to the number of staff in its branches. According to the naked office website, it is claimed that the bank places a lot of emphasis on cutting costs. This practice makes it have few employees in the branches to serve the constant or increasing number of customers. The employees therefore feel overworked without any additional compensation which is a form of exploitation. For the bank to make its customers more satisfied, there is need to recruit more employees to ensure that customers are served without delays. If it is not able to increase the number of employees, it needs to ensure that the employees are paid overtime so as to motivate them more.

The bank also needs to improve the efficiency of its online banking system so that the customers using it would be able to enjoy faster and reliable online services. The reason is that there have been some allegations that the banks online banking system is sometimes very slow, a situation which does not go down well with the customers.

In regard to its relationship with its environment, the bank needs to allocate more funds to environmental conservation. There is no evidence of significant activities which the bank undertakes to conserve the environment. It needs for example to contribute towards the management of greenhouse gases which cause global warming. It can also partner with other governmental and non governmental organizations to launch comprehensive environmental conservation programs both at the national and international platform. The bank also needs to not only educate its customers on environmental management but also all members of the community where it has operations. This would ensure that it reaches as many people as possible thus increasing the impact of its efforts towards environmental conservation.

According to the naked office website, the bank has been accused of having poorly trained and inexperienced personnel at top leadership positions. While it pays attention to the training of other staff, it has neglected the training and capacity building of its leaders and therefore, there is need for change so that it can have leaders who are not only experienced but also visionary and well equipped with the necessary skills and techniques of leadership.

Such leadership would enable the bank to come up with strategic business decisions which would propel it towards excellence.The bank needs to as well scale up its employee motivation efforts by introducing more employee motivation programs and policies such as sponsorship programs for employees to further their studies, provision of retirement benefits, medical scheme for the employees and promotions based on merit.

If I were to rank the bank based on its ethical commitment, I would classify it among the top ten companies in the world. The reason is that it has demonstrated high levels of commitment and dedication to ensure that it does its business in a manner which does not violate the rights of its shareholders and stakeholders.

Chinese Banking System

In the case study under analysis, Chaudhuri (2014) pays much attention to the banking system of China and the development of different banking sectors in regards to the latest changes and requirements that may occur at the local or national level. Regarding the latest achievements, existing progress, and the possibility to develop international relations in a short period, a banking system of each country (and China is not an exception) has to stay compatible and valuable. Such goals can be achieved in case a banking system supplements equity capital, supports the idea of restructuring, and promotes the development and improvement of banking skills. The banking system of China demonstrates good results at different stages.

One of the main aspects of the case covers the controlling and administrative details of the banking system. It is stated that the whole banking sector, including the Peoples Bank of China (PBC) and the China Banking and Regulatory Commission (CBRC), is under the control of the State Council (Chaudhuri 2014). Such a banking system remains a mono-block that involves many banks with their financial policies, functions, and relationships (Ye, Xu & Fang 2012).

The structure of the banking system plays an important role because it helps to stabilize the personal and professional needs of all employees and employers and clarify the tasks that have to be performed at different hierarchical levels. For example, PBC is defined as an organization with an ability to identify and control all financial policies in the country. The monetary policy and possible liquidity of the system are the two main responsibilities of PBC. To support and improve the results of PBC, CBRC performs such functions as regulation and supervision over other financial bodies in the system like SOCBs, several policy-lending banks, financial institutions, and credit cooperatives (Chaudhuri 2014).

The efficiency of the work of people in the Chinese banking sector cannot be neglected due to the results achieved by the country. First, the global financial crisis in 2007 was survived and used as an opportunity to promote banking restructuring, enhancing professional skills, and identifying core competencies in regards to which banking relations can be organized (Liang 2012). Second, positive changes in total assets are impressive.

Finally, the work of joint-stock commercial banks attracts the attention of governments and private parties that agree to finance many SMEs in the country. Therefore, the banking system makes many different organizations work in the same direction and promote the stability of the economic situation in the country, as well as support the possibility of the development of national and international relations.

During the analysis of the banking system in China, it is also necessary to underline its historical development and the decisions made regularly. For example, in 2001, one of the most successful decisions was made when China became a part of the WTO and provided itself with an opportunity to recapitalize SOCBs and manage non-performing loans. Capital reserves were increased in different regions of the country that allowed PRC to create more large state-owned banks (Chaudhuri 2014).

New mergers appeared and helped to cover the debts of weak and problematic banks. Besides, several urban credit cooperatives could turn into large city banks with some possibilities and controlling functions. On the one hand, such economic independence and constant development were the main benefits of the banking system. On the one hand, it was difficult to control the activities of all organizations. Therefore, the decision to pay attention to the cultural aspects and traditions was made.

The peculiar feature of the Chinese banking system is the recognition of Chinese culture, history, and traditions based on Confucian values. Chinese people believe in the power of family relations, respect, and recognition of personal values to maintain face. Almost the same attitudes and norms can be observed in the banking system and the development of international and interpersonal professional relations. For example, in Chinese families, hierarchical relations are respected for centuries. Banks and financial organizations are organized identically to support the idea of hierarchies (Ye, Xu & Fang 2012).

There is one central financial body that may control the activities of all organizations, including the work of the Peoples Bank of China, China Development Bank, all nationwide banks, and different rural credit cooperatives. Some organizations are not satisfied with the necessity to perform limited roles and stay unable to make independent decisions stating that free relations and financial power have been already changed and improved. However, the power of the State Council is huge, and its rules and standards cannot be broken at the moment. Therefore, the banking system of China is under the control of one certain financial body.

In general, the analysis of the Chinese banking industry shows that the country was able to form a strong system many years ago. Though there is a need to support restructuring and reconsideration of financial functions and roles, China underlines the importance of cultural values and norms as a unique feature that has to be followed. Regarding the possibilities to develop new international relations and stabilize its heritage, the Chinese banking system has all chances to prosper and succeed.

Foreign Investments in China

During the last several decades, the banking industry has undergone considerable changes worldwide, including the importance of restructuring and reorientation (Chaudhuri 2014). The processes of globalization and internationalization promote new steps to be taken, new products and services to be introduced, and effective global trends that support developing countries. China is a developed country. Still, its banking system and foreign investment policies have to survive numerous changes and improvements using its norms and guidelines in comparison to developing countries where the rules of banking giants have to be followed. Regarding such positions in the banking industry and the abilities of the country, China turns out to be a good attractor of foreign investors providing several advantages.

Foreign direct investment (FDI) is a type of capital that can be invested in the country to bring its products and services to global and local markets. It helps to unite national economies, and many people and countries are interested in developing business relations with China. Several important factors have to be mentioned in the discussion of the role of China in the global economy. In addition to the fact that China remains to be one of the most populous nations with a competitive environment, it is characterized by the fastest-growing economy and the possibility to maintain its growth regularly in comparison to such countries like the United Kingdom where no economic growth can be observed by years (Wall 2013).

Its national reserves help the country to stay one of the well-known countries for export. Cars, technologies, gold, and jewelry are the products that are in demand globally, and China offers reasonable prices for people globally and experiences a constant flow of capital (Deresky 2014). The Chinese banking system and its products and services offered for export make the country strong and constant on the global market. Some foreign investors believe that as soon as they participate in the economic development of this country, it can be possible to promote a rebalancing of export-dependence (Deresky 2014).

However, if their attempts cannot bring positive for the results, it is always possible to stay a part of the fast economic rise being a significant member of the Chinese economic system. Another positive factor for foreign investors in China is that strategic partnership is used to determine the relations between the parties. Investors get a chance to augment their positions in certain regions of China and make their choices reasonable. Besides, in China, foreign investments are attractive due to its nationwide presence. The Chinese banking industry, as well as many other industries, has a unique management style. When a foreign investor decides to work with China, they should accept all its cultural values, history, and traditions. Therefore, not only financial benefits can be observed. Certain cultural saturation occurs.

However, there are also several challenging aspects any foreign player should be aware of. Regarding the fact of cultural saturation, it is necessary to understand that all foreign investors have to learn all unique aspects of the country and its history. It is not enough to learn several traditions and get acquainted with the works of Confucius which became the basis for the development of business and interpersonal relations in the country. Some people face problems learning the depths of Chinese culture. Still, it is not the only con that matters. It is also necessary to admit that some investors cannot afford constant stake acquiring in banks due to the existing costs. In China, foreign investors have to be ready to pay a lot to be a part of such fast and constant economic development.

Each progress has its price, and China establishes its own rules in terms of which it is hard to obtain the required portion of influence in the management policies. Such requirements and statements prove that China is open to new business relations and activities with the help of which its economy can be improved and developed. At the same time, Chinese banks do not find it necessary to provide foreign players with an opportunity to control some activities and a decision-making process. Some investors expect to spread their commercial business in Chinese commercial banks through various strategic investments and gain ownership control and asset quality. Sometimes, it turns out to be possible to achieve such goals and stabilize the positions in the banking system and foreign investment. Still, in the majority of cases, China does not provide foreign players to demonstrate their true intentions and possibilities by creating clear guidelines and standards.

In general, foreign investors can be attracted to China due to several positive factors, including participation in constant economic growth and obtaining certain financial guarantees. Foreign players get numerous benefits as soon as they decide to cooperate with China. However, it is also necessary to remember that China introduces certain rules and requirements that have to be met in order not to lose control of all financial operations.

It is recommended for foreign players to learn better the conditions under which strategic business relations can be developed with the country, benefits and shortages, and activities that can or cannot be allowed. China, in its turn, has to understand that the idea of foreign direct investments presupposes certain sacrifices or difficulties, and it is necessary to be ready for all of them using experience and the experiences of other developing and developed countries.

HRM Challenges and Solutions

Regarding the information that is given in the case under analysis and the situations described, it is possible to identify several major HRM challenges that foreign banks may face in China. First, foreign banks have to comprehend the nature of the Chinese management style. Besides, it is important to develop a specific commitment to Chinese society and the life millions of Chinese people prefer. Finally, Chinese society develops a strong attitude towards entrepreneurship. It is not easy to develop appropriate strategic alliances because stakeholder interests have to be taken into consideration and aspirations and needs have to be identified.

Foreign partners have to investigate different aspects of the Chinese economic sector and meet all cultural values. Such requirements create certain challenges that have to be solved. Chaudhuri (2014) offers crossvergence as a hybrid process that can substitute the convergence theory and become a solution for many foreign banks that aim at developing strategic alliances in the country.

To clarify if crossvergence can be a solution for the HRM challenges, it is necessary to discuss the peculiarities of convergence and crossvergence theories and compare the conditions which become available for the supporters of both theories. Convergence theory is based on the ideas of industrialism according to which a society of a certain country has to consider the values and behaviors which are supported by Western industrialized countries due to their impact and power over other business partners. Societies can become similar to each other and use technological progress, values, and economic achievements promoting industrialization through the whole world (Al Ariss & Sidani 2016).

Crossvergence theory supports the idea of dynamic interactions in terms of which all socio-cultural influences and ideologies may lead to the creation of one single system of business values. According to this theory, certain parent cultures cannot be ignored. However, they do not prevent the development of new ideologies. They introduce the grounds for the creation of a new system with strong rules and clear guidelines. Such promotion of combined socio-cultural forces introduces a strong influence under which banking systems of different countries, investment relations, and economic growth can be improved and work for a global good (Al Ariss & Sidani 2016). Interactions between countries are hard to develop, and crossvergence theory is an attempt that cannot be neglected in achieving business ideologies.

In comparison to a convergence where one approach is welcomed and supported to subdue other countries and players, crossvergence is the movement under which several principles, politics, and policies can be used to create a new effective form of management. It is a solution for strategic alliances that can be located in China. Though there is a threat that China can lose its cultural uniqueness and respect for tradition, crossvergence theory has some points with the help of which it is possible to develop new approaches and socio-cultural interdependence properly and safely (Deresky 2014). Crossvergence can be of different types, including conforming, deviating, and static. Each approach has its characteristics and helps to make a choice that is appropriate for nations, banks, and independent players in foreign investments.

For example, crossvergence can be used to confirm that national cultural diversities are not threats but have to be considered as a significant potential in terms of which knowledge can be shared, and cultures can be learned. Crossvergence is also a chance to identify cultural conceptions and use static indicators as the best explanation of cultural differences (Al Ariss & Sidani 2016). Finally, there is deviating crossvergence when there is a chance that cultural values can be increased or changed with time, and banks or other financial systems can hardly predict all improvements or challenges.

Taking into consideration the essence of crossvergence and its possible impact on the development of economic relations between countries, it is possible to define this instrument as an appropriate solution for the creation of strategic alliances and unique management styles. China has several options to rely on when foreign investments have to be used. However, its connection to culture and tradition may create some challenges for foreigners. Therefore, crossvergence is an effective tool with the help of which clear standards can be established, cultural knowledge can be promoted, and respect between nations can be supported. It is recommended to involve as many countries as possible and unite them to promote total asset quality, poverty decrease, and trustful relations.

Reference List

Al Ariss, A & Sidani, Y 2016, Divergence, convergence, or crossvergence in international human resource management, Human Resource Management Review, vol. 4, no. 26, pp. 283-284.

Chaudhuri, S 2014, Case 9: foreign investment in Chinese banking sector: HR policies, in H Deresky (ed), Management: managing across borders and cultures, Pearson, New York, NY, pp. PC4-1-PC4-8.

Deresky, H 2014, Management: managing across borders and cultures, 8^th edn, Pearson, New York, NY.

Liange, Y 2012, Development finance: Chinas banking system in light of the global financial crisis, Chinese Economy, vol. 45, no. 1, pp. 8-27.

Wall, E 2013, Investing in China: the pros and cons, The Telegraph. Web.

Ye, Q, Xu, Z & Fang, D 2012, Market structure, performance, and efficiency of the Chinese banking sector, Economic Change and Restructuring, vol. 45, no. 4, pp. 337-358.

Introduction

The banking and financial institutions are under severe pressure these days. The globalization and networking of economies have resulted in a cascade effect on the stock market, economies, and of course the financial viability of many companies and institutions. Australia too has not been far from this cascading effect as its economy has also been affected by global cues. The sub-prime lending crisis which led to the credit crisis and debt write-offs started from the US and gradually spread off to other parts of the world. Since the majority of the banks and financial institutions have operations in many parts of the world, the crisis in one part was bound to have ripple effects on the other parts as well. The report on the Australian Mortgage Industry (Vol. 7, 2008), brought out by Fujitsu Consulting and JPMorgan points out some of the challenging circumstances that the banks and financial institutions may find themselves in if the crisis goes out of hand. At the same time, the report also points out the inherent strengths of the Australian financial system.

Some of the features of the report are

• It finds out the support of Australian households to the economy and mortgage market. The report indicates that from December 1992 to December 2007 the total system dynamic LVR has risen from 12.1% to 24.2%.
• But the global credit crisis led to the decline in the proportion of all loans across the industry through brokers. It has declined to about 36% since the crisis began.
• In the coming months, mortgage stress is projected to increase. By June 2008, the stress could become four times as compared to last years figures.
• With increasing cases of write-offs being undertaken by the banks and financial institutions, the economy is bound to take a hit, if the government does not chip in with adequate system support.

When the Commonwealth Bank, the largest bank in Australia, came out with its results in February 2008, the stock prices of the majority of the Australian banks started declining, because the Commonwealth Banks results were found to be disappointing (Ingemarsson, 2008). The profitability of the banking sector has become the key concern under the circumstances. But the confidence expressed by the Reserve Bank of Australia in the banking system of the country sounds reassuring for the investors and the business community. At the same time, Governor Glenn Stevens emphasized that the banks must not look towards the government to bail them out of the crisis, and instead, theyll have to be more cautious and avoid further risk taking while assuming that the liquidity is no longer a threat (Ingemarsson, 2008a).

Risk propositions

The banking system works under certain assumptions and risk propositions. The risks depend upon how the customer would behave, how the stock market would move, the profitability/ earning of the client companies, or the interest rates. The risk proposition further widens when the bank starts its operations on an international scale. The Australian banking system is quite a competitive one with big players like National Australia Bank (NAB, ANZ, Westpac, and Commonwealth Bank. In addition, several smaller players and non-banking financial institutions also play a crucial role in the countrys economy. All these institutions are facing the heat on the revenue earning front. The rate of interest has seen an unprecedented hike in recent years and it is at the highest level since 2001. The risk components of the banking system include;

Credit Risk

The risk associated with a banks asset loans is termed credit risk. Credit risk is measured by;

1. The ratio of non-performing assets to total loans and leases
2. Ratio of nonperforming assets to equity capital.
3. Ratio of total loans to total deposits.
4. Ratio of net charge-offs of loans to total loans and leases
5. Ratio of annual provision for loan losses to total loans and leases or the equity capital.

ANZ has been managing the credit risk within the limits by dealing with creditworthy counterparties, setting credit limits on exposures to counterparties, and obtaining collateral where appropriate. NAB is also maintaining a strong focus on the quality of assets to take care of its credit risk. The ratio of gross non-accrual loans to total loans of NAB has registered significant improvement from 0.62% to 0.59% during the last five years.

Liquidity Risk

This risk arises when the bank is short of liquid cash and is not able to meet the customers needs when he wishes to withdraw his money. This risk can be measured in terms of:

1. Ratio of purchased funds (like federal funds, securities, etc) to total assets
2. Ratio of cash and due-from balances held at other depository institutions to total assets.
3. Ratio of cash assets and government securities to total assets.

This figure becomes damaging when the liability figure outgrows and starts showing the signs of becoming more than the assets. As per the annual report, on 30th September 2007, ANZ had an asset amount totaling $m59030 for the next three months as against liabilities for the corresponding period of about $202556. But it has been able to manage that effectively for this period helps the bank in projecting encouraging figures for the next couple of years. For a period of 1 to 5 years, the bank had liquid assets of $m57183 as against the liabilities of $m51794. This figure would help the bank in retaining a good liquidity ratio in the coming months. Similarly, the total cash and liquid assets of NAB are $m6190 on September 30th, as against the corresponding figures of $m5913 for the year 2006.

Capital Risk

This is the long-term survival risk of the bank. When the bank starts writing off the bad debts, the stock holders reaction puts the bank at capital risk. the investor might not like the idea of such write-offs. This type of risk is measured by;

1. Interest rate spread between market yields on debts issues and the market yield on government securities of the same maturity.
2. Ratio of stock prices per share to annual EPS (earnings per share).
3. Ratio of equity capital (net worth) to total assets
4. Ratio of purchased funds to total liabilities
5. ratio of equity capital to risk assets.

Interest Rate Risk

The movement of interest rates affects the profitability of the bank. Therefore the risk can be measured in terms of i. The ratio of interest-sensitive assets to interest-sensitive liabilities ratio of uninsured deposits to total deposits.

Conclusion

These risks appear to be quite genuine and damaging for the health of the economy and banking institutions in Australia. The increased awareness on the part of the banking institutions on a resolute need to provision for setting off the impending crisis will help in taking on the risk. For example, the NAB has acknowledged in its FY 2007 report that the Group sold or transferred $12,300 million as again $4,771 million in FY 2006, of loans and advances through securitization or other arrangements which did not qualify for de-recognition from the balance sheet.

The report admits that it remains exposed to the risks like the liquidity risk, interest rate risk, and credit risk of the loans and advances (NAB, 2007). Similarly, the ANZ group also admits the risks but at the same time provisions the risk by setting up a credit protection mechanism that could allow the bank to sell the credit risk on portfolios (ANZ, 2007). The bank has total assets for less than three months at $m253,326 against the liabilities of $m246,992 for the corresponding period. This seems to suggest that the bank appears to be in a safe zone for the next couple of months. ANZ also uses a two-dimensional risk grading system to measures both the customers ability to repay (probability of default) and the loss in the event of default (a factor of the security taken to support the facilities). Therefore, from the discussion, it is quite apparent that while the risks associated are quite real, the Australian banks do not appear under extreme pressure to disappear from the scene. The upsurge in stock market indices in the first fortnight of April 2008 is a healthy indication towards stabilization of the crisis and global efforts are already on to contain the damage as soon as possible.

References

ANZ (2007). Annual Report. Web.

Ingemarsson, Petter (2008). Australian banks: pressured by increasing funding costs. Web.

Ingemarsson, Petter (2008a). Australian banking: RBA still confident about the financial system. Web.

NAB (2007). Annual Report. Web.

Introduction

As it has always been said, a large incumbent company can suppress entrepreneurial initiative and energy but a dynamic financial sector, in which incumbents and new entrants can get finance under competitive terms, can create competitive pressures in the market. According to this case study St. George bank had to some extent managed to undertake the industrial advantage in Australia, for example, as indicated in St. George annual report (2007) the company had perceived a low-risk organic growth strategy that focused on forming strong customers relationship, building internal culture and making operation as efficient as possible. The bank has also managed to get the best use of technology, the best human resource team, and the best resource director. It had managed to establish a strong relationship between human resources and the business (Donaldson, 2005). The bank had gained the ability to listen to the changing needs of their employees and attract and retain talent within their workforce (Human Resource Magazine 2007).

Main body

The bank was close to business function and was able to foster entrepreneur qualities such as being proactive and innovative with human resources and this resulted in the human resource team adopting a proactive role to issues rather than a reactive role. (Donaldson 2005) Proactive role build result and credibility to human resource function, for example, a human resource could investigate business needs and therefore construct quick innovative solutions with viable outcomes. St. George Human Recourse Team was known to focusing on the long-term implications for culture and organization rather than short-term policy and procedures. (Donaldson, 2005) The bank ensured that the right people with the right attitude were hired and this was true assigning future step companies as recruitment to offer a dynamic way for customers to conduct their banking through the establishment of three banks in Australia.

Though St. George bank had successfully engaged innovation, proactiveness, and risk-taking in its business operation it can still achieve the competitive advantage by applying them a step higher. As Porters (1990) asserts, it is argued that companies achieve competitive advantage through acts of innovation. Innovation can be achieved through the application of new technology and new ways of doing things. For instance, St. George bank may aim at applying new technologies creation of new services and differentiated processes.

St. George should also come up with new methods to access their customers and also new channels on which the customers can get their services. The bank should also introduce a service whereby customers should be able to open a new account free of charge i.e. without the initial minimum balance as a means of attracting more customers; this though a more risky venture will attract a wider customer base thus business expansion. This will act as an innovative and proactive method. The bank may also apply innovative measures through the change of management process by applying specific tools rules and discipline. (Davilla, et al 2006) The bank can also aim at opening more branches in Australia and other parts of the world i.e. taking advantage of the market sector it has not penetrated in before.

They should also come with new procedures of issuing loans, withdrawing, depositing, and transfer of money. (Judith and Robert, 2006) This will not only boost their business operations but increase customer confidence as well.

Proactive strategies give a business a more competitive advantage compared to reactive strategies. St. George bank should be involved in increasing employee morale commitment satisfaction and ensure good working conditions which will result in retaining employees. The bank should also offer extensive training and development of employees in different areas including leadership, management, sales, and marketing. They can also come up with methods of attracting more customers through strategies like zero operating balance of an account. They can also charge low interest on loans issued to customers. In addition, the bank should incorporate seminars and workshops to train and educate their employees hence tap the creative and strategic entrepreneur talent. (Elizabeth, 2005) The bank can also apply a proactive strategy by inviting foreign investors through making their services attractive to foreign investors, for example, they can ensure them enough security of their money. To attract millions of customers St. George bank should offer mortgage financing, consumer financing, and auto financing services.

Conclusion

Gratifying aspects of the banks reform in the financial sector will be broadening access to financing by the lower and middle-income groups whose loan recovery track record is far superior to that of the large farmers and large business houses. (Judith and Robert, 2006).

By implementing the above recommendations St. George Bank can proudly claim taking initiative in building social and physical, making strides in ensuring and fostering a stable domestic macroeconomic environment, and lastly making serious progress to ensure a level playing field incorporating all economic players whether large or small, domestic or foreign.

Reference

Elizabeth, C. (2005). Entrepreneurship: Globalization, Innovation and Development, California University Press, California.

Jerome A. Katz, Dean A. Shepherd (2004). Corporate Entrepreneurship, McGraw-Hill, New York.

Judith W. and Robert L. Heneman (2006).Human Resource Strategies for the High Growth Entrepreneurial Firm, Cambridge University Press, London.

Porter, ME (1980), how competitive forces shape strategy, Harvard Business Review, USA.

Robert L. and John H. (2006).Human Resource Management, Prentice Hall, New York.

Wei, L. (2006). Strategic Human Resource Management: Determinants of Fit, Research and Practice in Human Resource Management, 14(2), 49-60.

The most important period of development and character formation in anybodys life is his/her childhood. The school and the curriculum through which the child passes during his kindergarten years play a vital role in the development of his faculties and talents for preparing him for his future life. The Bank Street Curriculum was developed keeping in mind that children are very active learners. They are experimenters, explorers, artists and active learners in their own way. They learn at their own pace, taking their own time to learn. The curriculum is based on history, economics, history and even geography, the different branches of social studies (Harmon, & Jones, 2005). The curriculum provides a theoretical approach for planning and carrying out work with young children.

History

In 1916, when Lucy Sprague Mitchell and friends felt that the curriculum for children was inadequate and the public education system was not serving the children well, they started the Bureau of Educational Experiments as part of collaboration among teachers. As prevalent in those times, children were using rote learning methods of study. Lucy Sprague found a way for the constructive blending of the progressive movement of the twentieth century with the works of John Dewey and the formulations of Edna Shapiro and Barbara Biber. The small group also took into confidence researchers, a social worker and a pediatrician. They had the basic insight that childrens learning and their emotional lives were inseparable. John Dewey influenced the team to create a school that would deal with the ideals of a democratic community. She believed that children were blessed with an intense desire to learn and if channeled properly the desire would continue to burn until the end of a persons life. Thus was born the developmental-interaction approach to the process of learning. This approach stresses the social, intellectual and emotional components of a child in the facilitation of learning. This is juxtaposed with the different developmental stages of a child and his active experimental interaction with the society. With this in mind they set out to experiment and out of this experiment came the Harriet Johnson Nursery School, for children of age three to five. The name was given after a colleague who was among the team. From these humble beginnings, Bank Street grew, creating materials for and about children in many subjects. They even influenced the design and practice of national educational programs like the Head Start and Follow Through. To keep one ever a learner was what Lucy Sprague believed in. The Bank Street Curriculum is an outcome of that strong belief (Educational Philosophy. 2009).

Curriculum-Planning and Implementation

Curriculum planning at Bank Street involves philosophy of both colleges and Head Start positive outcomes framework. This started basically as a research establishment but later on when the need for subjects was felt, students for teaching was incorporated. This is developed by a close understanding of the children in their study environment. Every day children are taught to make connections between home and school. They are also studied for the experience of separations between home and school. The approach stresses the role of teachers as facilitators of learning. In place of the teacher-centered classrooms till then, Bank Street curriculum presented a child-centered classroom. Children understand that they have similarities as well as dissimilarities with others in the diversely rich classrooms. Even teachers are carefully picked from ethnically different backgrounds to teach children about diversity. Teachers build on their experience and their expertise is taken into the classrooms (Curriculum.2009). As a result of viewing the curriculum as an interaction of children with their total environment the parents of each child are also given specific roles in the development of the curriculum. So parents are also partners in the growth and development of the children at Head start. For parent orientation, Bank Street conducts several workshops, with topics like Parent Orientation, Curriculum Night, Kindergarten Informational Fair, Learning through Play Workshop and Conflict Resolution. The more parents are close to the institution, the more workshops are provided. This goes a great way towards shaping the curriculum. They even substitute for teachers after submitting necessary documents and attending training programs (Parent Involvement.2009).

Even materials are provided according to the needs of the developmental stage of the children. If a first grader needs only a single color crayon, the need of a second-grade child may be for a set of crayons. The necessary materials provide the necessary motivation for the student. How the teacher plans the materials and the gradation of experience is of primary importance in the arts section. Children require to produce sample books, charts etc in the literary section. They even invent spelling and write simple stories using these words. Teachers are careful that children do not destroy the given materials but try to develop the cognitive capability of the student about the medium. Preschoolers use different kinds of mathematical materials, pegs, pegboards, pattern blocks, woodworking materials etc. Children learn about shapes, sizes and colors from the various materials used for their play. They encounter measurements and volume when they compare heights and measure sand and water. Activities that include songs and other rhythmic movements are provided. Drums, tambourines, xylophones, maracas and other non-pitched musical instruments are also given to the children. Scientific thinking is promoted and children are encouraged to think in terms of cause and effect. They understand and come to respect nature (Curriculum.2009). Classroom structure is decided to take into account the developmental stage of the students. Each subject sets stage or developmental stages of goals. A more general stage would be the lower school, the middle school and the upper school. Though of great difference in the matter of subjects, the use of contained classrooms is still kept at the lower levels (Mitchell, 2009).

Implementation

There could be no doubt about the implementation in the need for space. The space is so pronounced that children have wonderful access to the materials. A quiet space is provided for reading and the library. Materials for art and instruments for music are at hand. The childs handiwork is displayed at the eye level of the child. The classroom itself is a standing proof of the importance of arts and sciences in the different stages of development of the child. Children go about their work and talk freely. Parents come and go as they please. The role of the teacher and the assistant is more than just instructional. It is more critical. Aspects like organizing chores, caring for pets and plants are presented in a planned environment in the classroom. Then it is elaborated to the wide world in such a way that the child can see the relationship. The adults by way of relevant field trips emphasize the wide range of the relevance of these concepts. Gradually the themes extend beyond time and space to other lands and cultures (Bowman, 2009).

Child is the center of activity, in each learning step involved. He/she is read to daily. He formulates ideas and questions, and learns to communicate meaningfully with others. Language is not learned but acquired as immediately useful tool. The adults utilize the childs need for play, by integrating it into the childs curriculum. Play is the work of the child. When older, the concept of play changes to dramatic expression. It derives from the fact that opportunity to recreate experiences is a need for the child. The day moves along with scheduled programs, which are understood by each individual in the class. Flexibility helps to build over the missed links, if any. The children work in groups but individual development is not hindered. Transition from an activity to another is simple due to childs awareness of individual responsibility. The learning process of the classroom directs the child towards acceptable social behavior. The presence of parents enriches the atmosphere of the classroom. They enhance the learning process through their experience of the school and knowledge of the childs behavior patterns. Children are in the democratic model of the world, where they consider alternatives and learn to take decisions. Children go through this process as a small model of the society and do not come together as a whole class unless demanded by the activity at hand (Bowman, 2009).

Assessment

Teachers give homework and every child is assessed thoroughly. Teachers utilize every instance for developing the childs questioning and exploration capacity. The child is evaluated in all the developmental stages of the learning process. He passes from one stage to the other via the evaluation process done by the teacher. His overall performance is assessed beyond the academic or content-based curriculum. Talents in children vary to a great extent. Even the theory of multiple intelligence may be taken as proof of the way children are assessed to their different talents. How the child reacts to the evaluation conducted by the teacher will clearly be proof of the effectiveness of the method. Care is taken not to be ambiguous while questioning the child in a random fashion(Educational Philosophy. 2009).

Conclusion

The approach of the curriculum is mainly different from the fact that it is child-centered and based on the developmental interaction approach. The main difference between Bank Street and Montessori approaches is the gradation of tasks given to children. The Montessori approach gives importance to parents but not so much as the Bank street approach. The teachers are center figures in Montessori system. Nevertheless, not so in the other. They are facilitators. Parents are allowed to come and go as they please. Both the systems seek a diverse student body. But in Bank Street system even teachers are selected to be from diverse backgrounds (Robledo. 2009). The Reggio Emilia approach mainly differs in the fact that group work is not given any preference at all. The whole group work is neglected and children grow up as separate islands. This does not happen in Bank Street approach. Children mainly learn in small groups and come to the whole class only when required by an activity (Robledo. 2009). Compared with traditional method schools fewer topics are chosen in the bank street curriculum schools, but preference is given for depth and understanding. Learning is a social process as a solitary one. Children learn to socialize and respect each others needs as well as their own (Educational Philosophy. 2009).

The developmental stages of the child are given more importance and content teaching is integrated along with it. Every child is given equipment and materials according to the development stage of the child. Special care is devoted by the teacher in the grading of the materials to be used by the child. The curriculum itself is child centered and contributes to the development of all the faculties and talents inherent in a child. By and by, Bank Street has used strength and delicacy in a changing world to revolutionize the concept of individual coaching to strengthen the future generation of the country (Educational Philosophy. 2009).

Reference

Bowman, G.(2009). Teaching and Learning in a Bank Street Classroom. Web.

Curriculum: Educational Philosophy. (2009). Web.

Curricullum: Educational Philosophy. (2009). Web.

Curriculum. (2009). Web.

Harmon, D.A. & Jones, T.S. (2005).Elementary education: a reference handbook. California: ABC-CLIO. Curriculum: Educationa.

Mitchell, L.S.(2009). The Bank Street School for Children Curriculum Guide. Web.

Parent Involvement.(2009). Web.

Robledo. S.J. (2009). The top preschool programs and how they differ. Web.

Robledo. S.J. (2009). The top preschool programs and how they differ: Highlights. Web.

Introduction

Islamic banking has been growing in popularity in MENA countries as a way of complying with Islamic principles. According to Mervyn and Algaoud (83), there has been pressure among the financial institutions to be compliant with some of the Islamic principles in their operational strategies. Shariah law prohibits charging of interests on loans given by any financial institution or individual. Interest charged on loans forms the basis of trade in the capital market. Financial institutions get their profits from the interests earned on the loans they extend to their customers. It is, therefore, unfortunate that this law prohibits the main source of income that these institutions have. This has made it difficult for this industry to develop in many of the Gulf Corporation Council countries. The Shariah law dictates the nature of the business that would qualify for a loan under Islamic principles. The law prohibits giving out loans to business units that sell products classified as sinful among Muslims. For this reason, a business unit selling pork, or such related products may not qualify for a loan under this law.

The micro, small and medium enterprises (MSMEs) have suffered out of this financial outfit because the capital market in GCC considers them undesirable market segments or inconsequential groups that may not have any positive impact on the industry. This has led to a huge deficit in between the supply and demand of capital. This research will explore specific features within Islamic banking that impede the free flow of capital. It will also make a close comparison between the conventional banking system and the Islamic banking system to help bring out the differences that exist.

Research and Analysis

Recent research has revealed that there is a massive disparity between the supply and demand for loans in GCC/MENA that is closely associated with the application of Islamic banking principles. MSMEs are struggling to find enough resources to fund their activities because most of the banks are unwilling to offer them a loan. The few who accept to deal with these small enterprises have policies that are so unfriendly that most of these firms prefer not to go for loans. It is important to analyze the supply side of the loans and how it matches the demand in order to understand what could be bringing the disparity.

Conventional Banking Ecosystem

The ecosystem surrounding financial products and services provided by conventional banks has been regarded as the most attractive both to the suppliers and customers of loans. A number of factors make this banking ecosystem attractive to both sides of demand and supply. Conventional banks operate under a strict legal framework that guides the relationship between the lender and the borrower. These laws clearly specify the role of the two entities and how the loaned amounts and the accumulated interests can be recovered by the lenders. This makes the lenders feel secure, making them more willing to offer loans to small and medium enterprises (Maurer 78). The system also specifies that all the savings made by individuals in fixed deposit accounts earn some form of interest. This encourages people to make savings, increasing the amount of supply for loans that can be extended to small and medium enterprises. Because of the clear legal framework in this ecosystem, financial institutions have flexible conditions for people who may want to take loans from them. Although they still ask for collaterals, most of them are currently willing to extend the loan of soft collaterals that can easily be affordable to small business operators. According to Schoon (39), despite the attractiveness of this ecosystem, it is increasingly becoming rare in most of the GCC/MENA countries where Islamic banking is taking great shape. This means that the numbers of conventional banks that can offer loans to MSMEs in these countries are limited. This is one of the main reasons why there is a huge imbalance between the supply and demand for loans.

Islamic Banking

Features within Islamic banking that impede the free flow of capital

It was important to determine some of the specific features within Islamic banking that impede the free flow of capital among the MENA countries. At this point, it would be necessary to clarify that the countries under focus in this investigative research include Egypt, Libya, Tunisia, Morocco, and Yemen (Ahmad and Ahmad 28). It was necessary to conduct background research that would define the context and main policy questions that make it difficult for the MSMEs to have easy access to loans from financial institutions that practice Islamic banking. In order to get the needed data on this topic, the research relied on the existing research, especially scholarly journals and books that have been published on this topic. These secondary sources of data are important because they take a shorter period to gather. This research also found primary sources of data to be valuable when developing conclusions for the research. In this regard, the researcher conducted targeted surveys and direct interviews with key stakeholders and other market participants using open-ended questionnaires. These individuals were considered to have some knowledge of the specific challenges faced by the stakeholders in our area of research. Both primary and secondary data were integrated during the analysis instead of analyzing them separately. This was so because of the limited nature of the research. The findings from the two sources of data have been discussed below.

Lack of a common legal framework

The capital market requires a strong legal framework that defines all transactional activities that the players engage in during their normal operations. According to El and Mohamod (32), the capital market has numerous risks that can only be mitigated by strict laws that would govern the relationship between the banks and their clients. Islamic banking lacks a common legal framework that would define such a relationship. This is one of the main features of Islamic banking that has been viewed as a reason that lowers the chances of MSMEs getting loans. Instead of a common legal framework, it has common guidance that is not entrenched in the law. It is not easy to follow up on some of these issues when they are only based on common guidance. Unlike the conventional banking system where banks can follow their defaulters based on clear legal structures, this is not the case when dealing with Islamic banking (Venardos 112).

An interview conducted with Islamic bank officials confirmed that the lack of a legal framework has made it difficult for these financial institutions to follow up on some of the defaulters. For this reason, the capital market has very stringent rules that must be followed by those who are planning to get any financial aid from them. The banks are forced to ask for strict collaterals in order to protect themselves from defaults. This has been the main reason why small and medium-sized enterprises are unable to access these funds. Most of the customers lack the ability to present such strict collaterals as title deeds for land or logbooks for vehicles. As Kettell (95) observes this has forced most of the MSMEs out of the capital market. The results obtained from the questionnaires sent to some of the MSME players revealed that they were unable to access the loans they needed because of the strict collaterals that were demanded by the financial institutions. This has serious impacts on the progress of their business because they are forced to get an alternative source of funding from the government, family members, or friends.

Differences in product offerings

In conventional banking, there is a clear structure of products that can be offered in the banking institutions. There are different categories of loans that can be offered such as personal loans, auto loans, mortgage loans, or investment bank loans. These products are universal in all of the conventional banks. There are specific requirements that must be met by the customers who plan to take such loans, and the structure of paying back such loans is always clear. However, this is not the case with Islamic banking. Most of the product offerings have differences that make it difficult to understand how to approach them. Given that most of these institutions lack a legal framework, they are forced to develop some internal regulations based on their internal needs. The regulations given in one bank would vary a lot from those given by another. This makes it complex for the MSMEs to access loans from them.

Transactions costs associated with structuring Islamic financial products

The transactional cost associated with structuring Islamic financial products is another reason that has been cited as a cause of the inability of the MSMEs to access the capital market in GCC countries. Many Islamic banks prefer trading with governments or other large corporations that they are certain may not disappear once they get the loans they need. However, they are wary of individuals or small businesses that can easily relocate or be unable to pay when the time comes. According to those who were interviewed, most of the small and medium-sized firms are forced to avoid loans from Islamic banks because the transaction costs are just too high.

Disparities between supply and demand of funds offered by banks

According to Ahmed (52), there is a huge disparity between the supply and demand of funds offered by Islamic financial institutions. Given the fact that these institutions do not offer interests to those who deposit their money with them, many people have not realized the benefits of keeping their money in the banks. This means that these institutions have little cash to offer to those who are interested in borrowing from them. The conditions that have to be met by the borrowers make it impossible for them to go for these loans. It has created a scenario where funds offered by these institutions are out of reach for many small business people.

Syndicated Capital Ecosystem

According to Ariff and Iqbal (74), some of the MSMEs have come to embrace a syndicated capital ecosystem to finance their businesses. These are financial products that circumvent financial intermediation through banks (Abdul-Rahman 67). Private equity capital, charitable giving, and crowd-funding are some of the most common forms of the syndicated capital ecosystem. They are always based on mutual trust and the relationship between the supplier and the recipients. However, it is important to note that funds that can be obtained from this ecosystem are not only limited but also unreliable. The dissemination of funds from this ecosystem cannot support the MSMEs in their daily operations.

The Commissioned Report

As mentioned before, besides collecting primary data from players such as the bank officials and MSMEs, there was a special report that was commissioned to collect data from experts in the legal sector, consulting firms, and academic partners to help develop policies to correct some of the problems identified above. They had a number of policies, regulations, rules, and mechanisms that need to be implemented by the GCC/MENA countries. The most important issue raised by these experts was that the number of conventional banks should be increased in order to meet the demand of the MSMEs in these countries. The government should also consider lifting laws and regulations that may restrict the flow of funds from the syndicated capital ecosystem. Finally, these experts were in agreement that it is time for the Islamic banks to review some of their restrictive policies because they may cripple this industry that has become very competitive.

Policy Briefs

Based on the findings from the commissioned report, the researcher developed policy briefs that should be observed to ensure that MSMEs in the GCC/MENA countries have access to capital that can help in their growth.

• It is recommended that the number of conventional banks should be increased in these countries. This will not only address the identified challenges in this industry but also create job opportunities for people in the region.
• The Islamic banking system needs to readjust its policies in order to make their loans more flexible for the MSMEs.
• The governments in this region should promote the development of non-financial institutions to act as alternative sources of funding for the MSMEs.
• The government should find a way of enabling MSMEs to mobilize capital in order to achieve a blended return in GCC/MENA.

Works Cited

Abdul-Rahman, Yahia. The Art of Islamic Banking and Finance: Tools and Techniques for Community-Based Banking. Hoboken: Wiley, 2010. Print.

Ahmad, Abu, and Faruq Ahmad. Developments in Islamic Banking Practice: The Experience of Bangladesh. New York: Dissertation Com, 2010. Print.

Ahmed, Habib. Product Development in Islamic Banks. Edinburgh: Edinburgh University Press, 2011. Print.

Ariff, Mohamed, and Munawar Iqbal. The Foundations of Islamic Banking: Theory, Practice and Education. Cheltenham: Edward Elgar Pub, 2011. Print.

El, Tiby, Amr Mohamod. Islamic Banking: How to Manage Risk and Improve Profitability. Hoboken: Wiley, 2011. Print.

Kettell, Brian. Case Studies in Islamic Banking and Finance: Case Questions & Answers. Chicester, East Sussex: Wiley, 2011. Print.

Maurer, Bill. Mutual Life, Limited: Islamic Banking, Alternative Currencies, Lateral Reason. Princeton: Princeton University Press, 2008. Print.

Mervyn, Lewis, and Latifa Algaoud. Islamic Banking. Cheltenham: Elgar, 2001. Print.

Schoon, Natalie. Islamic Banking and Finance. London: Spiramus Press, 2009. Print.

Venardos, Angelo. Current Issues in Islamic Banking and Finance: Resilience and Stability in the Present System. Singapore: World Scientific, 2010. Print.

The primary component of Islamic Banking is that the risks of financial dealings should be equally shared between the depositor and the investor, who are bank and its customers. Contrary to the practice of charging interest on any loaned money by most financial institutions, under Islamic banking, it is illegal for financial institutions to charge their clients interest on any loaned amount, so long as such clients are not running any risks on their own. In addition to this, Islamic banking also prohibits any form of speculative contracts, for example, futures and options. One direct effect of these banking principles is that the nature of the relationship maintained between investors and depositors always remains that of reciprocity.

Under this scenario, banks are very much involved with dealing with their customers activities. Contrary to a scenario where a non-Islamic bank can loan some amount to its customers and never bother to monitor how much clients will spend the loaned amount, as long as such clients pay the required interest within the set time limits, Islamic banks always make follow up on their clients activities to ensure they invest the money well. This is the case primarily because Islamic banks usually lay a strong emphasis on maintaining a profit-sharing relationship with their clients.

On the other hand, Islamic banking is primarily rooted in standard contracts. One of such contracts is the Mudaraba contract. This form of contract involves investing of funds either by the bank or its clients, whereby any profit earned is shared among the two entities in a contract, but in case of a loss, only the investor is supposed to bear it all. The second example of a standard contract is the Musharaka Contract.

Contrary to the Mudaraba contract, here the two parties in a contract must divide any profits of risk of loss o the basis of the amount they have invested. A third example of a standard contract is the Muharaba contract. This form of contract involves the trading of goods and equipment between a bank and its customer for a price that is normally more expensive than their price. The client is supposed to pay this amount in installments depending on the agreed rate and within the set time limits. This type of contract is the easiest and the less risky form of all Islamic contracts because the lending banks always know in advance the number of returns any contract of this form is supposed to earn((Iqbal 18-21).

Most of the derivatives under Islamic banking contain some form of gharar (absolute risk), taking chances, and interest and support estimated activities. Islamic legal rules, more so those that prohibit gharar and the trading of debt for debt does not permit any business deal, which lacks real or productive activities. Any derivatives that involve any form of financial contracts are illegal according to Shariah.

For example, according to the Shariah precepts, it is illegal for a financial institution to trade in Riba-based bonds and forward foreign exchange, which lacks a synchronized mutual exchange pattern. In scenarios where the said assets are equities and commodities, considerations must be made to ascertain whether Riba or Gharar are involved. As indicated by some scholars, arbun may be used as the main basis of formulating some type classes of Shariah-compliant alternatives. Arbun is a form of contract where one entity in a contract purchases the right to buy from the other entity certain items for a defined price on a specific date.

This form of contract is a void one according to the three schools of Islamic laws and the Hadith. However, according to the Hanabalah, it is a legal contract; although it also embraces the concept that time should be specified for any option taken. The OIC (Organisation of the Islamic Conference) also accepts it as a legal contract, so long as the time limit concept is taken into consideration. Although some sections of the Islamic organizations accept this type of contract to be a legal one, most derivatives that exist in present markets are not satisfactory when analyzing them from a Shariah point of view, as most of them encompass riba and gharar concepts.

It is assumed that a call option is usually near Bai al-Arbun because the seller is not required to return the premium or down payment to the buyer. This happens when purchasers are unable to exercise the purchase option, which can make them lose the option premium, although such an option has been exercised and the agreement has been ascertained. The case is different when it comes to a Bai al-Arbun because the option premium is normally catered for in the selling price, during the confirmation of the agreement (Iqbal 1-19 and Benlafquih 1).

When it comes to insurance, Islam has its ideology of the entire concept, because of the significance, it places on the need for insurance to operate under principles that comply with provisions of the Shariah Law. As white argues Islamic insurance has three primary characteristics namely cooperative risk-sharing through the use of charitable donations aimed at ensuring that gharar and riba are eliminated, the well-defined financial separation between the insured and the insurance company, and Shariah-compliant underwriting policies and investment schemes (White 2).

Within Co-op insurance, the attributes of a cooperative comprise self-responsibility, democracy, fairness, even-handedness, unity, truthfulness, ingenuousness, social responsibility, and being concerned about others. Although mutuality or cooperative risk sharing is the primary principle embraced by Islamic insurance, on its own it cannot form insurance. Hence, Islamic insurance is rooted in numerous relationships, the primary one is a mutual insurance contract between policyholders, them being the primary contributors.

This is the same as a pure mutual insurance relationship while noting the idea of donations instead of premiums. The primary characteristics of cooperative insurance include; firstly, policyholders are supposed to give premiums to a cooperative fund, which should be used as donations to those who may suffer losses (tabarru). A second characteristic is that all policyholders are supposed to receive any surplus, which may be realized from any activity where the cooperative insurance fund has been used. Lastly, all policyholders are legally responsible to make up for any shortfalls, which may result from any transaction involving the use of the cooperative fund (3).

In normal scenarios, an insurance organization is a profit-making entity whose main aim is to ensure that it maximizes the number of returns from any venture through bearing losses of others. In addition, shareholders are the primary owners of this organization, because they are the main recipients of an insurance companys income at the same time, the main loss bearers or financiers. Contrary to this, Islamic insurances primary duty is to manage porpthe portfolios invest wisely in any insurance shares on behalf of its members. The last issue under Islamic banking and finance is the use of Shariah-compliant policies and strategies.

Any Islamic ethical insurers always invest their funds in the most dependable method, mostly in sectors of the economy that are ethically sound and promote environmental stability and the wellbeing of citizens, such as the Norwegian pension fund. Islamic insurance almost resembles conventional insurance, except that its ethical principles must conform to the Islam religion. They are usually under close supervision of the Shariah board; a board that is an integral part of any Islamic insurance company. As per the ethical provisions of this board, any investment or underwriting insurance policies must be free from any form of illegal activities, for example, gambling, tobacco, loans, and pork (White 3-4).

Works Cited

Benlafquih, Christine. The prohibition of interest and the Usury in Islam. Suite101. 2009. Web.

Iqbal, Mazhar. A broader definition of Riba. (n.d). Web.

White, Suzanne. Islamic insurance markets and the structure of Takaful. QFinance (n.d). Web.

Other Sources

• The previous group works done by my group ( James, Hassan, Ali, and me).
• Handouts are given in class (a short review of the historical critique of usury) by Wayne A.M Visser and Alastair McIntosh, searching for the Mecca of finance. ( used them to gain more understanding).

Abstract

This paper analyzes the effects of finance as it relates to banking in the Cayman Islands. Finance as a field of economics has grown to be an integral part of any countrys economy. As such most of businesses revolve around finance. All industries in a given economy have an element of finance which makes it an indispensable field of any economic undertaking.

The different fields in finance are banking, investment, capitals and money markets, goods market and so on. Of all the components of finance, banking is the most integral. The relationship arises in that banks are financial institution and exist for the sole purpose of financial intermediation between the money lenders and money borrowers. The paper will therefore analyze the benefits of finance on individuals and companies, as well as the negative impacts to them. The main area of study will be the Cayman Islands though references will be made to other countries in Europe and America for the purposes of fulfilling the requirements of International finance.

Introduction

Finance is defined as the branch of economics that concerns with the management of funds. Management of funds in broad sense means the act of sourcing, marketing and investing of funds so as to bring increase in wealth of the stakeholders (Wendy and Mayer 216). The modern day finance has broadened its tentacles to include the money and capital markets. The money markets involve trading of financial instruments both short term and long term and the management and trading of monies and near monies whereas the capital markets relate to trade in the companies equity through stock markets (Don, Richard and Steve 256).

Financial institutions therefore exist to intermediate between the money borrowers and money lenders. The various financial products available in the modern day finance industry include deposit accounts, specialized loans, mortgages, investment, etc. International finance has additional products such as the foreign exchange markets, off-shore banking and so on (Wendy and Mayer 230). Since this paper will relate to the effects of finance as it relates to banking in the Cayman Islands, off-shore banking will be the main feature.

The need for finance

Since finance is a technical field, financial experts are needed so as to be able to analyze the different sources of funds, the best marketing practices and most importantly the best investment options available (Wendy and Mayer 12). The reason of investing funds is basically the need to increase in wealth. This coupled with the time value of money compels the finance managers to choose the course of action that brings the highest returns on the invested funds (Wendy and Mayer 219).

Banks are the most common financial institutions since they directly deal with the money lenders and the money borrowers. Money lenders may be individuals or institutions such as companies, partnerships, and other organizations. These persons also act as money borrowers. Persons who have idle cash have two options with regard to their cash. They could choose to invest the cash in projects which will generate return on investment or save them in banks and earn interest on savings.

The benefits of Finance to individuals

Finance therefore entails the sourcing and optimal allocation of funds among the competing needs. To effectively achieve the optimal allocation, finance managers use the different financial project appraisal methods such as the net present value, the internal rate of return, profitability index and so on. These methods help to indicate the most viable projects where money could be invested to bring the highest returns to investors.

Most projects require large outlays of cash and since individuals may lack adequate funds to invest in these projects, they may need to pool their funds so as to attain the minimum threshold required to invest (Wendy and Mayer 230). Finance is therefore beneficial to individuals since it helps indicate the appropriate amounts of money needed for certain projects and if need be the returns associated with these projects.

A look at the Cayman Islands indicates numerous benefits to individuals. The Cayman Island is a British territory that has grown to be the hub of offshore banking (Alan 6). It is currently the worlds sixth largest international banking center. This is because of the financial institutions that manage both the total assets and liabilities held. The presence of international banks such as the HSBC helps Individuals to have their funds safely secured in off-shore accounts.

The importance of offshore accounts is that most of them trade in the major currencies and trade in fixed exchange rates (Michael 6). This is a desirable feature in the financial field bearing in mind the current day volatility in the financial markets. Off-shore banking also offers less risk in terms of political stability. The other benefit of banking in the Island is that there are not taxes imposed to foreigners. This makes it a desirable place to save money. This factor coupled with the availability of multi-currency account management makes the Island a leading off-shore finance hub.

Benefits of Finance to Companies

Most companies usually have idle cash. This results from their effective working capital management. Availability of idle cash presents an opportunity to earn extra income from interests on savings and/ or returns on short term investments. The finance managers of companies come up with effective cash management policies that ensure optimal use of the available cash as well as proper and sound planning for future receivables.

Investing in short-term financial instruments such as treasury bills, certificates of deposits, commercial papers etc. The benefit of these financial instruments is that companies are able to purchase them and gain returns within one year. The main intermediaries which deal with these financial instruments are the banks. Banks therefore play a critical role in ensuring that the financial instruments are bought and sold to the different persons.

The Cayman Islands is an important financial hub in the world. The benefits to the companies range from investment advisory, fund management, asset management, and asset protection (Michael 40). With no taxes charged to foreigners, Cayman Islands has thrived in the banking industry and with the enactment of effective financial regulations companies derive a lot of benefits from the opportunities available in the Cayman Islands off-shore banking.

The negative Impacts to Individuals and Organizations

The rapid rise in importance in finance industry has brought about several negative impacts both to individuals and to organizations. This has translated to undesirable societal effects. Banks act as deposit takers and money lenders to the various clients they serve. They do so by safe guarding the money held by their clients and investing the money in areas where maximum returns is expected.

The commercialization of finance industry has led to a neglect of the important projects that would bring about the welfare of individuals. As a result, money has become a driving force in the financial sector. This has caused other important drivers such as individual and societal welfare to be neglected. This has resulted in moral erosion and such vices as money laundering have become common in the finance industry. Though countries and authorities have continued to enact laws against such vices, it continues to be practiced by many individuals and organizations.

The other negative impact of the finance industry is the uncontrollable rapid growth in the industry that has resulted in the global financial crisis (Allen and Gregory 239). This has caused huge losses and some countries have had to enact austerity programs to help them recover from the negative impacts of financial crisis. Individuals and organizations have lost their funds through collapsing banks and this has resulted in a financial crisis in many countries, Cayman Islands not an exception.

Conclusion

Finance has grown to be an integral part of the modern day business and non-business environment. The advancement in technology has also ensured that the world becomes a global village. As such international finance has rapidly grown over the recent past to become a vital aspect of modern day business field. Off-shore banking has brought a lot of benefits both financial and non-financial to the players.

Emergence of islands such as the Caymans Islands has made international finance more so off-shore banking a much needed financial product in the modern day world. This has resulted in enhanced security and a more stable market for financial trading in international markets. Banking has therefore proved to be inseparable from finance since banks are the most important types of financial institutions. Off-shore banking will continue to thrive and as the technology continues to advance, Islands such as the Cayman Islands will continue to grow in to become great contributors in the international finance.

Works Cited

Alan, Markoff. The evolution of Cayman banking. Cayman Financial Review (2012): 3-19. Print.

Allen, N. Berger and F. Udell Gregory. The Economics of Small Business Finance: The Roles of Private Equity and Debt Markets in The Financial Growth Cycle. Journal of Banking & Finance (2011): 236-49. Print.

Beck, Thorsten. Financial Development and International Trade. Is There a Link? Journal of International Economics, (2002): 107-31. Print.

Don, Dayananda, et al. Capital Budgeting: Financial Appraisal of Investment Projects. Cambridge: Cambridge University Press, 2002.

Michael, Klein. Dodd Frank: Cayman banks must remain flexible. The Cayman Islands Journal (2012): 1-6. Print.

Wendy, Carlin and Colin Mayer. Finance, Investment and Growth. Journal of Financial Economics (2003): 101-326. Print.

Abstract

This report seeks to analyze the concepts of Islamic banking. Specific topics covered include history, operations, risk management, and barriers of Islamic banking in financial institutions. Islamic banking system has grown globally; new banks are emerging all over the world to cater for Muslims. The banks aim is not making profits because it has been prohibited by the Sharia, which is an Islamic law. In this regard, a board has been selected within the Muslim followers to make sure that the bank activities do not go against the sharia rules and regulations. The setting up of a bank in many countries differs because of political and economic differences. The report also seeks to give the different instruments used in Islamic banks. Many Muslims are depending on Islamic banks and there has been implementation of these banks in many countries, especially those in Arab countries where there is big population of Muslims.

Introduction

Islamic religion not only caters for the spiritual nourishment of its followers, but also their ways of living and survival techniques. It is involved with both spiritual and social economic aspects of humans, and that is the reason why the Islam came up with their own banks, which are not focused on interest. In this sense, such financial institutions are called Interest Free Banks (Nomani and Rahnema, 2000). This type of banking is particularly based on the Islamic traditions and cultures, especially in investment and financing. Islamic banking is different from traditional banking because it is centered on Islamic religions beliefs. This paper sheds light on the history of Islamic Banking, its operations, the financial instruments involved, and the challenges that the bank has faced within its operations.

The History of Islamic Banking

According to Manhlknecht (2009), in both eighteenth and nineteenth centuries, the European countries colonized the Islam countries. Colonization at that time was a common aspect, and the colonized countries had to stick to the colonial rule. Thus, the Europeans took control of the finances and economy of Islamic countries, which was to their own benefit; and that is the reason why Muslims did not find any benefit to the banking institutions, which were focused on making interest.

People began to have knowledge about their freedom and they started demonstrating on freedom movements, which was towards the end of last century. Many countries fought for freedom and Muslim countries became independent, and thus they were able to manage their finances according to their culture and traditions. Likewise, the international advocacy for freedom of worship and freedom of speech was a major contribution to Islamic banking (Subhi, 1969).

Societies whose aim was saving and giving loans were started in 1940s. Azhar (2006) affirms that Islamic banking came into existence in 1963. A Muslim follower named Ahmad El Najjar started the concept of Islamic banking. The banks main objective was to share profits among its members, but not to make profit. This rule was set by the sharia, which is a board that regulates the Islamic bank operations in many countries. In 1976, there were nine Islamic banks in Egypt, and it was a major leap in the banking industry. The bank activities were based on trade where it focused on investments while collaborating with its depositors. It mainly operated as a financial institution, as opposed to other banks that operate on commercial purpose.

In 1970s, many banks were opened in countries like Dubai, Sudan, and Bahrain. The same bank was opened in Asia and was named Amana Bank. This bank was to help Muslims to manage their finances. Pakistan also opened the Islamic bank, but it did not make it because it was later closed. Similarly, Dubai bank was started in 1975 and the law, which was regulating its operations, allowed it to take on business enterprise. Consequently, 27 banks were opened, and in 1985, there were over 50 banks, some were located in London.

In the year 2000, Hasset (2008) asserts that many Islamic banks were opened and even today, they are still being opened. They still follow the Islamic law (sharia), which forbids getting interest from loans. Additionally, Investment methods that provide goods and services which goes against the Islamic laws is prohibited, but these rules are currently being practiced by the private Muslim banks. The banks have been extended to African countries, but only in regions or countries where Muslims live.

The Operations on Islamic Banking

Islamic banks have been opened all over the world and they have their own unique operations that depend on the rules and regulations of Islamic law. Nomani and Rahnema (2000) argue that operation of Islamic banking focuses on three main issues, which includes investment financing, trade financing, and lending. In investment financing, there is musharaka where banks may come up with a joint venture. In case of a project, the profits are shared among the participating banks and a member may end the partnership after a given time.

Similarly, investment financing involves Mudaraba, where the bank gives a customer the finances and the customer gives back the expertise and labor. Both the bank and the clients shares profits, but in case of a loss, the bank is liable. In other projects, the bank estimates on the amounts of gains. The bank finances a certain project and approximate the rate of return, which it gains after the project is over. If the project gains more profits, it goes to the customer, but in case of lower returns, the bank takes it.

Zurbruegg and Rammal (2007) concur that Islamic bank is also involved in trade financing, and this is done in many ways. The first method is mark up, where a client decides to approach the bank for finances in order to buy a certain item. The bank lends the clients, but under an agreement that he will repay the money with an agreed amount of profit within an agreed period. Another way of trade financing is leasing, where a bank purchases an item as requested by the customer, the item is leased to him within an agreed time. When the client settles the full amount as agreed in the beginning, he becomes the owner of the item. Ownership of the item is not agreed on until the client settles the amount, and if he fails to do so, the item becomes bank property until the balance is fully paid.

Alternatively, in hire purchase, the bank purchases an item for a client and leases it to him/her for an agreed period. The client is supposed to pay money in monthly or quarterly basis in order to complete the payment within the agreed period. When the client completes all the agreed payments, he becomes the owner of that item. However, there are cases where the bank reclaims the ownership of some items, especially when the client fails to settle all the payments. Likewise, there are other services rendered by the bank to the clients. One of the services is when the customer sells his property to the bank with an agreed amount of money payable with the condition that he will repurchase the item after an agreed time and price. There are also letters of credit where a bank agrees to trade in an item for a client using its own money. The bank agrees to share the profit with the client after the sale of the imported item (Saeed, 1996).

According to Kuran (2005), in lending, the bank sometimes lends money without expecting interest, but they charge for the service and the charge amount is according to the laid down rules of the bank. There are also some loans offered without costs and they are meant to help the poor and the needy such as small-scale business owners.

Other services that are given by the Islamic bank include the money transfer, where money is transferred in many countries all over the world, especially in Islamic countries (Khan, 1984). Bill of collection is also offered by the bank, which involves sending of cheques to its different branches to pay clients. The cheques are presented through a clearing house to its branches. It is also involved in foreign currencies where it exchanges the currencies at a low rate. However, Islamic banks have been challenged to introduce new products and services because of the consumer changes and global competition.

The Financial Instruments on Islamic Banking

The instruments of Islamic banking include musharaka, muqarada, murabaha, mudarabah, ijarah, Salam, istisna and bay bithamin ajil (Rammal and Zurbruegg, 2007). Musharaka is a method of a joint venture, which goes on in a given period or in the completion of a project. Both the bank and the clients involved shares the benefits and the risks. Profits are shared according to the laid down rules while the losses are shared depending on the capital contributed.

Muqarada is a method that permits the bank to float its bonds to fund a given project. The clients who invest on the Muqarada bonds have a stake on the profits made by the funded project. Despite sharing the profits, the share holders are also subject to the losses or even low profits. Although the clients are not involved in the project management, they act as shareholders (Banaji, 2007).

Murabaha is a trading technique in which a trader buys items that the consumers ask for and then sells them according to the agreed profits while considering the costs incurred. However, this trade was carried on under the following conditions: First, the transaction was to take place only when the bank customer wanted to buy an item. The item remained the banks property until the end user fully bought it. Song (2001) conforms that in case of a delay by the end-user, they were not penalized as compared to other banks. This transaction is of much help to the clients because it purchases the required items; the client will manage the money because the bank makes sure that its finances are based on real assets.

Ijarah is similar to leasing because it involves putting the assets on a lease. The items leased are imperishable and inconsumable because the aim of the lease is utilization. The lessee benefits from the property according to the agreement between him and the bank. The period of the contract must be clearly defined. The owner incurred all the costs of maintaining the assets and if in any case there is delayed payment for the rental, leasing may be ended.

Salam is a deal that entails the buyer and the seller. The seller agrees to purchase and bring in items to the buyer in a given date in exchange of a value, which is paid as soon as the goods are delivered. The buyer in this case is referred to as Rabu-Us-Salam, and Muslam ilaih is the seller. The value paid is the Ras-ul-mal and the item being bought is referred to as muslam fih. This mode of trade was practiced to help the poor such as small scale traders (Khan, 1984).

Istisna is a method of sale where an item transaction is carried out even before it has been manufactured. The price of that commodity is settled and the manufacturer goes on with the process of producing the good. Istisna as a contract between two parties gives the manufacturer the permission to manufacture. Kaiser (2009) substantiates that if in case the two parties disagree before the manufacture process starts, the contract is canceled, but if already started, it cannot be cancelled. The difference between Salam and Istisna is that in Salam, the cost is paid immediately, but in Istisna, it is not crucial.

Finally, Bay bithamin ajil is a form of murabaha, which is practiced in Malaysia and some parts of Asia. This method involves the bank purchase and delivery of goods. Hasset (2008) contends that the clients make their payments in installments, which may be in quarterly or monthly basis or according to the agreement between the bank and the client. This method enables clients to acquire assets after full payment.

The Risk Management on Islamic Banking

Many banks face risks due to the current economic dynamics. While the Islamic bank is developing everyday, it has its own way of managing risks and crisis. Islamic banking has been able to appoint risk management professionals. The team is charged with the responsibility of risk identification, assessment, and management. Shariah Adviser named Zubair Usmani says that the Islamic bank has not been affected by economic fall in the United States because of its belief of lending and financing through assets. The risk management professionals have observed that Islamic Bank is more prone to operational errors than the other banks.

The risks are caused by human, machine, and systems errors. Islam religions have come up with teaching sessions to its followers about risk management. The risk managers also assess cases of forgery in transactions on daily basis. According to Graham and Dodd (2002), the musharakah risk management, which involves joint ventures ensures that the profit and losses are shared between the clients or organizations involved. Appendix A shows mushakarah agreement where profits are shared.

The Islamic bank management team also manages credit risk by having a feasibility study before it makes contracts and consequently managing contracts such as musharakah and makes sure that last equities are sold with a strategy. The bank also manages liquidity risk by preserving additional asset and capital, which separated.

Barriers for Islamic Banking

Macesich (2000) asserts that one barrier of Islamic banking is lack of understanding because consumers wonder how the bank works and benefits that come along with banking. The non-users claim to be unaware of the banking principles. Other religions think that the Islamic Banking is religion centered and hence, they opt to do financing in conventional banks. In essence, many people prefer to use international banks, which cater for all their needs.

Similarly, Islamic Banks do not have many international branches because they are mainly located to areas where there are many Muslims. Their ATMs are few and hence they are inconvenient to clients. Because of less returns on investments Islamic Banking does not have many customers as conventional banking. Using of Islam names has led to the bank not having many customers. These names include murabaha, which may not be understood by customers from different religions (Rammal and Zurbruegg, 2007).

Furthermore, some countries like the US do not recognize the Islamic banking system, although these banks are there. Many countries have hindered the growth of the industry because they want banks that will bring in high returns in their countries. Only the United Kingdom has declared its efforts to expand Islamic banking. In this regard, Banaji (2007) outlines that local laws and procedures have been set to deal with traditional and Islamic banking. One of the laws that have been set is that of direct investments, business trade, and being involved in real estates. New Islamic banks have fought for changes in the law of finances and they demand for some exemptions.

Comparison against Traditional Banking

The earlier objective of Islamic banking was to help the poor, but not making profits while other banks main aim is to make profits. In addition, the Islamic Bank is controlled by the sharia law while the traditional banks set their own rules according to the banks aim and objectives.

Manhlknecht (2009) states that traditional banks are also called commercial banks because their main aim is to make profits. These banks have helped many people in the society by giving them loans repayable with profits. These banks have also safe guarded clients money and assets. Commercial banks aim to increase production while also developing the area of capital investments so that its clients can get better living standards. They use cheques and credit cards to withdraw money from many places all over the globe. They are also involved with the exchange of foreign currencies due to globalization of trade. Interest rates are of much benefit to the banks together with commissions, which are charges from clients.

Islamic banks on the other hand, have their own banking principles. The bank is based on the Islamic faith and that is why many people prefer the commercial banks, which are not religion based. Islamic banks operate without any interest rate and their aim is to improve people lives and social welfare. They believe in profit sharing rather than getting interest rate. In profitability, both the traditional and Islamic have different amounts of interest rate. In commercial banks, the clients received only fixed interest rate according to the amount deposited in their accounts, but in Islamic banks, the clients gets a share in the profits made by the bank. In liquidity, traditional banks are expected to be liquid to meet unpredicted withdrawal on deposit (Zurbruegg and Rammal, 2007).

In accounts protection, Kuran (2005) affirms that Islamic banks are known to give protection on the clients deposits in their savings. It clearly chooses its assets to avoid many risks and thus, get high income. They also put aside an amount to cater for any loss that may be incurred. Traditional banks may not be able to protect the clients savings. Both banks encourage low earners to deposit even small savings.

Consequently, traditional banks offer many services as compared to the Islamic bank. Islamic banks have not been able to manage complex services, such as letters of credit as the traditional banks. In economic development, traditional banks are far ahead, but Islamic bank have been able to focus on the social development. This is because many people are able to borrow loans, including the low earners and there are projects that aid those who do not earn. This includes buying of assets for clients and then selling it at a profit, which is shared between the client and the bank.

Furthermore, traditional banks have many years of experience, especially in international trade and they score a higher mark. Islamic banks experience has not yet matured and its staff requirements are high because they have to be Islamic committed.

Commercial banks have been publicly accepted as compared to the Islamic bank and again, the Islams rejects traditional banks claiming that they are unacceptable and sinful.

Conclusion

Islamic banking has gained publicity in the recent years due to the emergence of institutions that advocate for religious banking. Many countries are now focusing on accommodating Muslims in all aspects of economic development. This paper has analyzed the concept of Islamic banking and it is clear that such financial institutions are important in any nation because of religious freedom. Therefore, in order to get many customers, Islamic banks should accommodate other people with different faiths. This will make them expand globally and increase productivity. They should also focus on profit making to meet its objective in social welfare and benefits, and make customers believe that it is an investment institution while focusing on income sharing relatively to the interest rate mechanism.

References

Azhar, S. A., 2006, Critical Issues on Islamic Banking and Financial Markets: Islamic Economics, Banking and Finance, investments, Takaful and Financial Planning, Indiana: Author House.

Banaji, J., 2007, Islam, the Mediterranean and the rise of capitalism, Historical Materialism,15 (1), pp. 47-74.

Graham, B. and Dodd, D., 2002, Banking and Finance, International Journal of Bank Marketing, 15 (1), pp. 67-90.

Hasset, K.A., 2008, Economics and Liberty. Journal of Islamic Economics in Arabic Countries, 13 (2), pp. 56-60.

Kaiser, U., 2009, Do Media Consumers Really like Islamic Banking. New Times Journal, pp. 70-89.

Khan, A. J., 1984, Divine Banking System, Journal of Islamic Banking and Finance, Winter 1984.

Kuran, T., 2005, The Absence of the Corporation in Islamic Law: Origins and Persistence, American Journal of Comparative Law, 53, pp. 785-834.

Macesich, G., 2000, Central Banking: The early years: Other early Banks, Journal of Money, Credit and Banking, pp. 118-120.

Mahlknecht, M., 2009, Islamic Capital Markets and Risk Management, London: Risk Books.

Nomani, F. and Rahnema, A., 2000, Islamic Economic Systems, New Jersey: Zed Books Ltd.

Rammal, H. G. and Zurbruegg, R., 2007, Awareness of Islamic Banking Products among Muslims: The case of Australia, Journal of Financial Marketing Services, 12(1), 65-74.

Saeed, A. (1996). Islamic Banking and Interest: A Study of the Prohibition of Riba and its Contemporary Interpretation. Leiden, Netherlands: E.J. Brill.

Song, M. 2001, An empirical assessment of the role of Banking, International Journal of Bank Organization, 27 (2), pp. 292301.

Subhi, Y. L., 1969, Capitalism in Medieval Islam, The Journal of Economic History, 29 (1), pp. 79-96.

Zurbruegg, R. and Rammal, H.G., 2007, Awareness of Islamic Banking Services among Muslims, Journal of Financial Services Marketing, 20(1), pp. 65-74.

Appendices

Appendix A

The figure below shows a musharakah agreement where both profits and gains are shared by both parties involved and profits shared according to the capital contributed.

Appendix B

The table below shows the decisive factor and Weight of both traditional and Muslim Banks.

VE, E, ME = Very Essential, Essential and Moderately Essential.

VG, G, B, & VP, Excellent, Good, Better, Poor and Very Poor.

Introduction

Financial accounts have different users; each user has specific needs they require from the accounts. Financial account users can be defined into two main segments internal and external users; internal users interpolate, analyze, and make inferences from accounting information to make informed decisions. Some of the financial accounts statement that are mandatory to be made at the end of an accounting period by International Accounting Standards are consolidated balance sheet the consolidated income statement, consolidated cash flow statement and consolidated statement of changes in equity. Each of the above documents communicates some financial information about the company (Anthony, Hawkins and Merchant 23-56). This paper takes an analysis of HSBC Bank Balance sheets; it will compare the balances in different balance sheet products for the period of 2010 and 2009.

HSBC Bank Balance sheets

HSBC Bank is among the largest banks in the United States, it offers banking and insurance brokerage services. The company has features for corporate and individual banking services, which ranges from collection of funds and offering loans. Although business was negatively affected by global financial crisis, the company continues to be profitable. The accounting period for the bank ends on 31^st December of every year, accounts are made in accordance to international financial reporting standards where they are checked by qualified external auditors currently KPMG. The external auditors work independently but consult internal audit structures and policies when making their final report. As required by accounting profession, management and the companys directors are held liable of the accounts that they are true and fair, the work of auditors is to give their opinion based on the records examined( HSBC Bank Official Website).

The balance sheet

A balance is a financial instrument that is prepared showing the assets, liabilities, owners equity; the statement offers an in-depth analysis of what the company owns and owes at a particular point as well as the amount that shareholders have invested in the business. the statement is called a balance sheet because the two sides of the balance sheet should be equal: the general formulae for a balance sheet are as follows:

Assets = Liabilities + Shareholders Equity

HSBC Bank Balance sheets Analysis

Current assets

In the accounting period ended 31^st December 2010, cash and cash equivalents in the company were $669,763,000, the amount was $10, 483 lower than the amount recorded in 2009 of 69,280,000. although the cash and cash equivalents in the company reduced, the difference is minimal to cause any alarm. Both in year 2009 and 2010, the bank had no short term investments.

In the accounting period ended 31^st December 2010, Net receivables were $7,168,000 which was $2,164,000 lower than the amount receivable in 2009 of $9,332,000. The difference is significant and can be an indication that the company has a robust debt collection from its customers. The difference may be explained by low business in 2010 than the rate experienced in 2009.

In both 2009 and 2010, the bank held no inventories (this can be justified by its nature of business being service industry) and neither did it have any other current assets.

Fixed assets

In the accounting period ended 31^st December 2010 long-term investments in the company rose by $71,461,000 to $2,022,128,000. In 2009 the amount was 1,950,667,000. The increase in long-term investment is an indication that the company is performing better in line of investing its funds probably with the aim of getting future returns.

In the accounting period ended 31^st December 2010, the book value for properties plants and equipment were 11,521,000 which was 2,280,000 lower than the book value recorded in 2009. The recorded figure can be explained by either the effect of depreciation and amortization charge that the company has. On the other hand, it can be explained that the company disposed some of its assets and failed to buy additional properties plants and equipments.

In the accounting period ended 31^st December 2010 the bank recorded an intangible assets figure of $29,922,000 which was lower than the amount recorded in 2009 of 29,994,000. The difference is minimal but it can be shedding some alarming signal to user of the account. This is because intangible assets represent things like the reputation and customer loyalty that the company can command.

In the accounting period ended 31^st December 2010 the company deferred long-term asset charges and other assets amounted to $7,011,000 and 92,228,000 respectively which was lower than the amounts recorded in 2009 of $8,620,000 and 94,138,000 respectively. The differences are minimal to cause an alarm.

In the accounting period ended 31^st December 2010 the company current Liabilities were divided into accounts payable and other current liabilities; the amounts were 222,373,000 and 1,338,309,000 respectively. The amounts recorded in 2010 were higher than those in 2009 which were $21,064.000 and 1,283,906,000. The increase in current liabilities in the company at a time when the current assets figure are reducing is an indication that the company is not operating an effective working capital management structure.

Long term debts in the company for 2009 were 515,776,000, the figure increased in 2010 to $559,368,000 the increase is an indication that the company has borrowed further in 2010. The reason for borrowing can vary from the fact that the company was investing further; the same can be supported by increase in long-term investments.

Other liabilities in 2010 reduced to 199,843,000 from 228,834,000, the reduction in the amount is an indication that the company is working towards clearing its debts with; this can be taken as a strategic move by the management to create room for more funding which follows investments.

Minority interest in 2010 has $7,248,000 while in 2009, the amount was 7,362,000; the difference is not significant thus can cause no alarm.

Common stock and Capital surplus for 2010 changed marginally from amounts of 8,705,000 and 8,413,000 recorded in 2009 to 8,843,000 and 8,454,000; the above is an indication that the bank retained the same policy of Common stock and Capital surplus. Retained earnings and Other Stockholders equity increased in 2010 to 97,350,000 and 33,030,000 respectively from the amounts recorded in 2009 of 86,812,000 and 24,369,000 respectively. The sharp difference in the amounts is an indication that the company is concerned with the future as it has some earnings for future expansions (HSBC Bank Official Website).

Evaluate the balance sheets and overall performance of the organization

From the analysis of the balance sheet, it has been found that there are no major changes in the bank; the bank seems to have concentrated on maintaining the same level of business other than in areas like long-term investments. The increase in long-term invests is an indication that the bank operates its business as a going on concern. If one was to invest in the bank, it would be advisable to hold shares as the future is likely to offer high returns; the companys shares cannot be good for speculative purposes (Carter 67). With the same futuristic mind, the management has had increased retained earnings. In most incidences retained earnings are used to make future investments or to make an organization has the funds to take opportunities when they arise. The reason again is an indication that the management are focusing on the future to make the company more profitable as changes in the banking sector take effect. One area that seems not to be operated effectively is how the company manages its working capital, it has been noted that in 2009, current liabilities were higher than those recorded in 2009 despite the fact that in 2010 current assets in the company reduced. With the trend, it means that the current ration, quick ratio, and gearing ratio for the company increased. There might have the like hood that the company will not be able to comfortably fulfill its financial obligations when they fall due. If the likelihood occurs, the bank will suffer operating issue/difficulties.

Finally, give your opinion about the performance of the company and give some recommendations how to improve the performance of the company.

The future for the company seems promising; the management is keen on how the future will be and looks into the areas that the company gains from banking and other investments operations. The bank seems to be taking things slowly and the rate at which its risking in different places is cautiously. The reason behind the operation might be to look into how the world is fairing from the recession of global financial crisis of 2008 (Weygand, Kimmel and Kieso 89).

Credit sales/purchases are almost inevitable at HSBC Bank; the management must monitor and ensure effective operation of debtors and creditors. In case of creditors, the company management accountant has the mandate of ensuring that creditors are paid according to the credit agreement; payments should be made at the right time as the agreement with creditors. With good relations, the company supply chain management is facilitated in the case of debtors, the duration that they should keep the companies money should be stipulated by management accountants. Debtors are current assets which the business need to manage; well managed debtor management system assists a company gets funds it requires for short term obligations (Barry and Jermakowicz ,2010).

Recommendations to the bank that can assist in managing working capital

HSBC Bank should take advantage of available different sources of capital; sources of capital can generally divide into borrowed capital and owners capital. HSBC Bank financial management should ensure that they use the best choice of the financing method; at HSBC Bank the choice should ensure effectiveness is maintained. Management accountants should be given the mandate of analyzing the available options of financing which include issuance of more share capital, taking a bank loan or selling some of its properties (Langfield-Smith and Hilton 56-90). Other than maintaining a robust management accounting system, HSBC Bank should not ignore the need for knowledge management and business information tools as an addition of existing management accounting tools. When this information is made available in the company, it will assist in making better and timely decisions. The quality and timeliness of a decision determines the competitive of a company. For instance with training and consultancy business, the company may extend to other areas like human resources recruiting and outsourcing. When the company maintains a pool of information on the market trends, it will be able to make decisions that are timely regarding the packages that it will attain. When a company maintains a rich knowledge and nurtures its intellectual assets, it gets a chance to orient and train new staffs more effectively (Anthony, Hawkins and Merchant, 1999).

To improve operations in the company, HSBC Bank management should adopt effective internal control policies. Although HSBC Banks has an automated internal control system, the management can enhance the operation of its internal control system further; internal controls are check and balances in an organization aimed at maintaining integrity in the companys process. Internal control system ensures that funds are put in the most optimal manner that there will be no excess or deficit; cash flows are managed for the good of the organization and there is better fund management. HSBC Banks budgetary committee or accountants are responsible of maintaining good working internal control; it is from the operation of internal control that external auditor in compiling their report.

When enacting an effective internal control operation, the company should start by understanding the current operation level and aim at improving the processes further. The organizations external environment should be taken into account as it has an impact on whether the companys policies will be effective or not (Horngren 90).

Works Cited

Anthony, Robert., Hawkins David and Merchant Kenneth. Accounting: text and cases. Boston: McGraw Hill. 1999. Print.

Barry, Jay. and Jermakowicz Eva. Wiley IFRS 2010: Interpretation and Application of International Financial Reporting Standards. New York: John Wiley and Sons, 2010. Print.

Carter, Ken. Cost Accounting. New Jersey: Cengage Learning, 2005. Print.

Horngren, Charles. Accounting Edition 7e. New Jersey Prentice Hall, 2007. Print.

HSBC Bank Official Website. HSBC Bank investors, 2011. Web.

Langfield-Smith, Thorne, and Hilton Robert. Management accounting: information for creating and managing value. Sydney: McGraw Hill, 2009.

Weygand, Jerry, Kimmel Paul. and Kieso Donald. Financial Accounting: IFRS, 1st edition. Illinois: Northern Illinois University, 2010. Print.