Comparison Between Islamic Banking and Conventional Banking

Becoming an expert in Islamic economics and finance field is one of my long-term goals in life. I started to organize and made a plan towards achieving that dream since senior high school. The concern towards Islamic economics and finance concept, and its application for society and the country began when I was reading a book entitled Islamic banking-theory and practice. After finishing reading the book, my interest in Islamic economic and finance topics rose and strengthen my own determination to become the expert of Islamic economics and finance. The main principle of Islamic economics and finance which offers the just and ethics in economic activity, poverty alleviation through income distribution mechanism, and prevention of economic and

Riba is Arabic term defined for usury or interest. The word Riba means excess, increase or addition. According to Islamic terminology, interest means effortless profit which comes free from compensation or in the simple meaning, any excess compensation without due consideration. Any positive, fixed, predetermined rate tied to the maturity and the amount principal is considered Riba and is prohibited in Islamic financial systems. This prohibition is based on an arguments of social justice, equality, and property rights. Islam itself encourage the earning of profits but forbids the changing of interest because profits.

According to ( Umar Chapra, 2003) limited entréé to finance by the poor entrepreneurs brings about lack of broad-based ownership of businesses and industries which in turns, hinders realisation of egalitarian society. This phenomenon is rampant is Muslims countries, thus requires attention from Islamic institution compulsory savings or micro-takaful.

Islamic Banking is quite similar to a conventional bank. Only here the essential feature is that it is Interest Free i.e. it purely follows the Islamic law – Sharia’h (Rules) and guided by the Islamic Economics that forbids the both the payment and the receipt of Riba (Interest). The two main principles are basically Banks will share the Profit & Loss (enabling risk sharing) and disallow Interest in any form.

the First International Conference on Islamic Banking, held in Dubai in 1979, it has not been widely implemented throughout Islamic financial system (Bendjilali and Khan,1995, p. 16). It is a relatively new and very little used product available for Islamic banks. The paper claims that MMQ is more in line with Shari’ah teachings and as such should be used more by Islamic financial institutions. The study indicates that MMQ possibly has a comparative advantage for both financiers and the customer when compared with

The experiment was conducted on the small level on Islamic and conventional banking . the experiment was goning to success to give a fruit full result this experiment further introduce Arabian and asian countries in 1970s .mostly Islamic banks are established in Islamic state just like Pakistan Saudi etc the working condition of the Islamic banking was started in micro level now the Islamic banking operation are expansion know they are woking on the macro level.. know the Islamic banking was working in the sixty countries and and there assets are based over 166 billion at the annual growth rate of 10% to 15% market share of the Islamic as well as conventional banks in Muslim countries has risen from 2% in the late 1970s to about 15%

Islamic banking refers to a system of banking that complies with Islamic law, also known as Shariah law. The underlying principles that govern Islamic banking are mutual risk and profit sharing between the provider of capital (investor) and the user of funds (entrepreneur). In other words, it ensures an equal contribution for all parties involved, whether in profitability or in case of any loss occurred. Activities that involve interest (riba), gambling (maisir) and speculative trading (gharar) are prohibited (Bank Negara Malaysia, 2010). Islamic banking is interest free banking; making it compulsory to take active part in business profit and loss sharing. Islamic banks prefer to take less risk (Shaikh & Jalbani, 2009)

Almost 80% of respondents were non-Muslims. Therefore these research reports are mostly non-Muslim customer’s opinion on corporate banking Muslim. This study proves that Muslim banking products are not so popular among corporate customers in Malaysia and only a few maintain banking relationships under the Islamic banking system. In addition, nearly 65% of respondents indicated that their knowledge of Islamic banking system is very limited. This study shows that there is a misunderstanding among respondents regarding the objectives of Islamic banking. While 38.1% of respondents were uncertain about the nature of profit sharing system in Islamic banking, 50% believe that this principle is the only principle adopted by Islamic banks as a replacement Riba. Respondents were not familiar with other principles such as Musharakah, Ijarah, Wakala, and Istisna'a. Overall, the conclusions of the study are that there is a general knowledge that inadequate corporate banking products and services to Islam among

According to Mansoor Khan, Islamic banking and finance (IBF) is an economic ideology that depends on Shariah rules which are extracted from the Islamic holy book - Quran- and Al Sunnah - what the prophet Mohammed stated or did.This ideology is mainly about expunging interest and other exploitive elements from the financial sphere. Islamic finance is an equity-based system depends mainly on Profit and Loss Sharing (PLS) modes. the instruments for doing so are Mudarabah (Joint venture) and Musharakah (Equity participation) to perform the normal banking activities like investment, lending and borrowing. these banks replace the interst-based banking system to other interest-free instruments. for example, Murabaha (deferred

The primary source of data for research is interviews with bank executives. To confirm information collected by primary data, some documents published by banks were used as secondary data. The interviews were recorded and important points were collected. The whole research can be divided into three steps. First is general description of

Sadly, Islamic banks and financial institutions are seen as the weak link in the Wes. The wrong perception is about inadequate anti-money laundering (AML) and internal controls. Moreover, in Islamic institutions, the heavy reliance of the industry on cash transactions and on trust within the business communities of Muslim countries have been key areas of concern for Western regulators and institutions.

The purpose of this writing assignment is to help you express your thoughts/findings on a subject related to Money and Banking, as well as to gain some greater confidence in the process of scholarly

The prosperity and peace of a society much or less depends on its economy. While for the smooth running of both, there are several instructions in Islamic Shariah and allows what is right and forbids what is wrong. When we talk about financial issues, Islamic Shariah strictly condemns Riba. The question may arise why Islam prohibits Riba? While it was already in practice before the advent of Islam and still it is a part of different economic systems throughout the world. It is simply because Islam gives respect to human beings and condemns all the attempts that are harmful and disgraceful for humanity. Therefore, Riba is not only forbidden in Islam but economic experts are also in search of its substitute. Since borrowing on interest rate creates several issues including: less efficient allocation of resources, indebtedness, unemployment and economic instability. While in society it causes injustices, inequity, poverty and imbalance etc. In this paper we are discussing how Riba causes imbalance in the society and instead Riba what Islam demands from its followers.

Some studies such as [30], [31], [32], Focused on risk management and Islamic banks in the countries of Middle East. Study [32] was conducted on 421 countries Bank Middle and Far East. found that Islamic banks are less vulnerable and more stable and able to cope with the financial crisis compared to conventional banks. The study [30] sees that the most important risks to Islamic banks in the Middle East is the liquidity risk, followed by credit risk, as well as other risks the

Despite of increased attention on Islamic banks, recent studies have evidenced mixed result on the stability of Islamic banks over its conventional counterparts (Belouafi et al. 2013; Kassim & Abd. Majid 2010; Rokhim & Gamaginta 2009; Bourkhis & Nabi 2013). Thus, indicates that there is non-consensus on the stability of Islamic banks over its conventional counterparts.