Islamic Finance This page intentionally left blank Islamic Finance Principles, Performance and Prospects

Edited by Tina Harrison University of Edinburgh Business School, UK and Essam Ibrahim University of Edinburgh Business School, UK Editors Tina Harrison Essam Ibrahim University of Edinburgh University of Edinburgh UK UK

ISBN 978-3-319-30917-0 ISBN 978-3-319-30918-7 (eBook) DOI 10.1007/978-3-319-30918-7

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This Palgrave Macmillan imprint is published by Springer Nature The registered company is Springer International Publishing AG Switzerland Contents

List of Figures and Tables vii Notes on Contributors x

Introduction 1 Tina Harrison and Essam Ibrahim 1 Toward a Comprehensive Theoretical Framework for Shariah Governance in Islamic Financial Institutions 10 Siti Normala Sheikh Obid and Babak Naysary 2 Do Customers Patronize Islamic for Shari’a Compliance? 32 Shakir Ullah and Kun-ho Lee 3 Image in the UAE: Comparing Islamic and Conventional Banks 46 Hussein A. Hassan Al-Tamimi, Adel Shehadah Lafi and Md Hamid Uddin 4 Bankers’ Perception towards Method for Agriculture Financing in 66 Ahmad Kaleem and Saima Ahmad 5 Bank-Level Stability Factors and Consumer Confidence – A Comparative Study of Islamic and Conventional Banks’ Product Mix 86 Kassim Hussein 6 A Comparative Performance of Conventional and Islamic Unit Trusts: Market Timing and Persistence Evidence 105 Nafis Alam, Kin Boon Tang and Mohammad Shadique Rajjaque 7 Shariah-Compliant Equities: Empirical Evaluation of Performance in the European Market during Credit Crunch 122 Nafis Alam and Mohammad Shadique Rajjaque 8 Awareness of Islamic Banking Products among Muslims: The Case of Australia 141 Hussain Gulzar Rammal and Ralf Zurbruegg

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9 Challenges and Opportunities for Islamic in the European Context: Lessons to Be Learnt from a British–German Comparison 157 Stefan Volk and Markus Pudelko 10 Developing the Islamic Sector in Italy: An Institutional Theory Perspective 174 Barbara Petracci and Hussain G. Rammal

Index 190 List of Figures and Tables

Figures

1.1 Integrated theoretical framework 25 2.1 Factor plot in rotated space 41 5.1 Consumer confidence in the United States 88 7.1 Annual and overall return of the portfolios. The last cluster of columns show the overall return of the portfolios for the entire three-year period 132 7.2 Cumulative weekly return of the three portfolios over the three-year period from July 2006 to June 2009 133 7.3 Beta of the Shariah and S & P-Fin portfolios. The last set of columns shows the value for the entire three-year period 135 9.1 The determinants of Islamic retail banking (IRB) 163 10.1 Potential operating models of Islamic banking in Italy 182

Tables

1.1 Fundamental assumptions in CG theories and ICG 21 2.1 List of variables 36 2.2 Total variance explained 38 2.3 Rotated factor matrix 40 2.4 Ranking means of the factors 41 3.1 Respondents’ characteristics 54 3.2 Reliability of the categories that influence bank image 55 3.3 Descriptive statistics 56 3.4 Bank preferences of UAE customers 57 3.5 The correlation coefficients between independent variables 57 3.6 Summary of regression results 58 3.7 The results of analysis of variance for Islamic banks and conventional banks 59

vii viii List of Figures and Tables

3.8 One-way ANOVA test: the UAE Islamic banks’ customer image and demographic variables 60 3.9 One-way ANOVA test: the UAE conventional banks’ customer image and demographic variables 60 3.A1 Comparison of conventional and Islamic banks 64 4.1 Conventional financing options versus Bai Salam (forward sale contract) 70 4.2 Respondents’ profile 75 4.3 Major hurdles or problems faced by the farmers at the time of obtaining agriculture 76 4.4 Eligibility criteria for the seekers 77 4.5 Acceptable securities for agriculture financing 78 4.6 Bankers views about Bai Salam (advance purchase of crops) as an agriculture financing model 79 4.7 Bankers views towards the possible risks involved in case of Bai Salam contracts (advanced purchased of crops) 79 4.8 Possible mechanisms to facilitate Bai Salam (advance purchase of crops) 80 4.A1 Supply of agriculture credit by institutions (US $ in millions) 84 5.1 Differentiating features in bank’s product mix 90 5.2 Summary of statistics 97 5.3 Results of fixed effect regressions for GCC countries for 2000–2007 99 6.1a Overall risk-adjusted return of unit trusts applying the Jensen measure 114 6.1b Risk-adjusted return of unit trusts applying the Jensen measure during sub-prime crisis period (October 2007–March 2009) 115 6.2a Overall market timing abilities of unit trust applying the Treynor–Mazuy model 116 6.2b Market timing abilities of unit trust applying the Treynor–Mazuy model during sub-prime crisis period (October 2007–March 2009) 116 6.3 Overall persistence of unit trust performance 117 List of Figures and Tables ix

7.1 Sharpe ratios for the three portfolios 134 7.2 Value of Jenson’s alpha for the three portfolios 135 7.A1 Three-year analysis of data set 140 7.A2 Aggregate return of portfolios 140 8.1 Proportional responses to survey queries 146 8.2 Positive conditional responses to specific queries 147 8.3 Negative conditional responses to specific queries 148 8.4 Cross correlations 150 8.5 Logit regression results 151 9.1 Muslim population in large European countries 160 10.A1 Glossary of Arabic words used in the paper 189 Notes on Contributors

Editors

Tina Harrison joined the University of Edinburgh in 1993. Earlier she was a researcher at the Financial Services Research Centre, UMIST, Manchester, where she conducted segmentation research funded by the Trustees . She is Professor of Financial Services Marketing and Consumption. Her current research interests are in the area of financial services market- ing, specifically associated with consumer use and understanding of finan- cial services and the role of technology. She has led several large research projects, including a three-year ESRC-funded project on the impact of the Internet on the pensions industry as well as a range of industry-funded projects. Over the last two years she has led the ESRC-funded Seminar Series Financial Services and Consumers: Issues and Challenges in a Context of Change. Her research has been presented widely at conferences and in academic journals. She is the co-editor of The Routledge Companion to Financial Services Marketing, author of Financial Services Marketing and long-standing Editor-in-Chief of the Journal of Financial Services Marketing. Essam Ibrahim joined the University of Edinburgh Business School in 2007 as Senior Lecturer in Marketing, and later was appointed the Director of the Doctoral Programme in the School. Prior to this, Essam taught and researched marketing at Strathclyde University, Manchester Metropolitan University, Huddersfield University and Cairo University. Before joining academia, he worked as a market analyst for five years. He completed his PhD from University of Huddersfield in 2000. The thesis examined the competitive marketing strategies in the UK Automobile market, and won the Prize for the best Doctoral Dissertation at the 2001 Academy of Marketing Science Doctoral Dissertation Competition in the USA. His research has been published and presented in a number of national and international outlets. He is a co-author (with John Ford and Douglas West) of Strategic Marketing: Creating Competitive Advantage (3rd edition).

Contributors

Saima Ahmad is a doctoral candidate at Monash Business School, Monash University, Australia. She completed her masters from the

x Notes on Contributors xi

University of Malaya, , and MPhil from the University of Manage- ment and Technology, Pakistan. Earlier she was a lecturer at Asia Pacific Institute of Information Technology (now Asia Pacific University), Malaysia. Her research has been published in Non-Profit and Voluntary Sector Quarterly, Journal of Business Systems, Governance and Ethics, Pakistan Economic and Social Review, International Journal of Electronic Finance, Journal of Financial Services Marketing and Journal of Internet Banking and Commerce. She is also a member of the Australian Business Ethics Network and an associate member of CPA Australia.

Nafis Alam is Associate Professor and Director for the Centre for Islamic Business and Finance Research (CIBFR) at University of Nottingham Malaysia Campus. He has published quite extensively in the area of finance and his scholarly research has featured in leading journals like Emerging Markets Review, Pacific Basin Finance Journal, Journal of Asset Management, Journal of Banking Regulation and Review of Islamic Economics among others. He has also co-authored three books in Islamic Finance, including the Encyclopedia of Islamic Finance which is first of its kind. He has also participated in leading Islamic finance conferences worldwide, significant among them was his participation in Harvard Islamic Finance forum at Harvard Law School. Recently, he was featured as Professor of the month in the Financial Times.

Hussein A. Hassan Al-Tamimi is Professor of Finance and Chair of the Finance and Economics Department, College of Business Administration, University of Sharjah, UAE. He has taught more than 10 different finance courses at both graduate and undergraduate levels. He has published 5 books and over 35 articles in international and regional ref- ereed Journals. His major research interests include , financial performance, , risk management, invest- ments, corporate social responsibility and corporate governance.

Kassim Hussein retired from the Institute of Finance Management (Tanzania) in 2002 where he taught postgraduate courses in bank- ing and finance and was also Dean of the Faculty of Economics and Management Sciences. He achieved an MBA at Oklahoma City University in the USA as a Fulbright scholar, and obtained his PhD from Bangor University, UK. He currently runs executive courses for bankers in the Southern Africa region. Since 2010, he has been a member of the Board of the of Commerce and serves as the Chairman of the Lending Committee. He had served on a number of Editorial Boards of journals including The African Journal of Finance and Management, xii Notes on Contributors

Business and Management Review and International Journal of Islamic and Middle Eastern Finance and Management.

Ahmad Kaleem is Dean at the Institute of Business School, Australia. Before this, he was Professor and Head of Department at COMSATS Institute of Information Technology, Lahore, Pakistan. Overall he has more than 15 years of experience in teaching, research and administration. He holds his PhD in Islamic Finance from the University of Malaya, Malaysia and MSc in International Securities, Investment and Banking from the University of Reading, UK. He was also a recipient of the prestigious Endeavour Fellowship Award from the Australian government in 2010. He has published around 40 research articles in journals of international repute such as British Food Journal, Journal of Financial Services Marketing and Non-Profit and Voluntary Sector Quarterly.

Adel Shehadah Lafi is a chief financial officer at Al Habtoor Engineering Enterprises Company. His current research interest focuses on capital budgeting, service quality and Islamic finance.

Kun-Ho Lee is President, Chief Executive Officer and Director of KB Kookmin Bank and is on the Board of Directors at KB Kookmin Bank. He was previously employed as an analyst by Tong Yang Securities Inc., Head-Bank Industry by Korea Institute of Finance, President and Chief Executive Officer by Kookmin Bank, and as Professor by KDI School of Public Policy and Management. He received his undergraduate and postgraduate degrees from Seoul National University, Korea and a doc- torate degree from the University of Minnesota, USA.

Babak Naysary is a PhD candidate in the Department of Accounting, International Islamic University Malaysia.

Siti Normala Sheikh Obid is an Associate Professor at the Department of Accounting, Kulliyah Economic and Management Sciences (KENMS), International Islamic University Malaysia, Malaysia. She is also a member of the Board of Governors, a Senate member and a University Board member at Islamic University Malaysia (UIM). She also serves as a member of the Board of Trustees, an Executive Board member and an Internal Auditor at Lembaga Kolej Islam Malaya (LAKIM), Malaysia. She has published more than 100 articles in both referred and non-referred journals. She was awarded the Darjah Setia Negeri Sembilan (DNS) by the State of Negeri Sembilan, Malaysia and features in Who’s Who in the World 2013. Notes on Contributors xiii

Barbara Petracci is Associate Professor of Corporate Finance at the University of Bologna, Italy. From 2002 to 2003, she was a visiting scholar at the Accounting and Finance Department, Strathclyde University, Glasgow. In 2005, she received her PhD in Corporate Finance from the University of Trieste, Italy. Her main research interests are in the areas of corporate governance, entrepreneurial finance, ethical finance, insider trading and islamic finance. Markus Pudelko is Director of the Department of International Business at Tübingen University School of Business and Economics and Vice Dean of the Faculty of Economics and Social Sciences, Germany. He holds a masters degrees in Business Studies (University of Cologne, Germany), Economics (Sorbonne University, France) and International Management (Community of European Management Schools – CEMS) and a PhD (University of Cologne, Germany). His current research is on headquarters–subsidiary relationships, multinational teams, the impact of language on international business, international HRM and cross- cultural management. He has published on these topics in journals such as Academy of Management Journal, Journal of International Business Studies, Human Resource Management, Leadership Quarterly and Journal of World Business. Hussain G. Rammal is Senior Lecturer in International Business Strategy at UTS Business School, University of Technology Sydney, Australia. He is co-editor of the Review of International Business and Strategy and area editor for Journal of Asia Business Studies. He is co-author of a leading International Business textbook, and his research has been published in leading business journals. Mohammad Shadique Rajjaque has research interests in socially responsible investment and risk management from an investment management point of view. Previously, he has worked in Banking and Micro Finance industries and is now based in Sheffield University Management School, UK. He teaches on a number of accounting and finance modules and is Program Director for two PG courses there. He has a Bachelor’s degree in Economics, an MBA and a masters degree in Accounting and Finance. He is also a Fellow of HEA, UK Kin Boon Tang teaches a variety of finance modules for both post- graduate and undergraduate programs at the University of Nottingham Malaysia Campus. His areas of teaching include investments, financial risk management and international finance. His research interests are in the field of derivative markets, financial economics, quantitative xiv Notes on Contributors economics and international finance. His most recent research inquir- ies involve a comprehensive analysis of investors’ distinct risk-averse behavior towards optimal future hedging strategy. He authored and co-authored several research articles that were published in leading academic journals such as Economic Modelling, Journal of the Asia Pacific Economy and Journal of Financial Services Marketing, among others. Md Hamid Uddin has been working at the University of Sharjah, since 2007. He has many years of academic experience in the field of finance and investment, and has conducted substantive research on the topics of government share ownership, cor- porate risk taking, corporate governance, initial public offers, mergers and acquisitions, corporate disclosure, corporate spin-offs, dividends, capital structure, and securities price behavior. He earned his PhD in Finance from the National University of Singapore. Shakir Ullah is Professor of Finance and Islamic Banking at Stratford University, USA. Previously, he worked as Assistant Professor of Finance at the Institute of Management Sciences, Pakistan, and as a lecturer at the University of Southampton, UK. He also worked as a global business analyst with Euromonitor International, Singapore, and research associ- ate with the KDI School of Public Policy and Management, Korea. He has a PhD from the University of Southampton, UK and an MBA from the KDI School of Public Policy and Management. Stefan Volk is Senior Lecturer in Management at the University of Sydney Business School in Australia. He received his PhD in Management from the University of St. Gallen in Switzerland. His research focuses on the biological foundations of employee performance, productivity and well-being in the workplace. Ralf Zurbruegg is Professor of Finance in the University of Adelaide Business School, Australia. He is a director of a quantitative solutions company for the fund management industry, has served on five edito- rial boards of journals, including as an editor, and has written numer- ous technical articles published in business journals. He has a particular interest in behavioral issues surrounding client choices of financial services products. Introduction Tina Harrison and Essam Ibrahim

The global market for Islamic financial services has shown strong growth in recent years and has demonstrated remarkable resilience fol- lowing the global financial crisis in 2007. Although Islamic financial assets currently make up only a fraction of the world’s financial assets at 1 percent, many Islamic banks have experienced double-digit growth rates in recent years, surpassing their conventional peers (ATKearney, 2012). Indeed, global Islamic financial assets have tripled since the start of the economic slowdown in 2007 (TheCityUK, 2015) and are forecast to reach $4 trillion by 2020 (Karim, 2012). Islamic finance is a distinctive financial arrangement that follows Shariah (Islamic laws) as the core value system. Through the use of financial instruments that adhere to Islamic principles and comply with Shariah rules, Islamic financial institutions seek to promote inclu- sive growth, equitable risk-sharing, social justice and a fair distribution of wealth. As such, Islamic finance and Islamic financial institutions can be regarded as an ethical alternative to conventional banking and financial systems. Several principles differentiate Shariah compliant finance from con- ventional finance. Essentially, Shariah prohibits (usury) which is generally understood as interest or excessive interest; (risk or uncertainty) which is generally understood as excessive risk due to uncertainty; maisir (gambling); and the financing of activities deemed incompatible with Shariah (such as drugs, alcohol, pornography and pork) (Wilson and Abdul Rahman, 2015). At the same time, Shariah pro- motes the principle of and the principle that all transactions must be backed by a real economic contract that involves a tangible asset.

1 2 Tina Harrison and Essam Ibrahim

Therefore, in the Islamic economic system money is treated as a means of exchange and does not hold an intrinsic value (Rammal, 2015). In practice, this means that Islamic financial institutions are not permitted to make a return simply by lending money and charging interest in the conventional way. Instead, they are expected to share in the risks associated with a commercial venture by participating in the investment of physical assets. By contrast, conventional finance tends to be disconnected from the “real sector” as it involves making loans to clients without taking a trading position. The Islamic financing system is therefore an asset-backed system. Any return made by an Islamic financial institution without participating in a share of the risk is con- sidered to be similar to interest and is therefore prohibited. In order for Islamic financial institutions and their clients to comply with Shariah, specific Islamic financial products have been developed that avoid the concept of interest and instead imply a certain degree of risk-sharing. The vast majority of Islamic financial products are banking products. Islamic banking makes up almost 80 percent of global Islamic finance assets. or Islamic bonds account for just 16 percent of total global assets but represent the fastest growing Islamic financial product. Funds and (Islamic insurance) account for the remain- der at 4 percent and 1 percent respectively (TheCityUK, 2015). Islamic financial institutions generate an income through the provision of fee-based services (Takaful, Zakat, Udhia, etc.) or through a form of part- nership with clients in which both the risk and the profits (or losses) are shared between the financial institution and the client according to pre-agreed conditions. This has led to the recent use of the terms ‘participation banking’ or ‘participation finance’ to describe the nature of the activities of Islamic financial institutions (EY, 2014). The emergence of Islamic financial institutions is relatively recent, dating from around the 1960s. Yet, the practice of Islamic finance according to the religious principles of Islam is ancient, having existed for fourteen centuries prior to this. Since the establishment of the mod- ern Islamic finance industry, hundreds of Islamic financial institutions have been launched. The industry has been further strengthened by the establishment of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in 1990 to oversee accounting and auditing standards, and the establishment of the Islamic Financial Services Board (IFSB) in 2002, an international standard-setting organi- zation that issues global prudential standards and guiding principles. Islamic financial institutions serve a considerable and expanding Muslim population around the globe. There are an estimated 1.6 billion Introduction 3

Muslims around the world, representing 23 percent of the world’s popu- lation (Pew Research Center, 2015). Muslims are the fastest-growing and the youngest population globally that is forecast to grow at twice the rate of the non-Muslim population over the next two decades (TheCityUK, 2015) and is estimated to reach 2.8 billion or 30 percent of the world’s population by 2050 (Pew Research Center, 2015). Islam is currently the second-largest religion worldwide after Christianity, but is also the fastest growing religion. By 2050 it is estimated that Muslims and Christians will make up almost equal shares of the global popula- tion and, if current trends continue, the number of followers of Islam is expected to exceed the number of Christians by 2070 (Pew Research Center, 2015). Thus, there is considerable potential for the expansion of Islamic finance into the future. The production of this book is timely, permitting a body of existing knowledge to be drawn together to reflect on the challenges and oppor- tunities facing the Islamic finance industry and to inform future research directions. Based on a meticulous selection of articles published in the Journal of Financial Services Marketing, the book discusses the principles, performance and prospects of Islamic finance. Under the first theme of principles, we discuss the challenges and issues associated with Shariah governance and Shariah compliance. Under the second theme of per- formance, we examine the financial and competitive performance of Islamic financial institutions and specific financial instruments relative to their conventional counterparts. Under the final theme of prospects we discuss the potential for the expansion of Islamic finance models to other geographic regions and non-Muslim majority countries, as well as the mechanisms for such expansion. Starting with the theme of principles, the first four articles dis- cuss Shariah governance and what it means to be Shariah compliant. Contrary to popular belief, Islam is not a homogeneous religion unified under one Shariah law. Due to the variation in interpretation of Islamic teachings by different Islamic schools of thought, there is not one single implementation of Shariah law amongst the world’s Muslim population, but variations in interpretation. The differences among the schools of thought are further exacerbated by the lack of an international central governing body. Whilst the standards issued by AAOIFI and IFSB are designed to promote standard practices across global Islamic financial institutions, they are not mandatory. Instead, Islamic banks are required to follow the standards issued by their national and their own Shariah advisory/supervisory boards. Whilst the central banks are attempting to incorporate some of the AAOIFI and IFSB standards into 4 Tina Harrison and Essam Ibrahim their regulations, there is no currently agreed time frame for when this will be achieved (Rammal, 2015). Variation in interpretation of Shariah law is a key reason why some Islamic finance instruments are permitted in one country but not in another. The trading of debt is an example: due to varying interpreta- tion of fiqh by Malaysian jurists the sale of debt (bai-al-dayn) at a nego- tiated price is permitted in Malaysia but not in some other countries (such as ). Hence, it is possible to observe different norms between Islamic countries (such as between Saudi Arabia and or Malaysia) and even within countries (such as differences between North West Pakistan and other parts of the country). In an attempt to harmonize the approach to Shariah governance, the first article (Chapter 1), by Siti Normala Sheikh Obid and Babak Naysary, presents a comprehensive theoretical foundation for Shariah governance as a means by which to implement Shariah principles and to monitor the activities of Islamic financial institutions to ensure their ongoing Shariah compliance. The authors synthesize and integrate agency theory, stewardship theory and stakeholder theory into a pro- posed theoretical framework that includes five key concepts: account- ability; disclosure and transparency; competency; confidentiality; and independency among the key functionaries in Shariah governance. The five concepts are presented as the key principles on which Shariah governance is founded. The authors suggest that the framework can be used both by Islamic financial institutions and by conventional finan- cial institutions as a means by which to analyze and compare existing governance arrangements with a potentially ideal arrangement. In the second article (Chapter 2), Shakir Ullah and Kun-ho Lee explore the relative importance of Shariah compliance compared with other potential motives for bank selection among Islamic bank custom- ers. The study suggests that customers of Islamic banks consider Shariah compliance and conventional banking services as two distinct and dif- ferent sets of bank patronage factors. Interestingly, the research reveals that conventional banking services are considered slightly more impor- tant than Shariah compliance by Islamic bank customers. This finding highlights the importance of Shariah compliance and governance as a discrete threshold factor for bank selection but above all points to the need for Islamic financial institutions to remain competitive with con- ventional banks to ensure sustainability. These findings are also echoed by Hussein A. Hassan Al-Tamimi, Adel Shehadah Lafi and Mohammed Hamid Uddin (Chapter 3) in their study in the United Arab Emirates which shows that the most important factor determining selection of Introduction 5 a bank seems to be bank products followed by service quality and lastly religious factors. The authors recommend that Islamic banks devote greater efforts to improving their perceived image, in particular empha- sizing service quality and reliability. In the final article (Chapter 4) in this set exploring the principles of Islamic finance, Ahmad Kaleem and Saima Ahmad examine the per- ception and understanding of bank staff of Bai Salam, a forward sale agreement used in agriculture finance. Bai Salam is a trading contract rather than an interest-based loan, encouraged as an acceptable Islamic alternative mode of agriculture finance. The use of Bai Salam is critical to the financial inclusion of small-scale farmers who require access to funds to develop and grow their business. Yet, the study finds that the use of Bai Salam has been limited owing to poorly kept land records, wide spread illiteracy and restrictive government policies. The authors make a number of recommendations aimed at removing the restric- tions and barriers, thus ensuring that small-scale farmers have access to Shariah compliant finance. The second theme explores the performance of Islamic finance. The recent global financial crisis has not only exposed weaknesses in the con- ventional financial system, but also increased attention on the Islamic financial system, suggesting superior performance of Islamic financial institutions relative to their conventional counterparts. Indeed, research comparing the business model, efficiency, asset quality, and stability of Islamic and conventional banks, across a sample of 22 countries with both types of banks, has shown that Islamic banks are better capitalized, have higher asset quality and are less likely to disintermediate during crises (Beck et al., 2013). In the first of the following set of three articles, examining the per- formance of Islamic finance (Chapter 5), Kassim Hussein observes the behavior of key bank-level stability factors of liquidity, capital and risk-taking in Islamic and conventional banks operating in the Gulf Cooperating Countries (GCC) during the financial crisis, and links these to consumer confidence. He finds that Islamic banks generally provide higher consumer confidence due to the fact that they are more capital- ized than conventional banks, have a positive and significant relation- ship with liquidity, and tend to follow stringent risk strategies compared to conventional banks. Similarly favorable results are observed by Nafis Alam, Kin Boon Tang and Mohammad Shadique Rajjaque (Chapter 6) among Islamic funds during the subprime crisis period in Malaysia. In the sample studied, Islamic funds performed better than conventional funds suggesting 6 Tina Harrison and Essam Ibrahim that Islamic unit trusts are better hedging investments against market downside risk. In the European market (Chapter 7), Nafis Alam and Mohammad Shadique Rajjaque also compared the performance of Shariah compliant equities with equities in the wider general market to find that Shariah compliant equities outperformed other portfolios and showed less variability leading them to be considered less risky. In the final set of three articles, we explore the theme of prospects for Islamic finance. The Islamic finance market is currently most developed in the Muslim-majority countries of Malaysia, Saudi Arabia, Iran, and the countries that form the GCC. In a small number of these countries Islamic finance is now mainstream: for example, in Saudi Arabia and Kuwait Islamic banking accounts for 49 percent and 45 percent of the market share respectively (EY, 2015). However, it is also estimated that around 80 percent of Muslims globally have no access to Islamic bank- ing (TheCityUK, 2015). Thus, there is huge potential to extend Islamic finance to other geographic regions, in particular to non-Muslim major- ity countries. Europe is a prime target for expansion of Islamic finance, not least because the Muslim population is growing in Europe: it is estimated that by 2050 10 percent of all Europeans will be Muslims (Pew Research Center, 2015). The UK has one of the most developed Islamic finance sectors outside the Muslim world. Over 20 Shariah compliant banks are licensed to operate in the UK, which is nearly double that of any other Western country (TheCityUK, 2015). Moreover, the customer base of Islamic financial institutions is not restricted to Muslims; many custom- ers may be attracted by the ethical values of Islamic finance and the participation and risk-sharing finance model. The final three articles in this book explore the challenges, oppor- tunities and barriers to extending the Islamic finance model to other counties. A key hurdle to overcome is that of limited awareness and understanding of Islamic finance among not only non-Muslims but also Muslims in non-Muslim majority countries. In the context of Australia, Hussain Gulzar Rammal and Ralf Zurbruegg (Chapter 8) find that whilst Muslims generally are favorably disposed towards using Islamic bank- ing products, they are not adequately informed about how they work and the principles on which profit- and loss-sharing Islamic products are based. They suggest that to extend their reach into Australia (and other countries where awareness is low) Islamic banks need to widen their communication and educate consumers to ensure they are aware of how Islamic banking products operate. Focusing on the concept of