5.1. Critical Discussion of Findings in Relation to Literature and Theory Essay

5. 1. 1. Over Restrictive regulative surroundings The respondents to the headway of whether the surround of overly restrictive statutes was a ch wholly(a)enge debated well-nigh without exception that then the restrictive aspect was stifling to at least(prenominal) some extent. This indicates that the regulatory environment genuinely being experienced in the peachy of capital of capital of capital of Kuwaiti banks surveyed is in keeping with the general view of Moslem banks as reported in the lit brush uped.The banking environment created has proved to be unsound, and it accords with the ideas of aeriform (2003) demonstrating that it has not been conducive to the set upiveness and efficiency of nine of the ten fiscal foots surveyed. The current state of the Kuwaiti banking system, though improving, demonstrates that reporting and the monitoring of majuscule and guess put on a bun in the oven developed due to the heavier restrictions keyd on the sharia tractable banks.See more(prenominal) Old Age Problem essaySince the restrictions ar greater for these banks in comparison with the received banks, the Muslim banks lose indeed been placed at a disadvantage in spite of appearance the grocery storeplace and this has caused them to be less efficient and therefore less attractive to surveyive guests. This wish of attractiveness makes it even more believably that these banks get out remain street corner focused and comparatively gloomy in comparison with the competition. 5. 1. 2. Uniform Regulatory and Legal Framework The respondents to the survey indicated unanimously that the overlook of a same regulatory and legal framework poses a altercate to the current Moslem fiscal state.The response to this straits king seem enigmatic in blank of the previous one. However, though the shariah imposes restrictions on the types of transactions that ability be performed in Moslem monetary institutions, it is the rule of these restri ctions that obtain turn out to be without equivalentity. This omit of uniformity has been shown to have crippling effects on the Kuwaiti institutions surveyed. The occurrence is that once regulations become uniform, this serves as a livelihood mechanism to the institutions that fol outset the regulations (Dudley, 1998).The chore with this lack of regulation is that Islamic institutions have been trying to conduct business according to sharia, yet this has to be through with(p) deep down the conventional occidental financial framework which does not wreak the proper type of protrude to sharia banking policies. This has been in trigger officular worryatic in Kuwait since so m whatsoever of its banks be Islamic and yet the uniform regulations that govern argon often at odds with the shariah law principles by which these banks atomic number 18 run.There app bently politic continues to be problems despite the 2005/06 regulation attempts by the Central Bank of Kuwai t, and it makes it clear that the mere addition of a separate sharia law section to the regulatory laws is insufficient. What is guideed, apparently, is full and complete desegregation of the Shariah into the regulatory system at every pertinent direct so that financial institutions forget know how to act in a wide array of situations. 5. 1. 3. Underdeveloped Regulatory and Supervisory Regime.Akin to the aforementioned(prenominal) problem, and perhaps stemming directly from it, is the detail that all respondents agree that the supervisory system of regulations is underdeveloped in their financial institutions. When no systematic regulatory doctrines have been formulated, the difficulty arises because supervisory activity has no clear knowledge of what to superintend or guard against. Because of the underdeveloped reputation of the supervisory elements, Islamic financial institutions in Kuwait continue to fumble as it regards the attainment of mastery and customer merriment .Customers in these institutions piece of tailnot be secure in receiving fair interference from institutions that have no active and systematic supervision. The respondents did not con situationr the current state of regulation supervision to be completely inadequate, as their responses corpuscle toward the markment that the IFSBs efforts at establishing co-operation among standard-setting bodies have had some favourable electrical shock on the Kuwaiti situation. However, capital adequacy and risk management form tho two of the some(prenominal) nations in which supervision is undeniable to the wellness of Kuwaits Islamic financial institutions.The responses likewise indicate that the IFSBs intentions of extending supervisory cooperation to the areas merchandise transparency and discipline as well as corporate governance are warranted. 5. 1. 4. Capital and Liquidity Requirements The requirements of capital and liquid in spite of appearance the financial market celest ial sphere have been theorized as having the likely to be negative to the Islamic financial institutions around the world. However, the agents given for this potentially problematic effect reflect a character among theoreticians and those employed within the financial sector.This existence of controversy is confirmed within this look for of the Kuwaiti institutions, as three respondents directed liquidity and capital hacks to be of medium to gamey splendour, while the new(prenominal)s considered the issue to be of very little grandeur. One side of the controversy identifies the issue of capital and liquidity as stemming from the Basel Committees over-estimation of the risks that might accrue to (or as a result of) the summations of Islamic institutions.These theorists indicate that they believe the risks are not as great as others might believe, and it is with this view that those respondents agreewho indicated that liquidity and capital were not an issue. The alternate a priori view, with which the survey shows three respondents agreeing, is that Islamic financial institutions present more risk than other banks do. The fact that these banks are generally smaller and carry a narrower capital base seems to reflect a large part of what these respondents cite to when they consider liquidity and capital to be a risk in such institutions.The respondents do not, so far, indicate any aversion to the expression of a capital market that would trade in Sukuk and other instruments, and even rise the market so that additional liquidity might be created. 5. 1. 5. score Standards Harmonization According to the responses given, the issue regarding the standardization and harmonisation of accounting practices ranks passing on the list of things that need to be dealt with within the Islamic financial institutions of Kuwait.The greatness of this harmonisation has make itself clear within the institutions being studied, as the lack thereof has contributed to the existence of a shallow capital market that lacks fairness, efficiency, and transparency (IOSCO, 2004). The credibleness granted Islamic financial institutions as a result of recent work by AAOIFI has rectifyd operations decent to emphasise the importance of accounting harmonisation. As it now stands, the harmonisation world-class has amendd the ability for Kuwaiti financial institutions to communicate with other non-Islamic banks as accounting standards have been expressed in harmony to a greater degree.This appears to have similarly accorded the banking system a reasonable amount of credibility in the estimation of other institutions and accorded to Islamic bank workers a gamy level of respect among their peers. Yet more take to be done, as has been indicated by the interviewees responses. Continued efforts to broaden the scope of harmonisation promise to improve the status of Kuwaiti banks within a financial situation in which the bulk of institutions do work accord ing to international accounting standards. 5. 1. 6. calibration of ShariahThe respondents were universally agreed that the proper standardization of Shariah was incumbent not only to the proper understanding of the Islamic banking principles, but at long last to the proper governing of all financial institutions in Kuwait. The survey senior highlights the murkiness that currently exists within the market and the formation of a common platform, as suggested by Kahf, does have the potential to improve the alert problem. The standardization of the Shariah would have the added benefit of making it easier for non-Islamic bankers to understand the provisions and requirements of the Shariah as it regards banking.The facilitation of Halal transactions might then be put into effect between such banks and Islamic institutions in Kuwait. much(prenominal) standards will attention non-Islamic members of the banking community understand such ideas as the requisite that an underlying asse t exist as the quash of any financing contract, so that institutions will be better prepared to provide more than and a debt paper when conducting Shariah transactions . Therefore, any transaction that resembles Riba, Maisir or any other action prohibited by Shariah whitethorn be avoided.Halal practices might be set up even within non-Islamic banking institutions, and this may facilitate increased competition and better practice all round. 5. 1. 7. Competition from Conventional Institutions Competition is itself considered by theoreticians to be a problem for Islamic financial institution as these businesses are usually small and possess a smaller capital base than their antagonist institutions. The respondents themselves have as well indicated that competition is an important consideration for the Islamic banks of Kuwait.However, the degree of importance to which these respondents have admitted have varied across the spectrum from low to high. The Islamic institutions of Kuw ait appear in addition to have gained a vast amount of capital (via Sukuk and other methods) by appealing on religious grounds and the establishment of a capital market through those means (Iqbal, Ahmad and Khan, 1998). This would indicate why some respondents consider the threat of competition to be low, especially since the Islamic institutions have a religious claim to customer loyalty that competitor institutions may not possess.However, the importance of competition between Islamic institutions appears not to be overlooked by those respondents who considered the threat of competition to be high. Still, though competition may be high, the actual threat it poses may bland be low as competition has the advantage of presenting a restraint to the entry of further banking institutions. Furthermore, the existence of non-Islamic financial institutions within the Islamic sector may have been considered favourable by those persons who responded that the threat is low.This may be becau se the presence of these institutions validates the viability of the Islamic banking sector (Al Omar & Abdel-Haq, 1996). 5. 1. 8. Availability of Data The issue of info availability rates highly within the Kuwaiti Islamic financial sector according to the respondents. These interviewees appear to understand and have had problems arising from the difficulty with which selective information and statistics are obtained regarding the Islamic capital markets (IOSCO, 2004).The necessity of scientific research and the vitalness of such statistical market data are likewise communicate in this response by the interviewees such research has rarely been undertaken by Islamic banks. The unavailability of data is a major reason for this lack of valuable research, and it appears that respondents realize that this has prevented Kuwaiti banks from reaching their fullest potential. The current information feature for banks on a broad Islamic scale is lacking, inadequate and subject to qualifica tions.This appears alike to be the case for the banks in question correspond by the respondents. 5. 2 Micro Level Changes 5. 2. 1. Liquidity Management All respondents considered liquidity management to be of high importance, and this is in direct contrast to the polemical nature of the issue regarding liquidity and capital requirements. This is in keeping with the literature and hypothesis prevailing within the Islamic banking community, which identifies this to be of major importance, especially in light of Islamic banks bid for global elaborateness.In Kuwait too this proves to be of interest to the Islamic bankers, and the many challenges which face the market are likely to be the reason respondents invariably indicated it to be of high concern. Certainly ideas abound regarding how to manage the liquidity within the Islamic market. Methods as have already been identified such as the shuffling (unbundling and repackaging) of assets in order to make them more marketable and li quefiable (Iqbal, 1997).These methods, along with the realization of potentials for inter-bank market learning (El Qorchi, 2005), are ones that would doubtless prove valuable within the Islamic financial market represented by these respondents. The depth of the market would be increased in such a situation, and this would prove to be beneficial in the Kuwaiti market that is expanding both within the demesne and on a global scale. However, these measures would depend on further developments that may present difficulties materializing, and the gravity of this is also reflected in the response to the questionnaire.Such developments would implicate the installation of a facility that provides a lender of last resort. It would also involve securitization for the purposes of managing the spectrum of risk as well as maturity date issues (El Qorchi, 2005). 5. 2. 2. maturity Mismatch The maturity twin issue appears to have contributed to a division among the respondents regarding thei r responses. While some considered this problem to be of high importance, these opinions were balanced by those who considered the issue to be of medium or low importance.Those respondents who identify maturity mismatch as a low-ranking problem gain assurance from the possible action of using Tawarroq (debt rollover) as a method of financing maturities. The fact that the Kuwaiti Islamic banks they represent have the ability to finance the debt of the ultimate creditor using customer money allows these respondents to feel secure (Al-Suwailem, 2006). However, those who consider maturity mismatch to be a high-ranking issue do so likely because, as has been indicated in the literature, questions do exist concerning the extent to which debt-rollover can be used to finance or match maturity.Other problems, too, lie in the fact that in order for these policies to perform freely, other things previously mentioned would have to be put into placesuch as accounting harmonization (for the smo oth running of the capital market). Since these systems are not fully up and running in the Kuwaiti market, then this might explain the jot that some of the respondents have concerning the maturity matching issue (IOSCO, 2004). 5. 2. 3. Personnel Competence, Qualifications and fosteringThe issue surrounding violence competence and genteelness in the area of Islamic and Shariah institutional banking has been determined to be of high importance by all but one of the respondentswho still considered it to be rather relevant within the Kuwaiti situation. In order to continue its intricacy within the local and global markets, the banking system within Kuwait needs to facilitate the training of its personnel in all areasincluding the areas concerned with Shariah banking (Iqbal, Ahmad & Khan, 1998).This necessity has been reflected in the responses, as incompetence has no doubt been the issue within the banks they representjudging from the fact that intimately consider it to be of hi gh priority. The problem arises because (among other things) customers are generally more given up to the conventional style of banking. Where, as in Kuwait, the majority of banks are westernized and traditional, it becomes short imperative that the personnel be thoroughly familiar not just with the practices pertaining to Islamic banking but also with the Shariah doctrines that govern them.Without this knowledge, it is likely that employees do not possess the expertise necessary to explain to customers the meanings and Islamic implications of accepted banking or investment practices. The respondents to the questionnaire, being banking personnel themselves, have first-hand knowledge of the problems that may arise when personnel are untrained or unqualified. Their response also points toward the need for more scholars who specialize in both finance and Shariah, as well as the need for focussed development of courses in Shariah designed specifically for the economist (IOSCO, 2004). 5. 2. 4. Financial Products and Innovation Innovation and the development of financial harvest-times appear to rank highly in the estimation of Kuwaiti bankers and investors, as is indicated by the responses to the questionnaire regarding this issue. The idea behind this wide-spread adoption of the innovative transit by these Kuwaiti respondents stems from the guess that the viability of these Islamic institutions as an alternative to conventional banking rests on the ability of the bankers to provide a wide assortment of tonic methods of investment for potential investors.The respondents, being high-level investment personnel running(a) in Kuwait, are at least advised of the plethora of slipway that Islamic and Shariah banking methods differ from the conventional methods of banking. These differences offer a variety of ways in which psychiatric hospital might be brought to bear upon the Kuwaiti financial market and be made to attract newer investors. Such ideas as Mudaraba h and Musharakah are likely to draw prospective investors previously deterred by the prospect of bearing the entire losses of their ventures.Furthermore, such persons as the respondents represent are in touch with the needs that customers have, and this knowledge allows them to realise the necessity of create financial products that supply to these needs (Al-Suweilem, 2006 Bacha, 1999). As a result, supply will work toward creating an equilibrium with the demand that exists. Concerns may arise from the fact that these persons are also aware of the need for an in-depth understanding of the array financial instruments in order to put into effect many of the innovations necessary within Kuwaits Islamic financial institutions (1999).5. 2. 5. Products and Services marketing The imperative nature of the merchandising of products and proceedss is reflected to some extent within the responses to the questionnaire. Though most consider this to be of importance, one person did offer a dis sent voice. Those who did agree were also divided as to the extent to which product merchandising is necessary. It is likely that the dissenting person places the innovative development of products in a more prominent place, arguing that until products are developed no merchandise will be necessary.This is certainly true. However, the fact that so many of the respondents acknowledge the necessity of marketing makes it clear that they understand one of the major issues go about Islamic financial institutions customers are largely unaware of the services that are offered and the ways that these services could be of benefit to them. Clearly this is as very much the case in Kuwait as anywhere else since so many respondents in the affirmative concerning the issue. 5. 2. 6. Size of Institutions Institution size is an issue on which most respondents again agreed.These Kuwaiti investment professionals appear also to face challenges which are similar to those faced by all banksthat of gar nering a sufficiently wide investment base in order to ensure shelter and to maximize their competitive strength within the market. Since the questionnaire specifically asked whether size constitute a challenge, the answers indicate that even in Kuwait, smaller banks tend to suffer from a higher level of risk on the financial market. What is also probable is that these smaller banks are represented mainly by the Islamic and Shariah compliant banks within the country.The earlier replies concerning the need for marketing and innovation therefore apply to this question of size, as development of strategies along these lines would change growth and deepening of the institution as well as the market. It is likely, therefore, that (regarding the question of the challenging nature of institution size) the entertainring responses demonstrate the need for expansion of Kuwaiti Islamic financial institutions. 5. 2. 7. Institution Rating and Instruments Theory, literature, and this survey c oncur on the question of the importance of institution rating.Though the matter is brought up as a subject of relevance within the Islamic banking community, it has not been treated as a major issue. This is seen especially in the fact that it remains a question whether or not such ratings should be made obligatory for financial institutions. The respondents to this question gauged the importance of ratings to be of low or medium range, indicating that in the Kuwaiti Islamic banking system, though ratings are also relevant, it is not the question of utmost importance to anyone concerned. The importance of ratings has however been established by the respondents within the Kuwaiti market. in spite of the fact that they consider it of low importance, they do indicate that it is considered a pertinent issue. One reason for this would be that the IIRA does exist as a body to assess (among other things) the Shariah compliance of Kuwaiti financial institutions. This may have a bearing on t he consumer loyalty that might be considered important to the go along operation or wellbeing of many of these institutions, especially in light of the fact that many Kuwaitis choose Islamic banks (over the competition) precisely for reasons having to do with Shariah compliance.5. 2. 8. Inadequate sensitiveness to Customer Satisfaction While almost all respondents identified inadequate predisposition to customer satisfaction as a challenge, of some concern is the fact that only a few Kuwaiti banking personnel identified it as a highly important one. It is unembellished that Kuwaiti bankers understand the situation of competition that exists within that nations financial market, especially since in Kuwait only three of its 15 banks are Islamic.It becomes imperative that consumers are satisfied within such a market where (with 76 other investment companies) alternative banking institutions about. What the Kuwaitis may be counting on is the fact that consumers who use Islamic financ ial institutions already have their primary needs met in a bank that is Shariah compliant. Still, as represented earlier, Kuwaitis banking personnel recognize the need for creating innovative banking products that cater to the desires of the consumer. They also recognise that in order to cater to these needs, sensitivity to customer satisfaction is indispensable.5. 2. 9. Inability to Communicate Uniqueness The challenge faced in identifying the unique attributes of Islamic financial institutions is admitted by the majority of banking professionals surveyed. However, the importance of this issue seems to be only minimally appreciated in Kuwaitaccording to the data collected. This idea goes back to the question of marketing, and in which it was also lucid that Kuwait felt no major sine qua non toward pushing the Islamic banking product to consumers.Concerns about the future tense of Kuwaiti Islamic banking might here be expressed as it has been shown through the theory and literatu re reviewed that the ability of these institutions to become strong, viable, and known alternatives to traditional banking depends on its differentiation within the market (Khan & Ahmed, 2001). 5. 3. faultfinding Engagement with Areas of lap 5. 3. 1. Convergence on Shariah Compliance Issues In some very critical areas, it was effectuate that the responses made by these Kuwaiti financial professionals strongly give the theories effect in the literature.The strength of this support points in many cases toward not only the importance of the question but also the extent to which changes are necessary within the Kuwaiti finance environment. The unanimity with which the respondents answered the question of uniform regulation challenges leaves no doubt that the lack or inadequacy of regulation relations specifically with Shariah compliance has a crippling effect on the Kuwaiti banking system. Since the Shariahs restrictions and requirements may often be intricate, the lack of unifor mity within the Kuwaiti market (as has been predicted by literature) has led to problems.Such problems have the potential of ranging from simply an inability to properly execute in the Shariah-compliant areas of banking, or the inability to detect and prevent the inappropriate actions of institutions that claim Shariah compliance. What the Kuwaiti banks have demonstrated is a lap between theory and practice in that without a proper regulation system, the Shariah support mechanism for the institutions has also proven to be substandard (Dudley, 1998).Islamic institutions in Kuwait, while trying to conduct Shariah compliant business, have the added problem of working within the sometimes contradictory framework of conventional Western banking. Furthermore, the problem proves more crippling in the Kuwaiti finance environment as the Islamic banks are many, yet are lost in a world of regulations that prove more hospitable to the competition. The fact that problems still exist despite the 2005/06 attempts at regulation by the Kuwaits central bank (CBK) only points to the magnitude of the problem as represented by Shariah regulation and the necessity of uniformity within these regulations/.It also demonstrates the inadequacy of simply tacking on a Shariah amendment to existing law. What this research has shown to be truly necessary is a thorough review of current regulations that culminates in the full integration of Shariah. This will facilitate the move running of Islamic (as well as conventional) banking institutions within the financial environment. 5. 3. 2. Convergence on Competence and Training in Shariah The importance of personnel competence and training in Shariah banking is also an area that demonstrates convergence of practice in Kuwait with the theory.It highlights the immense need for scholarship and training in both Shariah and banking (IOSCO, 2004 Iqbal, Ahmad & Khan, 1998). The lack of thorough understanding of the differentiate Shariah concepts (as introduced earlier on in this research) is shown to be a obstructer to optimal practice in the Kuwaiti financial environment. Since consumers are more used to conventional banking, this makes it all the more necessary for banking personnel to be fully equipped with knowledge and expertise in Shariah financial management so that all consumer queries might be dealt with thoroughly and professionally. 5. 4.Critical Engagement with Areas of Divergence 5. 4. 1. Divergence on Marketing and Innovation Issues Despite the concurrence of the responses with the theories presented in the literature, there were also some areas where responses disagreed with theory or amongst themselves. The areas represented are product/service marketing, inadequate sensitivity to customer satisfaction, and inability to communicate singularity. As regards the imperative nature of product and service marketing, the disagreement was occasioned in the area of the extent to which product and service marketing is necessary within the Kuwaiti Islamic banking environment.The connection that this question of product marketing has with innovation is undeniable, and it is likely that disagreement stems from the fact that persons place a higher priority on innovation. Products must be created before they can be marketed after all. However, it appears to be problematic that even some institutions within the Kuwaiti Islamic banking sector do not place importance upon marketing, as this strategy is precisely the method through which customers become aware of the services that any bank has to offer.Those who consider marketing to be of high importance understand that customer ignorance can have a damaging effect on the viability of a financial institution. Lack of knowledge prompts potential consumers to ignore the services available, and business that might otherwise be gained is lost. Marketing allows customers to become aware of these services, and it is consumer centred as it promotes the benefits that might accrue to the customer as a result of using that service. 5. 4. 2. Divergence on the Question of Sensitivity to Customer SatisfactionThe other area of distinction deals with inadequate sensitivity to customer satisfaction. While the theory explored highlights this as an important area, it was surprising to nib that some of the respondents considered the challenge to be of high importance. Evidently, the Kuwaiti banking personnel do comprehend the gravity of the competition that exists between Shariah and non-Shariah financial institutions. The fact that non-Shariah banks are set up so that losses to the institution are minimized at the expense of the customer leaves such banks in a relatively more secure position.The necessity of being sensitive to the satisfaction of invitees becomes that more important, as the relationship with the customer is possibly the area that offers an Islamic bank the greatest amount of competitive advantage. In order that consumers who may not be completely loyal to Shariah be bring forth to work with the institution (or to continue as a customer), the satisfaction of these persons (on whom the institution rests) must be ascertained and guaranteed.Marketing plays a big routine in this, but before marketing can take place banking professionals must become aware of the areas that would most satisfy these consumers. It must also be aware of areas in which satisfaction is not being granted (whether within Islamic banks or the alternative banking system) and changes made promptly to improve these corrects. 5. 4. 3. Divergence on the Issue of Communicating Uniqueness By far, the divergence of opinions between theory and practice as it regards the inability to communicate uniqueness is most surprising.The reason for this is that it is precisely the uniqueness of the Islamic bank that defines the necessity for all other areas of this research. Its compliance with Shariah principles is what sets it apart from the competitio n, and it is this that also contributes to the difficulties as well as the advantages of the Islamic bank. Though challenges of identifying the Islamic banks uniqueness is hold by the majority of banking professionals surveyed, the minimal appreciation of its importance within Kuwait is of great concern for aforementioned reasons.The idea of uniqueness also reverts to the question of marketing. Though it does make sense that institutions that disregard marketing somewhat would also disregard the importance of product differentiation, this lack of interest on the part of so many managers gives cause for alarm. It gives cause for the expression of concerns about the future of Islamic financial institutions in Kuwait if no effort is made at demonstrating how their services differ from the traditional services of the competition (Khan & Ahmed, 2001).5. 5. face on personal learning As a student who is relatively new at empirical research, I found the experience of pile up and ordering data very intriguing. It was very interesting to find that the research carried out during the literature review demonstrated that though different researchers had essentially been studying the same phenomenon in different countries, the ideas extracted were able to come unneurotic to form a cohesive body of knowledge.This became even more evident when the empirical data collected within this research began finding support in the literature and theoretical concepts identified within the literature review. As it regards Islamic and Kuwaiti banking, I learned that the Shariah system of banking in many ways embodied ideas that exist for the improvement of the financial condition of the country which it serves.It caters to the needs of the institution, yet appears to be much more client centred than traditional banking. It also seems to favour the growth of the economy in its intent that financial transactions be done expressly in familiarity with the creation of real and tangible wealth. Finance is therefore not break up from real work and real investment or enterprise. I also learned that Islamic banking does face many challenges, however.