Comparison Between Islamic and Conventional Banks

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Comparison between Islamic and conventional banks

Introduction
The rapid growth of Islamic financial institutions across borders and continents is a testament to the buoyant nature of the Islamic banking system. It is based on the Sharīah compliant principles of finance and commerce. The practices are rooted in the fundamental philosophy of Islamic banking and finance, which are firmly established in the Qur’an and Sunnah transcending faith-based rituals and has now widely been accepted as a substitute to the established banking system. In particular, Islamic banking offers an attractive alternative to conventional debt financing as the morality of the conventional method has begun to be questioned (Hasan K.M., Kayed N.R. and Oseni A.U. 2003: Chapter 1).
A main feature of Islamic finance is particularly where it ensures that the financial needs of Muslims are justly fulfilled by the emphasis on risk sharing rather than the transfer of risks to the weaker party.
This research paper aims to highlight the parallels of, or even the disparities between the assets and liabilities of an Islamic and conservative bank.

Literature Review

Methodology

Study- Comparison of systems between Islamic and conventional banks
The Islamic Financial System is not limited to only banks, but also extends to financial instruments, financial markets and all other kinds of financial mediation, which all need to adhere to the principles of Islam.
“Islamic banks” or “Islamic Financial institutions” contracts stick to Islamic legal requirements as well as state requirements (El-Gamal, M. A. 2000 : Chapter 2).
According to the Islamic law, the three main things that have been prohibited are Riba, Gharar and Maysir. While the Quran...

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...on by the offerings of both Islamic banks and conventional banks. For instance, deposits of the demand and the contracts of leasing still involves a level of risk which is high when sharing is involved with Islamic Banks. The costs of transaction and the problems related with agency between the savers and the entrepreneurs forms the augmentation of the banks, as banks can help to economize the costs of transaction and also to mitigate the conflicts between the agencies. The problems faced by bank related to agency comes from both the sides of the balance sheet where they invest money in loans and other few assets coming from the depositors and also where bank has to act in an efficient manner as an agent of the depositors, and on the asset side where the borrowers use the resources provided by the depositors for the purpose of the investment. The contract of Debt

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