Using Islamic Banks, Commercial Banks And Dual Banks

The United States Congress chartered the Second National Bank in 1816 in order to control unregulated currency at the state-level banks. After several states questioned the constitutionality of the bank, Maryland imposed a tax on all banks that were not chartered by the state. By 1818, Maryland approved legislation of taxing the Second National Bank of the United States that was chartered by Congress, which is part of the Federal Government.

There will always be someone who takes control of things. Those who are innately dominant will often possess a strong influence over others; some people in society have a tendency to lead while others follow. However, when the effect of power is negative, it becomes able to destroy the very thing it has control of. In Pedagogy of the Oppressed, the author, Paulo Freire, highlights such negativities in the classroom setting in an education system he calls the “banking concept”. This idea prevents active thinking and instead, the students absorb empty facts, keeping them stored in their memory. Although he discusses the alternative, more positive “problem-posing” concept, the banking principle seems to be more prominent in Chinua Achebe’s Things

As a financial intermediate we have every reason to have an expectation or forecast of operational risk that will be soaring over the company, any loss cause by inadequate internal process, people, and systems or by external events can be classified under operational risk (Barakat, 2014). To mitigate and control the possibility of loss exposures we have implemented measures that will aid in controlling and avoidance of the said.

Basic or primary functions of a bank are very important in nature. These functions provide base to the whole operation of the bank. The basic functions of a bank are as follows :

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)

To receive the idea about knowledge attitude and practices of Islamic conventional bank and their bank account holder.

Further, Acharya et al. (2014) develop a model, which sees banks overleveraged because they invest too much in low risk-weighted instead of diversifying the risk. Korte and Steffen build on this model to develop their hypothesis for the research paper.

The co-existence of conventional banking along with Islamic banking gives an exceptional platform to compare Islamic banking practices with those of conventional banking practices. It is clearly known that Islamic banks are different from those of conventional banks since they do not deal with interest (Riba), i.e. usury, which is totally banned in Islam. In other words, banks are not allowed to take an interest rate on the loans given to customers. The concept considered in Islamic banking is the profit-and-loss sharing (PLS) which is based on profit-sharing and joint-venture that goes with Islamic Sharia. In fact, PLS adapts the system of integration in which borrowers share profits and losses with banks with their

Forty years ago, the Islamic banking industry was created, on a modest scale, to fill a gap in a banking system that was not listening to the fervent Muslim believers. Morocco has been following the same development in offering Islamic finance services to its citizens through Islamic windows in conventional banks. In parallel to this development of the Islamic financial industry in Morocco, it seems very crucial to evaluate critically based on Maliki law school the previous experience of Islamic windows in conventional banks. Taking into considerations, the differences between schools in the interpretation and implementation of Islamic law in economy life, the objective of this paper was to critically analysis the practice of Islamic banks in Morocco. This paper aimed at analyzing the characteristics of different schools of Islamic law and how this would affect Islamic banking. The final aim of this paper was to highlight the importance of jurisprudence/ new interpretations in developing Islamic banking. Qualitative methodology based on semi directive interviewees was the main approach for this paper. Three levels of gaps have been found out. These gaps are related respectively to Murabaha, Musharaka and Ijara. Three recommendations have been advised to fill the gaps: Absolute isolation of Fund, Sharia auditing committee And Compliance with AAOIFI Standards

Several studies such as, [27], [28], [29], [18], [21], highlighted the Risk management for Islamic banks in different countries and the differences between them and Conventional banks. Where [21] conducted a field study of risk management and Islamic banks, where a study on 17 Islamic bank in 10 countries (including Bahrain, Egypt, Malaysia and the United Arab Emirates). And suggests that Risk Management for Islamic banks include three basic components: Establishing Appropriate Risk Management Environment and Sound Policies and Procedures, Banks must have regular management information systems for measuring, monitoring, controlling and reporting different risk exposures, and Banks should have internal controls to ensure that all policies are adhered to. The study arranged the types of risks facing the Islamic banks where the interest rate risk to the most serious and then operating risk, liquidity risk and, to a lesser extent, the credit risk, the market risk are the least danger in Islamic banks.

Design: The study employs the financial ratios and z-score index as indicators of bank stability. A series of parametric and non-parametric tests are used to compare the stability of Islamic and conventional banks. Then, we estimate pooled OLS regression controlling for Islamic banks dummy, crisis period dummy, bank specific, market structure, and macroeconomic factor to examine the determinants of bank stability.

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

As far as commercial banking is referred, there are two main differences from the traditional approaches (conventional or Islamic), and these are very significant evolutions. One is that this method believes commercial banks as serving providers, rather of like “money lenders” (conventional) or “investing-collaborators” (Islamic). Interest-free banking is inferred as a sub-model; the conventional banking is considered as an “inflation-free” sub-example of the common model. These differences make possible one to wipe out riba from the method without recurring to radical evaluations, and still have an

Abdullrahim (2010) in her dissertation titled “Service Quality of English Islamic Banks” used a qualitative focus groups research methodology as a primary data collection, which is closely related to the methodology I will propose to use in my study. Abdullrahim (2010) used a mixed methodology of qualitative (focus group) and quantitative (questionnaire) to conduct the study. A modified service quality model (SERVQUAL) was used to measure the quality of service in Islamic banks in the United Kingdom (UK). The quality service model can be described as a degree and direction of the difference between customer perception and customer expectation. The researcher stated that Islamic banking in the UK, “Britain has the most active and developed Islamic banking sector in the European Union and is leading the way for Islamic banking in the west” (Abdullrahim, 2010, p. 1). The researcher focused on Muslims in the UK and what are their perceptions and evaluation of service of the quality of Islamic banks in the UK. The researcher studied Islamic banks in England because there are millions of Muslims who lived in the UK and banks started to offer Sharia products (Abdullrahim, 2010; Hanlon, 2004).

Prasad (2015) mentions necessity of protection of investments accounts, regulation in relation to Islamic contracts and treatment of investments accounts and risk management. He also highlights liquidity, as the critical issue. There is a lack of management instruments in central banks to manage liquidity in Islamic banks. The Sukuk market is expected to continue to expand very rapidly, and its development will give Islamic banks access to the high-quality liquid assets needed to comply with international liquidity standards. Tax regulation is needed in countries which have only regulations for conventional finance system, because some of Islamic products can face double taxation from their nature, especially investment income from Sukuks. There is also problem with multilayered transactions, which can cause higher taxation. All these taxation aspects may put Islamic finance at a disadvantage.