Co-Created Value: An Islamic (Shariah) Banking Perspective

A research paper to be presented at the: Service Science and Innovation Doctoral Colloquium

Staffordshire University22-23 March, 2010

By: Samer Jan, BSc, MBA, MSc.

Doctoral Researcher, University of Glasgow, Department of Management,

samerjan@gmail.com

Research Objective and Aim:

The objective of this paper is to explore the extent to which Islamic (Shariah) banking practices, such as Mudaraba and Musharaka, can exhibit characteristics and underpinning philosophies associated with the services dominant logic (S-D Logic) movement.

1. Mudharaba is essentially a finance agreement between a capital provider (bank) and a business owner

In this agreement any profit made in business activities will be shared between the bank and the business owner based on an agreed ‘ratio’ However, in the event of loss the ‘capital provider will bear all the losses and the profit sharing continues until the loan is repaid. In this agreement the capital provider (bank) is involved in the management of the project or has a voting representative in board meetings

Two Forms of Islamic Finance

2. Musharaka (partnership or joint venture) is another widely applied Islamic mode of finance, which in Arabic means (sharing). This form of Islamic financing refers to a joint business partnership in which all partners (share the profit and loss according to a specific ratio)Moreover, in this agreement two or more parties combine either their capital or labour together

Why should we consider such modes of Islamic finance agreements ?

- Financial challenges

- Profit , credit and liquidity issues

- Risk and uncertainties

Could Mudaraba and Musharaka finance agreements help in fostering partnerships and business relationships ? Can we argue that this form of partnership and business agreement are features of S-D logic and may help drive value co-creation between business parties ?

Well any ideas ??

Well we believe so based on several empirical business examples driven from the Saudi banking sector. These examples are still in the publication phase !

Challenges and Areas of Discussion:

Theoretical developmentFramework (conceptual model)Variables and ConstructsPublishing

Thank you