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The introduction of this dissertation will define the purpose of the study, the research problem, and defines the research objectives, purpose, and limitations. 1.1 Background on the research topic The Islamic financial system works based on group of principles, standards and ethics. The standards and ethics are essential to ensure protection, safety and steadiness such integrity, reliability, solidarity, clearness, clear fact and collaboration. All financial transactions that include interest (Riba), untruthful, gambling, unethical, monopoly, risk or uncertainty, injustice are prohibited in the Islamic financial system which based on Islamic Shari ¿Ãƒâ€šÃ‚ ½ah. The Islamic banks play the same roles as a trustee and liaison of moneys come from different parties with some difference in the way how the Islamic banks is handling their transactions. The Islamic bank play a middle man role between debtor and creditor with a slight difference comparing to the conventional b anks as the profit will be paid based on sharing of the profit and loss. This difference established more of ownership relationship between the bank and the customers. However, in practice, Islamic banks hardly look different from its conventional counterpart in terms of organizational set-up (Dar and Presley, 2000). The most important difference between the Islamic banking and the conventional banking is the interest free concept. Although it seem that the Islamic banking is charging interest in their transaction but the fact it is not an interest because of the way they do the transaction which mainly depend on buying and selling of assets which normally generate profit. The first Islamic bank started in Egypt more before more than thirty years and then Pakistan and Islamic Republics of Iran started the transformation from the conventional bank to Islamic banks. The total assets of the Islamic bank increased impressively from $5 billion in 1985 to $100 billion which reflect the huge and rapid movement toward the Islamic country and even the non-Islamic countries. Today, Islamic banking is spreading and gaining acceptance in non-Muslim countries as well as Muslim ones. Equally important has been the growth of scholarly interest in the subject (Iqbal and Mirakhor, 2007). In the past, banks depend mainly on the money comes from depositors and they use these deposits to lend borrowers and there are not other source which they can obtain money from but currently the bank have establish many sources of money such us wholesales money market where they can borrow money from other banks and then use them to lend it to it borrowers with higher profit rate. This secondary market helps a bank to effectively insure itself against the default risk which the borrower might not be able to pay back the loan. These allowed a bank to effectively insure itself against the risk that a borrower might not pay back a loan. This gives a false impression for bank in te rm of buying or selling loans as they think it has low risk. The financial crisis started when banks and financial institutions revealed that hundred of thousand of loans given to customer in the US to bought houses are not able to pay back their loans. As a result, huge number of the bank worthless assets was written down by the banks. According to the Institute of International Finance the assets value is $476 billion. In the name of the securitization, banks started selling the bad debit to third party which will get the loan repayments and pay a charge for this privilege. Thus loan became tradable just like any assets. The capability to securitize loans gives the banks the way to spread the risks which allow them to sale more of the mortgages. The securitization rate of bad loans increased 32% since 1994 to over 77% of the total bad loan in the US and this lead to an increase in the number of financial institution involved in the sub-prime mortgage market. As a result m any financial institutions become owner of mortgage backed securities which was created of the repacking of the sub-prime loans. This package is created by banks by putting different set of loans as one investment product and sell to third party to get fees in return. The new buyer of this loan obligation will receive regular loan repayments. In most cases the package contains different level of risk attached to it because it is normally created by different type of assets and or bond. In June 2008, the mortgage backed securities was worth $6 trillion, more than US Treasury bonds. 1.2 Purpose The purpose of this dissertation is to examine if the Islamic Investment Banks in the kingdom of Bahrain are affected by the Global Financial Crisis. 1.3 Research Questions The research is based on the research question,,  ¿Ãƒâ€šÃ‚ ½Dose Islamic Investment Banks in the kingdom of Bahrain affected by the 2008 Global Financial Crisis? ¿Ãƒâ€šÃ‚ ½ 1.4 Limitation The limitation of this study and its findings should be noted with a view to extending the present study. 1.4.1 Limitation of Researcher Although it has covers almost most of the Investment Islamic Banks in the Kingdom of Bahrain, The sample size is not very large. There was a lack of explicit collaboration from some of the interviewers. 1.4.2 Limitation of Research There is a Lack of generalization of research conclusions to Commercial Islamic banks in the Kingdom of Bahrain, since this conclusion is only related to Islamic Investment banks in the Kingdom of Bahrain. Therefore within Islamic Commercial banks of the Kingdom of Bahrain a similar research is required. Due to the length of the questions and the limited time given by the interviewed, there was a slight difficulty in getting them all answered by the selected decision makers. Chapter 2: Literature Review The most important task of Islam is to direct human development on the right lines and in the right ro ute.  ¿Ãƒâ€šÃ‚ ½It deals with all aspects of economic development but always in the framework of total human development and never in a form divorced from this perspective (Al-Harran, 1993) ¿Ãƒâ€šÃ‚ ½. Islam is extremely paying attention on the problem of economic growth, but deal with this issue as a very important component of overall human development. The Shari ¿Ãƒâ€šÃ‚ ½ah set of laws covers several aspects in the Islamic finance starting from the sharing of the recourses to the right of the property to the manufacturing and consumption and end up with income allocation.  ¿Ãƒâ€šÃ‚ ½Because of Riba, Islamic banks have had to develop financial products which are not in conflict with the Shari ¿Ãƒâ€šÃ‚ ½ah. The task has been achieved by creating a number of special financial products (Ali and Ali, 1994) ¿Ãƒâ€šÃ‚ ½. We can get knowledge and information on Islamic economic and banking from different sources such as books written by lea ding academics and practitioners, published research in the form of reports and journal articles, PhD thesis and some other specialized internet web site. 2.1 History of Islamic Banking:  ¿Ãƒâ€šÃ‚ ½The Golden Age of the Islamic world took place in the 7th-10th centuries in the Middle East countries and between the 11th-14th centuries in North Africa ¿Ãƒâ€šÃ‚ ½ (Warde, 2000). Although banks were not available at that time, financial mechanism and tools were playing roles in the commercial trading; so they were bankers without banks. As per Warde, The available financial instruments in the Islamic world were at least until the 13th century far more advanced than in the between the Fifteenth and the twentieth century ¿Ãƒâ€šÃ‚ ½s it was the period of stagnation and turn down and this possibly because of the effected by the dual break not only with its own past but also with the west.  ¿Ãƒâ€šÃ‚ ½The Renaissance, the Reformation, even the scientific revol ution and the Enlightenment passed unnoticed in the Muslim world (Warde, 2000, p 26) ¿Ãƒâ€šÃ‚ ½. The development of the development of the Islamic financial model delayed because of the colonization during the sixteenth and seventeenth centuries. Many conventional banks started to operate in Islamic countries at the end of the seventeenth centuries such as banks Turkey, Egypt and Iran. The colonization during the 16th and 17th centuries delayed the development of the Islamic financial models. Instead European banks were established at the end of the 17th century in Turkey, Egypt and Iran (Samuelsson, 2000; Zineldin, 1990). If we look into the history of the Islamic Banking we will notice that there were different stages for the development of the Islamic banking since inception. First, it was just an idea and no one tried to implement it. Second, private sector in some countries begins to implement the idea of the Islamic banking and in other the idea converted to reali ty because of the role and regulation. Table 1 show the involvement of the Government and private sector in the seventies toward the development of the Islamic banking. Table : Major Islamic Banking activities in the seventies Year Country Event 1970 Karachi Conference of the Finance Ministers of the Islamic Countries 1975 Saudi Arabia Establishment of the Islamic Development Bank 1975 Dubai Establishment of Dubai Islamic Bank 1976 Saudi Arabia First International Conference on Islamic Economics 1977 United Kingdom International Economic Conference on Islamic Economic in London 1977 Egypt Establishment of Faisal Islamic Bank 1977 Kuwait Establishment of Kuwait Finance House 1979 Bahrain Establishment of Bahrain Islamic Bank As we can see in the above table, the Islamic banks has been established by either the private sector or by roles and regulation forces all conventional banks to changes their operation to an Islamic complaint banks same as wha t happened in the Iran and Pakistan. In the other hand private sector in Sudan, Kuwait, Dubai, Bahrain and Egypt play the biggest role in establishing the Islamic bank with some support from the government. The governments in Pakistan and Iran start the process in 1981 by transferring all commercial banks in the country into an Islamic bank operation according to the Islamic principles. In 1981, the Iranian government enforces all banks to move all their operation from the conventional banking to the Shari ¿Ãƒâ€šÃ‚ ½ah complaint operation and no bank can involved in any interest based transaction. In August 1983 the Usury-free Banking Law was introduced and a fourteen-month change over period began in January 1984. The whole system was converted to an interest-free one in March 1985 (Iqbal and Mirakhor, 1987). Currently, the Islamic banking is available in more than 50 countries worldwide. In some countries they permit only Islamic Banks to work by their role and regula tions such as Sudan, Iran and Pakistan and no conventional banks are permitted to work in those countries. In other countries such as Islamic banks are permitted to work with the availability of the conventional banks so both types will be available in those countries such as Kuwait, UAE, Bahrain, Qatar, Egypt, Jordon, Bangladesh and Malaysia. In 2004, the first Islamic bank in non Islamic country was established in the United Kingdom (Islamic Bank of Britain) and then Devon Bank in Chicago started to offer Islamic banking services in the United States. 2.2 Principles of Islamic Banking Islamic Bank are guided by the Shari ¿Ãƒâ€šÃ‚ ½ah, the precepts of which are founded upon the Qur ¿Ãƒâ€šÃ‚ ½an, the Sunnah (the practices and sayings of Prophet Muhammad), and fiqh (jurisprudence, the opinion of Muslim legal scholars). There are a lot of books, journals and articles which have made major contributions to the Islamic banking theoretical debate such as  ¿Ã ƒâ€šÃ‚ ½Islam and the Theory of Interest ¿Ãƒâ€šÃ‚ ½ (Qureshi l946), he argue that banking is a pure social service that to be managed and offered only by the governments. Qureshi and all other scholars agreed that banks should not pay or receive any kind of interest neither from normal account nor from loan transaction. They agreed on alternatives which can be used by the Islamic bank such as the partnership agreement, buy and sell agreement. Another example of the books which contribute in the development of the Islamic banking module is the Economics of Islam (Ahmad l952); Ahmed in his book believed that the founding of Islamic banks should be based on the concept of Joint Stock Company so people can customer can deposit their money based on partnership between them and the bank and the profit or loss occur will be shared between both parties. In addition to that, they can deposit their money in a normal current account so no interested should be paid. Both Ahmed and Qurashi agreed on the possibilities of entering into a financing agreement based on partnership between businessman and banks in case the businessman need capital for his business. However, this kind of agreement remains undefined, no clear idea about who will bear the loss. Based on Shariah, the Islamic Banks should follow the below four major principles in term of banking and financing transactions and financing:  ¿Ãƒâ€šÃ‚ ½ No Riba No interest must be charged in any transaction.  ¿Ãƒâ€šÃ‚ ½ No Haram Bank should not deal in any product and services which is prohibited and considered as illegal in the Islamic Shariah.  ¿Ãƒâ€šÃ‚ ½ No Gharar  ¿Ãƒâ€šÃ‚ ½ Banks should avoid any truncation that may involve speculation.  ¿Ãƒâ€šÃ‚ ½ Zakat Banks should pay compulsory Zakat based on the Islamic role and regulations. Let see how the above four principles govern the Islamic bank and make them different from the conventional banks: Pro hibition of Riba The prohibition of Riba mainly comes from Quran, Quran talk about Riba in twelve different places. Below are examples of where Quran talk and describe the roles of riba in Islam: Al-Baqarah (2:275)  ¿Ãƒâ€šÃ‚ ½Ãƒâ€šÃ‚ ¿Ãƒâ€šÃ‚ ½ And Allah has justifies the trades and forbids the Riba ¿Ãƒâ€šÃ‚ ½. ¿Ãƒâ€šÃ‚ ½ Al-Baqarah (2:276) ¿Ãƒâ€šÃ‚ ½ Allah destroys usury and cultivating charity. And Allah does not love everyone who remains in unbelief, and always doing sin.  ¿Ãƒâ€šÃ‚ ½ Al-Baqarah (2:278)  ¿Ãƒâ€šÃ‚ ½  ¿Ãƒâ€šÃ‚ ½Ãƒâ€šÃ‚ ¿Ãƒâ€šÃ‚ ½ and leave the rest of Riba (who have not collected) ¿Ãƒâ€šÃ‚ ½Ãƒâ€šÃ‚ ¿Ãƒâ€šÃ‚ ½ Al- ¿Ãƒâ€šÃ‚ ½Imran (3:130)  ¿Ãƒâ€šÃ‚ ½  ¿Ãƒâ€šÃ‚ ½Ãƒâ€šÃ‚ ¿Ãƒâ€šÃ‚ ½ do not eat Riba with the multiply ¿Ãƒâ€šÃ‚ ½  ¿Ãƒâ€šÃ‚ ½ An-Nisaa (4:161)  ¿Ãƒâ€šÃ‚ ½  ¿Ãƒâ€šÃ‚ ½and because they eat riba, but in fact they have been banned from it, and because they eat the wealth of people with a wrong path ¿Ãƒâ€šÃ‚ ½. ¿Ãƒâ€šÃ‚ ½ Ar-Ruum (30:39)  ¿Ãƒâ€šÃ‚ ½  ¿Ãƒâ€šÃ‚ ½Ãƒâ€šÃ‚ ¿Ãƒâ€šÃ‚ ½ and riba (additional) that you gave to her property only grew for human ¿Ãƒâ€šÃ‚ ½s wealth, then the riba does not give additional value for Allah. Qur ¿Ãƒâ€šÃ‚ ½an 2:185 explicitly prohibits riba ¿Ãƒâ€šÃ‚ ½ and permits trade, but does not state clearly whether it is to be understood as interest or as usury. Source: Agustianto. Riba Empiris. Indonesia. 2006 Table 2: Compression between Interest and Profit Margin from Trade Interest (Riba) Profit Margin from Trade Platform: Positive Law Platform: Shari ¿Ãƒâ€šÃ‚ ½ah Law Source: Capitalism Ideology Source: Al-Quran, Sunnah Ijtihad Ulama Money as a commodity. Bank lend the money Goods as an object. Bank use goods as a commodity Relationships: Debtor-Creditor Relationship: Partnership Interest may be changed unilater ally The agreed price cannot be changed Not associated with the real sector (Monetary Real Sector is separately) Monetary and Real Sector related strong, so encourage the acceleration of the flow of goods, production and employment. If non performing loan was getting higher, then the interest will be a compound interest Margins and selling prices unchanged No trade transaction Fulfill buying and selling principles Determining the interest is not considering the profit and loss Determination of the profit sharing ratio in aqad, based on the profit and loss The percentage of interest previously determined, based on the lending amount The profit sharing is accordance with the agreed ratio Interest payment amount is not increased align with the increment of profits The number of profit-sharing increases align with the increment of the income If loss happened, it is only covered by the Borrowers, based on fixed interest payment as promised in the agreement If loss happened, both parties will covered the loss The interest paid by the borrower must be received by the bank The success of the business is going to be both parties ¿Ãƒâ€šÃ‚ ½ concern Table 1 show a comparison between riba  ¿Ãƒâ€šÃ‚ ½Interest ¿Ãƒâ€šÃ‚ ½ and profit comes from trade. The ambiguity of understanding either it is interest or usury has led to disagreement among Muslim scholars in the past. However, there is a general agreement that riba ¿Ãƒâ€šÃ‚ ½ includes all forms of interest, that is, any amount charged over and above the principal. By prohibiting interest, Islam wants to set up a just and fair society (Qur ¿Ãƒâ€šÃ‚ ½an 2:239). According to Shariah, it is unfair that the lender pay predetermined amount of fixed income irrespective of the return of the borrower ¿Ãƒâ€šÃ‚ ½s venture. As a result, The Islamic Financial System prohibited interest in all transaction and this is including receiving of interest which is the main principle in the conventional banking module. Moreover, the Islamic financial system also prohibited any other financial product and services which include interest and illegal product. An Islamic financial system or institution is much more than that, for it  ¿Ãƒâ€šÃ‚ ½is supported by other principles of Islamic doctrine advocating risk sharing, individuals ¿Ãƒâ€šÃ‚ ½ rights and duties, and the sanctity of contracts. ¿Ãƒâ€šÃ‚ ½ (Z. Iqbal and A. Mirakhor). The Islamic Financial System is wider than only banking transactions, it includes investment product, capital arrangement, and all types of financial services. As a result for the above prohibition of interest  ¿Ãƒâ€šÃ‚ ½Riba ¿Ãƒâ€šÃ‚ ½, no transaction are allowed if the transaction contain interest  ¿Ãƒâ€šÃ‚ ½Riba ¿Ãƒâ€šÃ‚ ½ but allow trade between people as mentioned in Al-Quran verse Al-Baqarah (2:275) and different parties can do transactions based on this rule and t his relationship between both parties which obey with Shari ¿Ãƒâ€šÃ‚ ½ah is called partnership. The main difference in the transaction done by Islamic bank and conventional bank is the Islamic bank use good and services as a commodity to trade with customer to generate profit not same as the conventional banks which using the money as a commodity and they will use the interest rate to determine the profit margin so there is no real commodity other than the money is traded between the bank and the people but in the Islamic bank transaction there is product and services included in the transaction and the money is used only as tool of exchange and this kind of transactions have big impact on the economy because it encourage the flow of goods, services, manufacturing and employment so in the Islamic banking every transaction should involve buying and selling of a commodity (Trade) and this trade should not be cash to cash. Another difference, In Shari ¿Ãƒâ€šÃ‚ ½ah t ransactions, the profit margin remain constant and can ¿Ãƒâ€šÃ‚ ½t be changed and will remain same as what parties agreed in the contract (aqad). Where ¿Ãƒâ€šÃ‚ ½s in the conventional banks transactions, the bank can charge the customer higher interest rate in case the customer is unable to pay any of the agreed installment on time. In Islamic banking transaction, the profit margin / sharing is calculated based in the profit or loss which will occur because of the agreed transaction. This is not the case in the conventional banking transaction, the profit or interest will be representing the actual profit or loss and the lender will not be concern about the ability of the borrower. In the Islamic bank transaction both party will cover the losses if it ¿Ãƒâ€šÃ‚ ½s happened not like the conventional bank transaction which the lender will receive fixed profit even of the loss has been occurred in the transaction and in this case the borrower will cover the loss individually. Gharar Islam prohibits all games of chance and gambling: They will ask about intoxicants and games of chance. Say:  ¿Ãƒâ€šÃ‚ ½In both there are great evil as well as some benefit for man, but the evil which they cause is greater than the benefit which they bring. ¿Ãƒâ€šÃ‚ ½ (Qur ¿Ãƒâ€šÃ‚ ½an 2:219) In Qur ¿Ãƒâ€šÃ‚ ½an 5:90, games of chance and gambling are prohibited because they cause enmity and hatred and also involve consuming property (bay` albatil), which is a kind of oppression. The question is whether gharar, which involves uncertainty or speculation, is halal (permitted) in business. According to Ibn Taymiyyah, if the sale contains gharar and devours the property of others, it is equivalent to gambling and, as such, haram (forbidden). Pointing to the phrase devours the property of others pines that speculative risk-taking in commerce, which involves the investment of assets, skill, and labor, is not similar to gambling. In b usiness, participants engage in transactions designed to maximize profit through trading, not through any dishonest appropriation of other people ¿Ãƒâ€šÃ‚ ½s property. Similarly, according to El-Ashkar, speculation in business is not the result of turning over a card or throwing the dice, but rather is  ¿Ãƒâ€šÃ‚ ½ the practice of (a) using available information to (b) anticipate future price movements of securities so that (c) [the] action of buying and selling securities may be taken with a view to (d) buying and selling securities in order to (e) realize capital gains and/or maximize the capitalized value of security-holdings (A. F. El-Ashkar ,1995). Islam allows risk-taking in business transactions, but prohibits gambling. On the other hand, Islam prohibits the dealing in some product like tobacco, Alcohol, pork, gambling, illegal drugs and pornography and other harmful products. All Islamic bank should follow this role and should not enter into any agreement inc lude the above mentioned items. Zakat Is the Islamic version of tax, people who owned certain amount of wealth (nisab) must pay certain amount of their wealth to poor people, this not only apply for individual but it is also applied for institution so every Islamic bank must create a Zakat fund and pay this Zakat if the profit achieved reaches to the level of nisab. In this case, the Islamic banks also have to pay any business related taxes indicated in the country rule and regulations so the Islamic banks have to pay two kinds of taxes, the Zakat and the normal income tax. 2.3 Products of Islamic Banks and Their key Elements We can classify the Islamic financial products into two main categories: equity-type contracts and mark-up price (debt) type contracts. All Islamic financial products come as a result of the prohibition of interest so we will notice that any contract signed by Islamic bank should not contain interest. 2.3.1 Equity-type contracts Under the equ ity type contracts there are only two types of contracts: Mudarabah (trust financing) and Musharakah (partnership), based on the profit-and-loss sharing (PLS) principle, (B. Hamwi and A. Aylward, 1999). Mudarabah The two parties  ¿Ãƒâ€šÃ‚ ½ the supplier of capital (rabb al-mal) and the entrepreneur (trustee of the venture)  ¿Ãƒâ€šÃ‚ ½ share the profits according to an agreed-upon PLS ratio. It may be 70:30 or 80:20, depending upon the agreement. In Mudarabah contract, there is no fixed annual payment and lender will not guarantee any return (Samad, Gardner, and Cook). Another element in Mudarabah contract is about the losses which may occur from the business venture. Shari ¿Ãƒâ€šÃ‚ ½ah role says the capital owner should bear the monetary losses where the mudarib will not take any responsibilities in covering the monetary losses. Last element in Mudarabah contract is that the capital owner or the financier has no right to control how the mudarib manage the business venture so the mudarib have full right to manage it. Al-Arabi (l966) envisaged a banking system with Mudarabah as the main pivot. He was taking about using Mudarabah contract as a saving account by the idea of the two-tier Mudarabah so the banks will act as mudarib in case of getting deposits from customer and in another time the bank will be the depositor when it comes into the deposits of the bank ¿Ãƒâ€šÃ‚ ½s shareholders. Irshad (l964) mentioned Mudarabah as a main principle in the Islamic banking. Although his idea about Mudarabah differs from other writer but he still indicates the Mudarabah as a saving account. The main difference between Irshad and the others is that he introduced the idea of sharing the profit comes from the Mudarabah contract between the bank and the depositor and they will share the profit or loss equally in fifty-fifty bases. His idea was against Shari ¿Ãƒâ€šÃ‚ ½ah role regarding Mudarabah as Shari ¿Ãƒâ€šÃ‚ ½ah says there is no profit or loss sharing in the Mudarabah contract. Musharakah Is a partnership agreement between two or more parties; all parties will participate in the capital. Musharakah have main three principles. First principle is about the capital contribution and profit sharing and what is the pre-agreed percentage of each party. In case of profit, every party will get his part based on the agreed percentage in the contract and not necessary its equal the percentage of their capital participation but in case of loss, parties will share the losses based on their capital contribution. The second principle, in Musharakah agreement all parties have the right to manage the investment. Last principle is that liability is unlimited joint venture individual customer. Siddiqi (1968) come with a pioneered idea and establish a details outline for the interest free bank in the way to have a well established Islamic banking. He used Musharakah and Mudarabah contracts to build his sug gested model for the Islamic banking system. He classified the operations of the Islamic banking system into three categories; services against fees, commissions, financing on the bases of Mudarabah. His model was a possible substitute for the conventional banking. 2.3.2 Mark-up price (debt)-type contracts. The mark-up-price contract is mainly a financing contract which the bank will finance borrower to purchase certain asset for an agreed profit margin. There are five type of mark-up price contracts; Murabaha, Baimuajjal (Deferred Payment Sales), Ijarah (Lease financing), Ijara (Operating Lease) and Qard Al-Hassan. Below are some details on each type. Murabahah (bay` bi al-thaman al-ajil) Is the bank will buy an asset on behalf of a customer and then will resell it to him at a pre-agreed price and profit margin so the bank will charge the customer cost of the asset plus the agreed profit and the payment of this amount to the bank will be in the future either in installm ents or total amount in single payment. The main distinguishing of Murabaha comparing to the conventional interest based financing product is in Murabaha the ownership of the asset purchased will remains with the banks till the customer fulfill all his obligation by paying the agreed amounts. From an economic point of view, Murabaha financing and interest-based trade financing appear quite similar, except in their contractual features. The profit margin calculated on top of the cost seems to be very similar to the interest charged by the conventional banks on top of financed amount but Islamic banks will take a real risk by purchasing the assets and keep it under its ownership till transfer the ownership to the customer. The Islamic bank will act as an intermediary between the seller and the buyer and will be responsible if anything went wrong. Baimuajjal (Deferred Payment Sales) This is sale contract with a deferred payment which will be paid either in pre agreed installme nt or will be paid as one payment after certain agreed time. Payment term should be agreed at the time of the sale and seller should not charge the buyer any charge against the deferment of the payment. This kind of transaction is considered as trade and not loan. This similar to the Investment Murabahah with the difference of the sale under this contract is based on credit rather on cash. Qard Al-Hassan This kind of loan is not available in the conventional banks; it ¿Ãƒâ€šÃ‚ ½s a zero profit loan and banks will not get any financial return when providing this kind of loan to customers. Islamic bank normally use to give this loan to poor and needy people and the receiver of this loan have only to repay the principle with no extra profit. Ijarah (Lease financing) In Ijarah, the Islamic bank will buy the assets required by the customer and will keep the ownership under the name of the bank. The bank will sign an Ijarah agreement with the customer to allow him to us e the asset and the customer will pay a monthly rent, the rent here is replacing the normal loan installment. The ownership of the assets will be transferred to the customer either by the end of the period and after he pay all the agreed amount or it will be partially transferred over the period of the contract. Ijarah (Operating Lease) Ijarah is the leasing of building, equipment, machinery, aircraft, plants and others capital assets. Same as the finance lease, the bank will buy the asset and lease it to end user under a lease agreement which the customer has to pay an agreed rent. The customer will use these assets for his operation and generating profit. The ownership of the assets will remain with the bank even after the period of the contract. 2.4 Financial Crisis 2008 Th? glob?l f?n?ncl cr?s?s ?s on? of th? b?gg?st ?ssu?s th?t conc?rn hum?n?ty s?nc? l?st f?w yrs. Th?s d?s?st?r h?s touch?d v?rtu?lly ?v?ry country. R?duc?d prof?ts, loss of jobs, r?s?ng pr?c?s, d?l?y? d w?g?s, st?p?nds, p?ns?ons ?nd un?mploym?nt. P?opl? ?r? just ?n ? p?n?c The 2008 financial crisis in fact taking place to show its effects in the second half of 2007 and keen on 2008. Around the world stock market have fallen, large financial instituation have collapsed, downsized or been bought out and government in even the great nation have to come up with rescue plans to secure their financial system. F?n?ncl cr?s?s ?nd th? cons?qu?nc?s on to glob?l ?conomy Th? f?rst rson for th? f?n?ncl cr?s?s ?s th? drop of th? US rl ?st?t? m?rk?t, wh?ch h?s rch?d ?t ¿Ãƒâ€šÃ‚ ½s down po?nt ?round 2005-2006. Th? ?p?d?m?c of c?nc?l?ng mortg?g?s w?tch h?s st?rt?d ?n USA ?t th? ?nd of 2006 cont?nu?d to drn wlth from th? consum?rs ?nd d?crs?ng f?n?ncl pow?r of b?nk?ng ?nst?tut?ons3. Incrs? ?n lost lb?l?ty to p?y for d?bts ?nd los?ng opportun?ty for oth?r typ?s of lo?ns sprd from rl ?st?t? m?rk?t to oth?r ?conom?c s?ctors. Tot?l los?s ?r? ?st?m?t?d ?n tr?ll?on of US doll?rs glob?lly. 1.4.1. What caused the Economic Crisis of 2008? Greed is the suitable word to describe what happened in the financial crisis in 2008. Th? r?srch on th? r?c?nt f?n?ncl cr?s?s ?s ?mpl?, ?nd researcher h?v? ?d?nt?fd ? many ?ssu?s th?t l?d to th? cr?s?s. Som? of th? ?ssu?s ?nclud? th? sub- pr?m? cr?s?s th?t w?s ?n?tt?d ?n th? Un?t?d St?t?s of Am?r?c? ?nd th?n sprd to th? Un?t?d K?ngdom ?nd Europ?. Over the year before 2008, the lender was happy and aggressively lending money to people who in many cases they can ¿Ãƒâ€šÃ‚ ½t pay their installments. They grant loans to those people against high interest rate. As this loans are backed with a mortgage so when the borrower default his payment the kinder will simply put the house back to the market and in other case they pass the risk off to mortgage insurer or put all defaulted mortgage together and sell them as mortgage backed securities. 1.4.2. Time Line of the Economic crisis The below time line of the financial crisis was published by the telegraph.co.uk and it list down the major event happen before, during and after the financial crisis. Will use this time line just to see what is the main cause of the financial crisis and is this causes can affect the Islamic investment bank sector in Bahrain. 2007  ¿Ãƒâ€šÃ‚ ½ Late July/early August 2007: The UK stock market goes through a period of volatility. Banks begin to stop lending to each other due to market fears over exposure to potential losses on high-risk US mortgages. The credit crunch begins in earnest.  ¿Ãƒâ€šÃ‚ ½ September 13, 2007: News breaks that Northern Rock has sought emergency funding from the Bank of England in its capacity as lender of last resort. It prompts the first run on a bank for more than a century. 2008  ¿Ãƒâ€šÃ‚ ½ February 17, 2008: The government announces that struggling Northern Rock is to be nationalized for a temporary period.  ¿Ãƒâ€šÃ‚ ½ July 14, 2008: Financial authoritie s step in to assist Americas two largest lenders, Fannie Mae and Freddie Mac, owners or guarantors of 5 trillion worth of home loans.  ¿Ãƒâ€šÃ‚ ½ September 15, 2008: Wall Street bank Lehman Brothers files for Chapter 11 bankruptcy protection and another US bank, Merrill Lynch, is taken over by the Bank of America.  ¿Ãƒâ€šÃ‚ ½ September 17, 2008: Lloyds TSB announces a  ¿Ãƒâ€šÃ‚ ½12 billion deal to take over Britains biggest mortgage lender HBOS after a run on HBOS shares.  ¿Ãƒâ€šÃ‚ ½ September 28, 2008: European banking and insurance giant Fortis is partly nationalized to ensure its survival.  ¿Ãƒâ€šÃ‚ ½ September 29, 2008: The government takes control of Bradford Bingleys  ¿Ãƒâ€šÃ‚ ½50 billion of mortgages and loans. Savings operations and branches are sold to Spains Santander.  ¿Ãƒâ€šÃ‚ ½ The Icelandic government also takes control of the countrys third-largest bank, Glitnir, after the company faces short-term fundin g problems.  ¿Ãƒâ€šÃ‚ ½ September 30, 2008: The Irish government guarantees deposits in the countrys main banks for two years.  ¿Ãƒâ€šÃ‚ ½ October 6, 2008: Trading is suspended in Icelandic banks including Kaupthing, Landsbanki, Glitnir, Straumur-Burdaras, Exista and Spron.  ¿Ãƒâ€šÃ‚ ½ October 7, 2008: The Icelandic government takes control of Landsbanki, the countrys second largest bank.  ¿Ãƒâ€šÃ‚ ½ October 8, 2008: The Bank of England cuts interest rate by 0.5% to 4.5% in a surprise decision as part of a co-ordinate global attempt to ease the financial crisis. The Government unveils an unprecedented  ¿Ãƒâ€šÃ‚ ½50 billion plan to part-nationalize major UK banks and pump billions more into helping ailing money markets.  ¿Ãƒâ€šÃ‚ ½ The Bank of England also extends the existing  ¿Ãƒâ€šÃ‚ ½50 billion Special Liquidity Scheme to  ¿Ãƒâ€šÃ‚ ½200 billion, while a further  ¿Ãƒâ€šÃ‚ ½250 billion is being pumped in under a debt guarantee scheme.  ¿Ãƒâ€šÃ‚ ½ October 10, 2008: Treasury officials travel to Iceland for urgent talks after the collapse of the countrys banking sector leaves councils and charities in Britain facing losses of up to  ¿Ãƒâ€šÃ‚ ½1 billion.  ¿Ãƒâ€šÃ‚ ½ October 13, 2008: The government announces a  ¿Ãƒâ€šÃ‚ ½37 billion rescue package for Royal Bank of Scotland (RBS), Lloyds TSB and HBOS.  ¿Ãƒâ€šÃ‚ ½ October 19, 2008: Chancellor Alistair Darling announces plan to pour billions of pounds into major public works in an attempt to help spend the UK out of the worst of the economic downturn.  ¿Ãƒâ€šÃ‚ ½ November 20, 2008: The International Monetary Fund (IMF) approves a 2.1 billion dollars ( ¿Ãƒâ€šÃ‚ ½1.4bn) loan for Iceland, after the countrys banking system collapsed in October. It is the first IMF loan for a western European nation since 1976.  ¿Ãƒâ€šÃ‚ ½ November 29, 2008: The Government takes a 58pc in RB S for  ¿Ãƒâ€šÃ‚ ½15bn, with a further  ¿Ãƒâ€šÃ‚ ½5bn of preference shares. Sir Fred Goodwin steps down as RBS chief executive, and is replaced by Stephen Hester. 2009  ¿Ãƒâ€šÃ‚ ½ January 15, 2009: The Irish government says it is to nationalize the Anglo Irish Bank.  ¿Ãƒâ€šÃ‚ ½ January 16, 2009: The US government provides the Bank of America with another 20 billion dollars from its 700bn dollar financial rescue fund to help it with the losses incurred when it bought Merrill Lynch.  ¿Ãƒâ€šÃ‚ ½ February 11, 2009: Ireland says it will inject  ¿Ãƒâ€šÃ‚ ½7bn into Bank of Ireland and Allied Irish in return for guarantees on lending, executive pay and mortgage arrears. It gets a 25pc indirect stake in both banks.  ¿Ãƒâ€šÃ‚ ½ February 26, 2009: RBS reports a loss of  ¿Ãƒâ€šÃ‚ ½24.1bn for 2008, the biggest in British corporate history. The government asks Sir Fred to give up an annual pension worth about  ¿Ãƒâ€šÃ‚ ½ 700,000.  ¿Ãƒâ€šÃ‚ ½ April 16, 2010: The Securities and Exchange Commission accuses Goldman of defrauding investors of more than $1bn by willfully mis-markting toxic sub-prime mortgage-related securities.  ¿Ãƒâ€šÃ‚ ½ May 2 2010: Greece gets a  ¿Ãƒâ€šÃ‚ ½110bn ( ¿Ãƒâ€šÃ‚ ½93bn) bail-out from other countries using the euro, and the International Monetary Fund.  ¿Ãƒâ€šÃ‚ ½ November 21, 2010: Irish Finance Minister Brian Lenihan says he will recommend to the Government that the country formally request a bailout package from the EU, ECB and IMF. 30122012