Islamic Banking vs Conventional Banking

Recent achievements in Islamic banking do not indicate an advance in the jurists interpretation of riba. Writings on riba have been extensively concerned with the expositions of riba, but with disquisitions about riba. Thought about riba, and any other Qur’anic penetrative codes, must be a story of movements in outlook and ever-changing ideas, and developments taking place in contemporary social sciences. Its province is destined by God, may he be exalted, in a way to be determined and re-determined in the course of time by drawing insights from different branches of human science. The subject of riba, and other divine codes in Qur’an regarding dealings and transactions is such that no cohesive delineation of the scope can be regarded as final.

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 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

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.

In most Islamic countries, they tend to practice two types of financing in banking industry which are conventional and Islamic banking. The country like in Malaysia has successfully developed an Islamic banking system that operates in parallel with the conventional banking system. There is similarity between conventional banking and Islamic banking which helps to promote economic growth provided financing services such as credit facilities for business activity, mortgage, securities, etc. in order to achieve their same ultimate profit objectives. However, there are also having differences in practicing financial services due to most investors having their own preferences on their investments and

Islamic banking is banking action that is reliable with the ethics of sharia and its applied presentation over the change of Islamic economics. As such, a more right word for 'Islamic banking' is 'Sharia compliant finance'.

The financial sector in some Sub Saharan Africa countries has been growing rapidly in the past two decades. New products have been introduced and financial institutions are playing an tremendous role in financial intermediation, including cross-border financial flows. However, Islamic finance in Sub Saharan Africa remains small, although it has potential given the region’s demographic structure and potential for financial expanding. As of end-2012, about 38 Islamic finance institutions comprising commercial banks, investment banks, and takeful1 (insurance) operators were operating in Africa (Dow Jones, 2012). As estimates based on Bank scope and Zawya, April 18, 2012 out of

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.

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

Study for evaluating the performances of inter-temporal bank against BIMB, an Islamic bank, was conducted by Samad & Hassan (1999) for a time frame of 1984-97, through the use of similar measures of performance. They concluded that in terms of performance inter-temporal bank was ahead, while risk to BIMB had gone up. Further studies showed that when compared with another set of 8 conventional banks, BIMB exhibited more liquidity and low to risk-scale.

Many people are sceptical about Islamic banks performances into the niche as newcomers to the market according to Samad, (2004). As previously mentioned, Islamic finance operates in accordance with the Qur’an. Islamic banks are non-conventional financial institutions which completely prohibit the action of ‘Riba’ (Interest) under Islamic Banking. As Islamic finance follows strict ethical practices in its dealing with jurisprudence to the Qur’an, it is only natural that Islamic banks as new competitors face steep challenges in sharing deposit and credit markets

The gale of economic liberalization currently sweeping across the globe provides another reason for looking into the efficiency of Islamic banks since it poses a further competitive challenge to the Islamic banking institutions. It is expected that by the year 2007, trade liberalization will require Malaysian domestic banks to compete with other global players on an equal playing field. Such a change implies that local Islamic banking institutions will have to be efficient, innovative, competitive and resilient players in the market. This is particularly important since foreign banks that are arguably more efficient may also offer Islamic banking products to take advantage of brisk demand for Islamic banking products.

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.

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.