Islamic Banking Practices Compared to Conventional Banking Practices

This would decrease liquidity and decrease liabilities. The bank showed a decrease in liquidity because of the decisions taken but also effected negatively on the bridging credit. We expected to have a lower interest margin than the previous period because we were taking a high risk by lowering interest rates for due to customers.

This study is about Investment Management System of Al-Arafah Islami Bank Limited (AIBL), Investments are operating by this bank with Islami sharia formula as no interest payment system but give profit from client deposit amount. Investment practice consists of some stage like Selection of the client, Application stage, Processing and appraisal, Sanctioning stage, Documentation stage, Disbursement stage, Monitoring & Recovery stage. It has been found that the investment process is lengthy and tiresome for the clients. AIBL investment process should become easier and should increase their investment ratio by reducing lengthy time process of investment and reducing required return on investment. It should also increase

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.

Financial equity is a standout amongst the most critical lessons of Muslims. As indicated by the Qur 'an, the essential mission of all messengers of God was to set up equity in this world (Al-Hadid 57: 25). Most the Qur 'anic lessons are guided towards empowering individuals to live with each other in peace and to satisfy their shared commitments genuinely and steadfastly to guarantee equity and general prosperity (falah). Inside the domain of this mission of the Messengers, the Qur 'an predicts, and which is all well and good, that treachery drives eventually to demolition (Ta-ha 20: 111).

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

The Central Bank of the UAE was established in 1980 (Crystal & Peterson,2017). It is the UAE’s highest financial regulator. The Central Bank works with the state by directing changes in Monetary, Banking, and Credit-based policies appropriately. It implements those policies in accordance to the state’s current Financial and Economic needs. Moreover, the Central Bank aims to stabilize the economy and the current exchange rate by maintaining gold and other foreign currency reserves. The UAE Central Bank, “prohibits lending an amount greater than 7 percent of a bank's capital base to any single customer” (United Arab Emirates - Banking System, n.d). Furthermore, Islamic banking in the UAE has shown a boundless level of progress due to no interest fees per Sharia Law. The UAE Islamic Financial Sector was estimated to be worth around 127 Billion US Dollars in 2014, it is also the third largest Islamic market by value after Saudi Arabia and Malaysia (John,2015). In November 2011, the Central Bank introduced the IBAN system, its main purpose was to ease the process of automatic money transfers and improve the accuracy and speed of payment transactions (Standard Chartered Bank of UAE, n.d).

They also highlighted that the conventional banks in Sweden will face problem to retain their Muslim customer if Islamic financial institutions such as Islamic banks who offer shari’ah compliance product and services come to the existence. This indicated that, how eager they are to get a shari’ah compliance banks that can save them dealing with conventional banks.

Islamic financial institutions are growing faster all around the world. Most in Muslim countries, conventional and Islamic financial institutions exist side by side, interacting with one another. The development of Islamic financial institutions has the potential to play a leading role in serving the Muslim Ummah and contribute towards socio-economic development of Muslim countries in conformity with Islamic sensibilities.

Islamic accounting includes an ethical and moral code of conduct, Sharia. Although Islamic accounting does not have a set form of rules like conventional accounting there are three general principles which should be incorporated: “truthfulness, justice, and honesty” (Badshah). The process focuses on analyzing transactions both economically and socially to ensure no harm is brought to society. Sharia prohibits any sort of riba, more commonly known as interest, in Islamic accounting. This method also introduces profit and risk sharing in which both the bank and investor benefit and lose simultaneously. This idea of both the investor and the bank sharing gains and losses is very distinct and and as Mulcahy said, “This is probably the key distinguisher of Islamic accounting and conventional accounting as we know it. I think this is

Abiding to Shariah in an overview is Prohibitions of riba, gharar and maysir, this is what distinguish Islamic finance from its conventional counterpart (Ayub, 2007). As an alternative, Islamic financial system have interest free loans, Islamic joint-ventures (musharakah/mudarabah) and trade or lease-based (murabaha/ijarah/salam) financing structures (Azmat et al. 2015). Contemporary Islamic financial institutions have developed, and continue developing, products that mirror the classical Islamic products, and evade from the association with riba, gharar and maysir (Kamla & Alsoufi 2015).

Results indicate that conventional banks perform better in profitability, while Islamic banks perform better in liquidity and credit risk. In t-test of the return on asset (ROA) and total equity to net loans, there are no major difference between Islamic banks and non-Islamic banks. In the return on equity and common equity to total assets, there are statistically significant differences in these two groups. The statistically significant difference was shown in the area of liquidity which means that the Islamic banks liquidity performance has major difference with the non-Islamic banks.

The challenge for Muslim countries like Bangladesh is to overcome its late entry into the market against well-established jurisdictions all over the world. Another subsequent challenge would also be to educate the masses and the other industry stakeholders regarding Islamic Problems and Prospects of Islamic Capital Market In Bangladesh 59 financial principles, products and investments. The challenge for them is to motivate authorities to provide favorable platforms and policies to make such initiatives viable. The Islamic financial operations are subjected to strange rules different from the ones applicable to the conventional operations; there are a number of challenges being faced by ICM. For instance, in many cases, the Islamic capital market has had to comply with the regulatory provisions meant for the conventional system which has an entirely different underlying objective and approach. Additionally, it should be noted that the

Research finding: Shariah compliance, Quality and Attractiveness of Offerings, Friendliness of bank personnel, Cost and benefit analysis and Awareness about Islamic banking.

The Islamic banking industry has come a long way in issues of corporate governance. However, Islamic banks need to be at the forefront of pioneering innovative, impactful, and far-reaching social responsibility and corporate governance practices since for starters, they are faith-based institutions. Islamic banks need to stop resting on their laurels and stop playing catch up in these domains. Moreover, Islamic banks need to deal conclusively with the array of challenges facing their Shari’ah corporate governance endeavors so as to meet their objectives in a more effective manner.

In a dual banking framework such as Malaysia, there is potential for substitution for Islamic banking services and conventional banking services. This is because both of the products share the similar features.