Islamic Banking Advantages And Disadvantages

Islamic window is a concept introduced by Malaysian central (Bank Negara) bank where conventional banks also offer Islamic products beside conventional products in same environment by same staff. Initially, Islamic bank facing fierce competition from long establish conventional banking system. Islamic window introduction can reduce this since Islamic products also became a source of profit for conventional banks. A few conventional banks offering Islamic banking service under Islamic window has achieved an important volume of transactions in the Islamic window that they even set up Islamic bank subsidiary full fledge.

This paper will attempt to give a clear picture of Jordan’s banking system and will develop to see how globalization and the adopted rules and regulations from the World Bank and other international agreements and requisites have affected banking in Jordan. The study will present a STEEPL/PESTLE analysis that shows us the strengths and weaknesses of the banking sector. It will also attempt to give recommendations for future development.

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

An Islamic financial institution such as financial banking has been established before two or three decades ago in the aim to provide satisfactory financial facilities to the interested parties as compared to conventional banks. In 1974 Dubai Islamic bank which is the first Islamic commercial bank was established and later Islamic Development Bank (IDB) has been established in 1975 (Hennie and Iqbal, 2008).

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.

This is a multilateral financing organization. It has its headquarters in Jeddah, Saudi Arabia. Islamic Development Bank was formed in the year 1973 by the Finance Ministers of member states. It was formed during the Organization of Islamic Cooperation (formerly known as Organization of the Islamic Conference). The King of Saudi Arabia (Faisal) supported the creation of this organization. The Islamic Development Bank started operating on October 20th, 1975 (Schiavone, 2015). Currently, the bank has 56 member states who are the shareholders of the bank. By the year 2013, the bank decided to triple its authorized capital to $150 billion. This move was meant to better serve non-member countries and Muslim in members. The Islamic Development Bank has a good credit rating of AAA, which it got from Fitch and Standards & Moody’s. A large portion of the paid-up capital of the bank is held by Saudi Arabia. It holds approximately one-quarter of the capital. This bank also plays the role of observer at the United Nations General Assembly.

In most jurisdictions where Islamic banks operate, they have to compete with conventional banks involved in interest-based borrowing and lending. The legal framework governing the licensing of banks and their regulation was designed primarily for conventional institu¬tions, not least as there were no Islamic banks in existence in most cases when the banking laws were drafted. Three choices therefore arise: firstly, whether Islamic banks can be accommodated within existing legal provision, whether the existing banking legislation requires amendment or, more radically, whether new legislation is necessary.

The main objective of this study is: (a) to find out the extent of using profit-and-sharing paradigm in Islamic banks in Jordan; (b) to search about the main principles of Islamic interest – free banking and operations compared to interest – based banking system in Jordan; and (c) to compare between conventional deposit rates and Islamic investment rates.

In another study, 5 Islamic banks of MENA state were used. Their financial statement of 1993-2002 revealed that there is a rise in liquidity risk, reason being the hasty withdrawal by the account holder due to a disparity between the

Omani financial regulatory bodies have finalised the amended regulatory framework for Islamic banking in the Sultanate. Alongside the GCC-based Islamic finance favourites, the reformed Islamic financial jurisdictions of MENA are entering into the limelight. Other regional developments in non-GCC countries in MENA include the Iraqi government, which has approved the establishment of the country’s first state-owned Islamic bank, the Two Rivers Islamic Bank, with an initial capital of USD21.5 million. Iraq and Libya are in the midst of designing Islamic banking legislation. Tunisia’s Islamic finance industry is expected to grow further with the efforts undertaken by that country’s government. Meanwhile, the Government of Yemen is structuring a Sukūk programme for 2014.

Similarly, Mobarek & Kalonov (2014) provided empirical evidence, using two frontier approaches, from many OIC countries to compare Islamic and conventional banking. They found that though conventional banks more efficient in their operations, Islamic banks had an upper hand when it came to financial stability. Their extensive study covered pre-crisis and crisis periods. The finding of Mobarek & Kalonov (2014) is validated by an earlier study conducted by Al-Hares, AbuGhazaleh, & El-Galfy (2013) in which they studied banks from 2003-2011. Al-Hares, AbuGhazaleh, & El-Galfy (2013) found that Islamic banks in Gulf Cooperation Council (GCC) were less efficient than

We have by now considered that this method should confront no objection from banking confidences in non-Muslim countries, and afterwards it is attuned with the conventional method it is comfortable to establish and work such banks with the minimal of hold and difficulties (including staff training). Moreover, dissimilar the conventional method, this method is transparent, leans on a firm theoretical basis, and furnishes management information that is very helpful for effectual supervising and control. The final is a very practical instrument both to the referred bank’s internal management and to the Central Bank authorities. The main concerns of the bank were the protection of its funds and the power of the borrower to give the interest not the final function of the lent money. Whether it was meant for founding a new enterprise, to elaborate a subsisting one, to overpass a cash flow trouble of a functioning concern, or to be employed by a small business, by a sole-owner initiative, or for consumption aims, etc. was not the major concern of the bank. The borrower must get all the

Millions of poor practicing Muslims around the world need access to Sharia (Islamic law) compliant financial tools. According to CGAP 2013, there are around 255 Islamic microfinance providers in the world (Figure 1 and 2). Studies conducted in Bangladesh, Sudan and Indonesia show that Islamic microfinance is growing at much faster rate than conventional microfinance. TechNavio forecasts the market to grow at a CAGR of 19.7 percent over the period 2013-2018. There is a huge opportunity for the growth of Islamic Microfinance in Pakistan as well. This sector is scattered and there is a need for concerted effort on part of the policymakers and financial institutions to provide diversity in products/providers and sustainable Islamic financing models. The government of Pakistan is keen on expanding the Islamic banking sector and it makes sense to focus on Islamic microfinance sector at the same time.

Many authors agree that Islamic finance industry has a long way to become globally successful industry. To achieve its potential for solid growth, Islamic finance must improve number of areas including: improving regulatory supervision in the industry, adaptation of tax treatment to Islamic banking products, establishing liquidity control, introducing risk management tools, supporting standardization of financial products and others.

This study is undertaken to understand the concept and features of Islamic banking and conventional banking, the similarity and differences between the two systems and their economic implications. Generally, a financial institution or a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets is given the name of bank. its source of generating revenue and cost of funds is charging of interest through lending and also accepting deposits for interest respectively. Interest is the major driver of operations of conventional banks although other valuable services including guarantees, funds transfers, safety of wealth, facilitation in international trade etc., also form a substantial part of income of banks.