English Version
I. INTRODUCTION
The rapid globalization has created a more volatile global market place (Lee, 2002) and increase inter-dependency among the countries. This phenomenon potentially leads any country to be more susceptible to the shock or crises experienced by other countries. On the other hand, this will increase the risk of the international financial transactions and domestic financial management complexities. Along with these, the policy makers should become more cautious on how their national economies will be affected and how to manage the risk and complexities better. Due to these concerns, the banking efficiency has become one of the major issues.
The rapid globalization has created a more volatile global market place (Lee, 2002) and increase inter-dependency among the countries. This phenomenon potentially leads any country to be more susceptible to the shock or crises experienced by other countries. On the other hand, this will increase the risk of the international financial transactions and domestic financial management complexities. Along with these, the policy makers should become more cautious on how their national economies will be affected and how to manage the risk and complexities better. Due to these concerns, the banking efficiency has become one of the major issues.
The previous Asian financial crisis, 1997, for instance has brought a deep research and truly ignited the debates on the importance of the banking efficiency. Many economists believe the banking failure caused the financial crisis in Asia; started with the short term liquidity problem created by the international financial markets. Furthermore, as indicated by Radelet and Sach, the Asian crisis was not a macroeconomic problem but a structural problem, in which the most severely hurt countries like Indonesia, Thailand and Korea share a common structure on their financial sector, (Radelet and Sach, 1998). On his study the author also argued that the source and the usage of the funds are more important than the current account deficit itself.
Along with this globalization, the emerging of the Islamic financial institution appears as a new phenomenon. In a current world dominated by western capitalism, the Islamic finance may appear as a novice, regardless its rich history on facilitating the trade and economic transactions in the past age. Eclipsed by the rise of Western colonialism and capitalism, the Islamic finance remained dormant until the resurgence of Islam recently. The Islamic financial services industry has witnessed a frenetic pace of growth during the last decade. While the estimates about the size differ across sources, a conservative estimation put the total assets of Islamic financial institutions at US$230 billion. The Islamic financial institutions operate in over seventy-five countries and are expected to grow at over fifteen percent during the next five years (Obaidullah, 2005).
Initially, the growth of the Islamic finance coincided with the current account surpluses of the oil-exporting Islamic countries especially in Middle East, (Iqbal, 1997). However, its continued growth in the face of eroding oil revenues reflects the influence of other factors, such as the desire for socio-political and economic systems based on Islamic principles and a stronger Islamic identity. Some countries have transformed their banking system to the Islamic models, albeit they may have minor Moslem dwellers. Common motivations to adopt this system is because of the Islamic bank model is not pure profit maximization oriented and its risk sharing nature.
In general, the transition of a developing growth economy (DGE) to a full-fledged market based economy (MBE) requires many structural changes, where the reform of the banking sector will potentially be the key. This raises a substantive issue on identifying the banking system which suits the developing economies (Ghannadian et al., 2004). On the Islamic bank case, the question would be whether the Islamic banks structure has been an answer to the structural transition, or not. Furthermore, are they only as a temporary action to overcome specific situation, such as financial crises in South East Asia and Middle East? Could the Islamic banking compete with the conventional banks?
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Along with this globalization, the emerging of the Islamic financial institution appears as a new phenomenon. In a current world dominated by western capitalism, the Islamic finance may appear as a novice, regardless its rich history on facilitating the trade and economic transactions in the past age. Eclipsed by the rise of Western colonialism and capitalism, the Islamic finance remained dormant until the resurgence of Islam recently. The Islamic financial services industry has witnessed a frenetic pace of growth during the last decade. While the estimates about the size differ across sources, a conservative estimation put the total assets of Islamic financial institutions at US$230 billion. The Islamic financial institutions operate in over seventy-five countries and are expected to grow at over fifteen percent during the next five years (Obaidullah, 2005).
Initially, the growth of the Islamic finance coincided with the current account surpluses of the oil-exporting Islamic countries especially in Middle East, (Iqbal, 1997). However, its continued growth in the face of eroding oil revenues reflects the influence of other factors, such as the desire for socio-political and economic systems based on Islamic principles and a stronger Islamic identity. Some countries have transformed their banking system to the Islamic models, albeit they may have minor Moslem dwellers. Common motivations to adopt this system is because of the Islamic bank model is not pure profit maximization oriented and its risk sharing nature.
In general, the transition of a developing growth economy (DGE) to a full-fledged market based economy (MBE) requires many structural changes, where the reform of the banking sector will potentially be the key. This raises a substantive issue on identifying the banking system which suits the developing economies (Ghannadian et al., 2004). On the Islamic bank case, the question would be whether the Islamic banks structure has been an answer to the structural transition, or not. Furthermore, are they only as a temporary action to overcome specific situation, such as financial crises in South East Asia and Middle East? Could the Islamic banking compete with the conventional banks?
Journals for full download on the link below
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