The performance of organisations and banking institutions in particular require stringent and shrewd quality management practices. In order to address the concept of quality management in a sound manner, it is vital to note that the efficiency and effectiveness with which financial institutions are managed is the major determinant whether they will be successful or not in the turbulent and dynamic financial world. Hence, quality management is primarily concerned with how best the two aforementioned elements are harnessed within an organisational set up.
There are three key components that constitute quality management. These can be classified as quality control, assurance and improvement. Nonetheless, the common belief that quality management is only concerned with the end product is not true. In real sense, the process or means used to achieve the final product is part and parcel of quality management. Therefore, quality assurance as well as control measures that have been put in place largely falls under the umbrella of quality management. In addition, it is imperative to emphasise that a well defined quality management system should be consistent throughout (Bourne et al, 2002).
Over and above the basic framework of quality management mentioned above, there are myriad underlying and latent factors worth considering when exploring this concept. One such consideration is the significance of quality management in institutions and how leadership style can affect both the process and end product of quality management. Moreover, the available and hidden tools as well as quality management philosophies that can be used to enhance quality in an organisation ought to be understood especially by those who formulate and implement policies in organisations.
In as much as leadership is concerned, thorough understanding of team dynamics especially in cases where team spirit is demanded cannot be ignored either. Well coordinated and cohesive teams in organosations are an important parameter and agitator of continual quality management.
Most management teams in the business world today have attempted relentlessly to re-invent the wheel with little success. They are quite often in pursuit of something new, some fresh idea, and will even clutch at a straw in order to explore the latest possibilities of improving quality management. Unfortunately, such efforts have not paid off yet. The worst affected organisations are those dealing with financial management.
Moreover, economists and financial enthusiasts have gone an extra mile to repackage and rebrand the old and outdated approaches in quality management and later sold them back to financial managers in a bid to save dwindling economies. The old tactics such as strategic planning, team problem solving as well as root-cause analysis have been –re-employed back into financial systems without any tangible success.
Other mind-blowing strategies such as quality policy deployment and the seven advanced management tools have emerged but the impact on quality management is still unsatisfactory. Most management teams have been left in a state of hope and imagination that such packages will work only to be disappointed later.
Past financial crises
The fight for quality improvement is not at its infancy stage. The last three decades has witnessed rigorous search for better management tools that can be employed in financial institutions in order to boost performance, efficiency and effectiveness. It all began with the quest for ‘quality at any cost’ throughout the 1980s. It is estimated that most financial institutions were up in arms to change their quality management competences as frequently as possible. It is definite that this was also the same period when financial crisis began to bite, calling for the urgent need to shift tactics in order to survive in the turbulent financial market.
As a show of desperation, billions of dollars went into waste in organising training programs for managers on how to achieve high quality within their organisations. In any case, most of the training was never implemented at the organisational level. This does not however, refute the fact that the training offered on quality management would have improved organisational performance to some level.
This improvement index would have equally cause economic harm to the very organisations when applied the manner in which they were taught. For instance, most of those trainings did not put into consideration the impact of market fluctuations and ever changing power of demand and supply. This would have grossly jeopardized business operations in some sectors of the economy (Choudhury & Hussain, 2005).
The financial soundness and reputation of the Gulf region is believed to be going down due to the poor economic performance of Dubai. One such setback to the economic performance of this region is the bankruptcy laws that are quite harsh and not conducive to both local and foreign investors. The laws have not been enacted with due consideration of the hostile business environment which is mainly driven by imports. The available oil field are hardly enough to wither any economic difficulty experienced in the region. At present, the impacts of Middle East recession is even far much more disastrous especially to the banking sector since it heavily depended on the performance of other economy drivers.
There is heavy criticism of the financial markets in this region due to heavy loses being incurred by investors. Some of the big losers include the American Bank, the Gulf Sovereign wealth fund and the Daimler. Worse still, the Islamic bonds which has proved to be relatively stable over the years is currently under serious test. Such a trend is worrying bearing in mind that Dubai has been known globally as a business hub where the west and the east could meet both for leisure and entrepreneurship.
One viable solution being sought and thought to be effective in averting this financial crisis is the adoption of Islamic banking, nonetheless, the seeming delay characterising the payment of Islamic bonding, better known as sukuk is the main accelerator of this financial crisis. Whether this argument holds any water or not, the current conventional banking may have completely failed to bring on board measures that can sufficiently stabilize the markets and sustain growth.
Another disturbing challenge is the soaring prices of oil in the world market. In spite of this, Islamic finance seems to doing quite well. The revenues derived from oil by OPEC member countries are not impressive either. In a record of three months only, the revenue was reported to have declined by about 53 percent. The member countries are groaning under this ripple effect and the financial institutions have not been spared either. On the other hand, Saudi Arabia seems to be enjoying the state of affairs bearing in mind that Dubai is not a major oil producer and as a result, it relies heavily on its strategic location as a business hub in the whole of the Gulf region.
Dubai Financial Crisis
The larger economy is underperforming mainly due to the effects brought about by recession. Banks are equally reluctant to offer credit facilities to clients due to the fear of bad debts. This has been replicated in the stock market that has witnessed a significant drop in net turn over by about seventy percent. The hospitality industry is not doing well either; there are myriad hotel rooms that have been reported to be half empty due to dwindled inflow of visitors.
A similar drop in sales has also been experienced by shopkeepers while several commercial projects have been stopped or cancelled altogether owing to funding problems occasioned by recessive economy. The financial firms and banks are in a state of worry on whether the country will survive the current economic turmoil. As uncertainty looms, financial institutions continue to lose markets not just within Dubai but also across the world.
The last five years has been an economic boom for the United Arab Emirates (UAE). High oil prices since the beginning of the new millennium has enriched the UAE economy. As a result, payment of salaries, capital projects as well as other development needs have been catered for adequately. One such project is the hydrocarbon sector located at Abudhabi in addition to several real estate programs and development of infrastructure.
Nonetheless, the political scenario is the major drawback in this region. It is highly likely that the UAE economy may go into pieces should the conflict between Iran nuclear program and UN hesitancy persist. The hospitality industry may also be affected alongside local and foreign investment.
The Islamist militants are also a major cause for concern in UAE. The fight can easily spread it tentacles to the Emirates thereby causing instability.
Although UAE is currently boasting of a vibrant economy, the level of uncertainty into the well being of the financial sector is doubt. Conventional banking is playing its role as usual while Islamic banking continues to press for its ideals in financial management. Apart from the hydrocarbon sector and the rich oil field in the Emirates, there is med to introduce quality management especially in the financial sector.
As mentioned earlier, the demand for quality management in finance is of utmost importance especially if a country is to experience growth and stability. Institutions which do have strong principles of financial management do not fare on well. Firstly, it is imperative to understand the concept of Islamic banking before embarking on how it can be used as an alternative solution to averting financial crises in future. The principle of Islamic banking is drawn from the belief system of Islam as well as practices as outlined on the holy book of Quran.
Through the element of sharia, Muslims have a sound way of performing their daily activities. There are strict codes and principles that must be adhered to in order to in order to please Allah, the only God. In addition, there are norms and behavioural patterns that should be embraced by all Muslims and those that they cannot bear. It is referred to as Akhlaq. Under this principle, there are well outlined work ethics which Muslims and their employees are supposed to follow to the letter. It is against this backdrop that Islamic banking has its roots. Their way of life that has been entrenched in the sharia is the key guiding principle in running Islamic banking. Basically, Islamic banking prohibits certain forms of financial transactions that are believed to be evil. For instance, earning interest in money earned is perceived to be evil.
In order to further understand how Islamic banking works, it is pertinent to explore the concept of Islamic finance. There are several similarities between Islamic banking and conventional banking except for the fact that ion Islamic banking, no interest is charged on money that has been lent out. According to Islamic faith, money is perceived to be valueless on its own. It only gains value when attached to assets of specific value. In other words, Islamic finance has it that money can only be used to assign value to an asset. Therefore, lack of intrinsic value in money implies that no ‘riba’ or interest is supposed to be charged on the person borrowing it.
From this perspective, it is vital to note that Islamic banking and finance attaches more emphasis on assets. Any investment activity in Islamic banking and finance is considered to be relative to possession of assets whereas money plays the single role of facilitating transaction. Perhaps, those who argue that Islamic banking and finance is the way to go in order to avert future financial crises believe that through imparting Godly principles in people by following sharia laws, their attitude towards life will change and will be able to engage in honest financial practices that do not endanger the very survival of others.
We acknowledge quite well the astounding failure associated with conventional banking. Although there are well documented banking principles to be followed by all users, clients still engage in unethical financial practices which later do not auger well with the entire economy. Islamic finance and banking operates on quite a number of notable principles. The major purpose for adopting and implementing these principles is to improve on the financial quality management according to Islamic faith.
To begin with, Islamic banking does not permit interest. Nonetheless, any return or profit and loss accrued from investments is permitted. The interesting fact is that profit or loss is equally shared between the borrower and the lender. Such a banking philosophy can indeed narrow down the gap between the rich and the poor since wealth is equitably shared between the two economic rifts. One important input from this banking system is that it would be quite easy to contain financial crises afflicting a few financial institutions that may latter spread to other organizations. In most cases, bankruptcy is brought about by accumulation of interests earned on borrowed money in addition to losses incurred during business operations.
If banks and other lenders could adopt this practice, it would by far and large reduce the chances of economic downturn. Islamic banking practices also maintain that the risks involved in any financial transaction should be taken care of by both parties. Although this may appear to be quite risky especially on the part of the investor or the bank, another guideline has been put up to reinforce the above regulation. Either the bank or the borrower is not allowed by all costs to engage in speculative activities.
This implies that activity such as gambling is highly restricted under Islamic banking and finance. Moreover, high-risk transactions are equally prohibited. Although not much is elaborated on this, it is quite clear that is a protective measure against illegal or unwarranted financial practices. For instance, icons in the stock market largely rely on speculating in order to make the greatest gain in the sense that they buy stocks when prices are low and sell them when the market is bullish.
The stock market is known to be a major driver in the country’s economy. Whenever there is a fall in share prices, heavy losses can be incurred. Unfortunately, risks and other associated losses are not shared between the parties involved in the transaction. Perhaps, Islamic banking could assist in alleviating the huge economic losses often experienced by companies listed in the stock market. Since money in itself is considered to be of no worth, the challenge posed by unstable foreign exchange rates could be alleviated. When money is equated to the value of a properly or asset, the latter is deemed to be more stable and can withstand the test of time. Hence, low foreign exchange rates could not be a financial disaster at all.
Investments by Islamic banks are only permitted in companies that are considered to be safe and stable in terms of market share. For example, companies whose market share is over 33 percent are the only ones legible to host Islamic banking. Again, this appears to be a strong precautionary measure against improper investments. It is also common knowledge that companies which do not have a strong market presence are more likely to be negatively affected by re-current market disturbances such as changes in demand and supply and shift in government policies. Another stringent measure taken by Islamic banking is that the latter can only plough back its capital investment in companies whereby the quotient between the total inflows and assets are more than 33 percent.
One of the major teachings in Quran is that wealth should not be centred among the rich people. Instead, it should flow down to the poor of the poorest. This goes in line with the Islamic practice of Zakat, whereby they are supposed to donate charity to fellow Muslims who are less fortunate in the society. Hence, this religious background and beliefs has necessitated the application of Islamic banking based on goodwill across the entire world.
The modern or conventional banking systems are not compatible with Islamic practices since the latter heavily relies on a Islamic practices and beliefs which is not shared by other religions. At this point, it is crucial to mention that Islamic banking lacks the majority following not because it is not favourable, but because people lack information on its existence and mode of operations. Another hurdle towards applying Islamic banking to the letter is that there are no sound systems in place to make follow-ups whether an individual is engaging in unethical practices contrary to Islamic banking. However, the five tenets highly valued and adhered to Islamic banking serve as the watchdog and guide against any possible malpractices.
Challenges of modern Islamic banking
The debate whether Islamic banking can take a centre stage in re-shaping the financial world is far from over. Even with the five tenets of Islamic practice, challenges still abound and there is more than meets the eye than the success of Islamic banking. This form of banking is further complicated by the fact that not all financial dealers profess Islamic faith. However, if these hurdles can be outwitted, then Islamic banking can be the best model of banking system that can alleviate financial crises in future.
To begin with, there are financial gurus who have severally commented that Islamic banking has not transformed the financial status of the society even after being in operation for decades. Hence, they have dismissed it as improper way of doing business (Janabi, 2008b). However, such general conclusion on the performance of Islamic banking does not make it less of a vibrant institution that can bring change to the society. It should be noted that most Islamic banks remained stable in the face of recession compare to the conventional from the east and west. Therefore, Islamic banking can bring visible and conventional change only if such banks were introduced in plenty alongside educating people on the significance and advantages of the concept.
Another hurdle is the total compliance with sharia while at the same time maintaining profit margins that can sustain the business. It is an uphill task. The fact that Islamic banks are still in the growing phase implies they are not stable yet, but the concept is viable in curtailing future financial crises. These banks are still in the process of learning to balance between sharia and doing business. For this reason, total compliance to this law and banking concept may not be fully attainable in this development stage. In addition, Islamic banks lack government support in most countries of the world. Their tax regime is not conducive to allow them stand firmly in a highly competitive business environment. Hence, they find it difficult to access finds from other sources like the central bank.
The growth rate experienced in Islamic banking for the last twenty years has not been without a cause. Several factors have contributed to this apparent growth. For instance, financial regulation has been loosened, which means fewer rules are being enforced at present. In addition, the global markets have undergone massive globalisation thereby expanding the existing markets. Besides, the impacts brought about by globalization have seen the re-invention of the wheel whereby basic banking practices and ethics that had been long forgotten are now in use. On the same note, globalization has not been possible without the advances made in technology. It is only through the adoption of current high-tech platform that Islamic banking has tapped new markets.
Various product innovations in Islamic banking alongside the creation of myriad Islamic nations have also contributed towards this growth. From this growth and development this perspective, it is definite that the concept of Islamic banking is viable and can adequately replace or supplement conventional banking in a world of financial crises.
In recap, it is critical to reiterate that quality management and impressive organisational performance cannot be separated. In addition, quality management process does not only entail the end product, but also the nature of the system itself. Over the years, billions of dollars have been lost in capacity building and training programs aimed at equipping managers and employees with the best tactics and strategies on how to manage quality.
Nonetheless, not much has been achieved until recently when the gruelling impacts of recession gripped most economies. Dubai and UAE were not spared either, with financial institutions experiencing difficulty. To this end, the concept on Islamic banking and whether it can be used to avert financial crises in future is still debatable. Although Islamic banking and finance employs the basic tenets of Islamic beliefs and practices, the principle, if well executed and supported by both investors and governments, can indeed provide part of the solution to financial crises common in the modern globalised economy.
Bourne, M. et al. (2002). The success and failure of performance measurement initiatives, International Journal of Operations & Production Management, 22(11):1288-310.
Choudhury, A.M & Hussain, M. M. (2005). A paradigm of Islamic money and banking, International Journal of Social Economics Vol. 32 No. 3 pp. 203-217.
Janabi, M. A. M. (2008b). Internal Regulations and Procedures for Financial Trading Units, Journal of Banking Regulation, Vol. 9, No. 2, pp. 116-130.