The Effect of Global Financial Integration on Islamic Banking Practices
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Background of the Study
Global financial integration refers to the increasing interconnection of national financial markets through cross-border investments, standardized regulations, and technological advancements. This integration has significant implications for Islamic banking, which must navigate both domestic and international financial landscapes while adhering to Shariah principles (Rahman, 2023). As Islamic banks expand their operations globally, they are exposed to international best practices, competitive pressures, and cross-border regulatory challenges. Global integration facilitates access to new capital, diversifies risk, and promotes innovation in product development—elements that can enhance the competitiveness of Islamic banking (Al-Hassan, 2024). Digital transformation and harmonized regulatory standards have further accelerated this process, enabling Islamic banks to integrate seamlessly into the global financial system (Ibrahim, 2025). However, this integration also brings challenges, such as reconciling global standards with local Shariah interpretations and managing cross-border risks.
Statement of the Problem
Despite the opportunities offered by global financial integration, Islamic banks face several challenges in aligning their practices with international norms. One primary issue is the conflict between standardized global financial practices and the unique requirements of Shariah-compliant operations, which can lead to operational inefficiencies and compliance issues (Ibrahim, 2023). In addition, differences in regulatory environments and market conditions across countries create barriers to seamless integration, affecting asset pricing, risk management, and liquidity. The rapid pace of technological change further complicates the situation, as banks struggle to keep their systems updated to meet global standards. These challenges may result in increased operational costs and reduced competitiveness, highlighting the need for a critical evaluation of how global financial integration impacts Islamic banking practices.
Objectives of the Study
- To assess the impact of global financial integration on the practices of Islamic banks.
- To identify challenges in reconciling global standards with Shariah requirements.
- To propose strategies for enhancing integration while preserving ethical standards.
Research Questions
- How does global financial integration influence Islamic banking operations?
- What challenges arise from aligning international practices with Shariah compliance?
- What strategies can mitigate integration challenges and improve competitiveness?
Research Hypotheses
- Global integration positively impacts operational efficiency in Islamic banks.
- Regulatory and cultural differences hinder effective integration.
- Strategic alignment of global standards with local practices enhances performance.
Scope and Limitations of the Study
This study focuses on Islamic banks operating in internationally integrated markets. Data will be collected from global financial reports, case studies, and expert interviews. Limitations include regional differences and rapidly evolving international standards.
Definitions of Terms
– Global Financial Integration: The convergence and interconnection of financial markets worldwide.
– Islamic Banking Practices: Financial operations conducted in accordance with Shariah law.
– Cross-Border Risk: Financial risks arising from international operations.
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