How does ethnocentrism come into play in this case

Assignment Help Operation Management

Reference no: EM131955945

A Special Kind of Financing Central Bank is a small Midwestern savings and loan institution that manages $3 billion in assets. It competes with 16 other financial institutions for customers; most of those other institutions have substantially larger holdings. To better serve its customers and attract a larger customer base, Central Bank conducted a financial-need survey of the people who lived in the area. The survey revealed some interesting and culturally relevant information. Muslims represented a sizable minority in the community, making up about 8% of the overall population.

However, a review of the bank registry revealed that few Muslims, if any, banked at Central Bank. The results of the survey were puzzling. Given the large numbers of Muslims in the community, the management wondered why there were no Muslim customers at Central Bank. To answer this question, Central Bank invited a group of local Muslims to meet and discuss their thoughts about financing and how their ideas related to the financial services offered by the bank.

The meeting was a real eye-opener for the bank management. The Muslims' ideas about banking were very different from the traditional Western beliefs about banking. During the discussion, the management learned that the principles of Islam strongly influence the banking attitudes and behaviors of Muslims. The principles of Islamic finance were set forth in the Koran more than 14 centuries ago.

For instance, Koranic law forbids paying or receiving interest. These principles stress that money is only a medium of exchange and should not be used to make more money. From the Islamic point of view, the human element in a business venture is more important than the money used to finance the venture. Furthermore, according to Islamic finance, the provider of capital and the user of capital should share equally in the risk of a business venture. These ideas about finance were different from the way Central Bank thought about them. Central Bank was not accustomed to the way Muslims viewed money as a medium of exchange.

Having been enlightened through these discussions, the management at Central Bank felt challenged to develop a financing program that was more in line with the attitudes and values of Islamic finance principles. In order to attract the business of Muslim customers, Central Bank created and began offering two new types of mortgage financing, called ijara and murabaha. Ijara is a finance plan in which the bank buys a home for a customer and leases it to the customer, who pays rent plus a portion of the property purchase.

Murabaha is a transaction in which the bank buys the home and sells it to the customer at an agreed-upon markup, and the customer pays for the home in installments over 15 to 30 years. Both ijara and murabaha are consistent with Islamic beliefs that prohibit Muslims from paying or receiving interest. In these two types of transactions, money is used to purchase something tangible, but money is not used to make money.

Central Bank received favorable legal rulings (fatwas) from some of the leading Islamic legal scholars in the United States and the world to validate these types of financing. Central Bank's Islamic finance plans have become quite popular. Although Central Bank has been successful with these plans, it has also met resistance. Some people have expressed strong disapproval of special finance programs specifically geared to the Muslim population. Others are against it because it mixes issues of faith and public finance. However, the resistance has not stopped Central Bank. Central Bank is very proud to be the only bank in the country to serve the needs of the Muslim community in this way.

Questions

1. Why do you think banks in the United States have been slow to offer financing expressly for Muslims?

2. Do you think it is fair to offer one minority group a special banking opportunity?

3. How does ethnocentrism come into play in this case?

4. How does in-group collectivism relate to Central Bank's finance plans?

5. How do you think the other banks in the community will react to Central Bank?

Reference no: EM131955945

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