Differences between islamic banking and conventional. The nigerian banking industry is made up of commercial banks which are. In table 1, we present data on 22 countries with both conventional and islamic banks. Islamic finance products, services and contracts wikipedia. Comparison of conventional banking cb vs islamic banking ib. Pdf islamic banking vs conventional banking during the. Products key features difference islamic banking vs. Islamic and conventional banking has some basic difference. Figure 1 displays growth in islamic banking in pakistan appendix a. This paper discusses islamic banking products and interprets them in the context of financial intermediation theory. Pdf the global economic crisis has caused many drastic changes in operation of the global banking system. Ppt islamic banking and finance powerpoint presentation. A banking system to which even the worlds leading conventional banks are turning to.
The assets for islamic banks increased about 278% as compared to only 57% in. Islamic banking works a little differently than conventional banking, and their savings account do, too. Four ways conventional and islamic commercial banks differ. Conventional banking1 free download as powerpoint presentation. Returns in the conventional banking expected to be heavily influenced by the interest rate in the money market. Products must comply with profit and risksharing criteria and regulations preventing banks from venturing into activities with high risk and excessive uncertainty. Several sample countries suffered banking crises during the sample period, including indonesia between 1997 and 2001, malaysia between 1997 and 1999, turkey in 20002001, and yemen in 1996, in addition to the global. Pdf islamic banking vs conventional banking during the crises. If the basic distinction between conventional and islamic banking hinges on.
Similarities and differences in islamic and conventional banking. Although islamic banking has many products similar to those offered by conventional banking, the two entities differ conceptually. Customer satisfaction in fullfledged islamic banks and. A study of islamic and conventional banks in malaysia. Introduction to islamic banking and finance kindle edition by kettell, brian. Islamic banking caught attention due to its resilience to the significant shocks that hit the economy in late 2008. These teachings only allow a commercial transaction if it is free of interest. Comparative efficiency study between islamic and traditional. Although the basic function of the two institutions is to collect savings and transform them into junk 2 introduction to islamic finance28 april 2009, 1 st east and central africa islamic banking conference. This study compares the stability across bank specialisations i. Worlds best powerpoint templates crystalgraphics offers more powerpoint templates than anyone else in the world, with over 4 million to choose from. The law gave banks a window of three years for their operations to become compliant with islamic principles.
Muslim investors around the globe also communicated and dealt with conventional banks. This study is an attempt to address the perceptional issues by identifying the similarities and differences in islamic and conventional banking. While islamic banks introduce musharkah in such mortgages type in which the bank help buying the property and ecomes partner with the borrower in property and have the profit as the borrower pays the installment, this procedure does no fall into the catagory of riba as the bank is not simply lending the money yet it becomes partner with the. Difference between conventional and islamic banking. Under islamic economic system it is based on price for a commodity with a difference for cash and credit sale learning outcomes after todays lecture you will be able to understand the governing. In this step we examine what these differences can teach us about risk and risk management in conventional banking and financial markets. A comparative literature survey of islamic finance and banking. Comparing conventional and islamic banks and controlling for other bank and country characteristics, the authors find few significant differences in business orientation, efficiency, asset quality, or stability. With an ongoing discussion among policy makers to determine which type of these is better to be implemented, scarce literature is available in terms of the comparative studies between the two and also with regard to. The difference between conventional and islamic banking. Many customers still lack knowledge of what islamic banking is all about. Difference between islamic and conventional current account. Islamic banks share profit and loss with its stakeholders and sometimes.
Let us first understand the major difference between islamic banking and conventional banking system. Islamic banking provides a choice for anyone who prefers an alternative to conventional banking and it is not exclusive to muslims. Conventional and islamic banking linkedin slideshare. In fact, all earlier references to commercial or mercantile activities conforming to islamic principles were made under the umbrella of either interest free or. This general dearth of academic work on islamic finance stands in contrast with the increasing importance that islamic banking has in many muslim countries in asia and in africa. Products key features difference islamic banking vs conventional banking liability side 1. Comparison of financial instruments in islamic versus conventional. A banking system which is governed by a resilient code of ethics in all its practices and functions. In practical sense, islamic banking is the transformation of conventional money lending into transactions based on tangible assets and real services. By design, everyone who took the survey owns at least one banking product. I recently downloaded your handbook of islamic finance and i have just begun to read it. Although islamic commercial banks have many products similar to those offered by. Obviously, this supports the development of islamic banking industry. It just a matter of altering the word interest or riba into something that sound more islamic to attract those muslims who reject conventional banking to become their.
Now islamic banks are managing all financial and banking processes around the world for several years. Differences and similarities in islamic and conventional banking. Islamic banking, the more general term, is based not only to avoid interestbased transactions prohibited in islamic shariah but also to avoid unethical and unsocial practices. It is a great opportunity for me to acquire knowledge and experience in respect to practical orientation with exim bank ltd. The main difference between islamic and conventional finance is the treatment of risk, and how risk is shared. Islamic banking and conventional banking are considered to be different kind of sources for funding. Islamic banking is an ethical banking system, and its practices are based on islamic shariah laws. Whereas a conventional bank tends to stay with fixed income very low credit risk debt securities, an islamic bank s assets are concentrated on the assetbased investments which has credit risk but are also backed by a real asset.
Difference between islamic banking and commercial banking. Muhammad shaban mce 12169 yasir ali mce 12154 mutahir bilal mce. Interest in completely prohibited in islamic banking. Legal framework for islamic banking and finance in nigeria. Characteristics and stability analysis of the malaysian banking sector, authormohammad taqiuddin bin mohamad. The difference between islamic banking financing and conventional banking loans. The pioneer country of islamic banking or interest free banking system is united arab emirates. Anecdotal evidence shows that many of the conventional products can be redrafted as shariacompliant products, so that the differences are smaller than expected. Heres a quick rundown of the major differences between these two bank accounts.
May 25, 20 today, islamic banking still accounts for only a tiny fraction of the global banking industry. They collate biased and misleading information from truncated and unverified sources on the internet, facebook postings that intends to be malicious rather than presenting the true picture, and comments by individuals who make generalized comments on their experience which may well be isolated cases due. How does islamic finance differ from conventional finance. This is my pleasure to submit my internship report on islamic banking vs. Islamic banking, islamic finance, shariah, ethics, sustainability. Islamic banking vs conventional banking during the crises period. We selected two banks first is habib bank limited taken as the conventional banks representative and second one is albaraka as representative of islamic banks, 3. Difference between islamic banking and conventional. Theyll give your presentations a professional, memorable appearance the kind of sophisticated look that todays audiences expect. Differentiate between the concept of islamic and conventional banking covered in chapter 20 differentiate between the governing principles and business model frame works of islamic and conventional banking. This shows that the returns earned by utilizing their total assets are almost same for the islamic and conventional bank.
Authorized for distribution by ghiath shabshigh july 2007 abstract this working paper should not be reported as representing the views of the imf. Frequently asked questions islamic banking page 4 of 7 conventional banking islamic banking the status of a conventional bank, in relation to its clients, is that of creditors and debtors. The status of islamic bank in relation to its clients is that of partners, investors and trader, buyer and seller, as well as, lessor and lessee. Additionally, 34% of people surveyed had an islamic product from an islamic bank. Islamic and conventional banking has some basic difference in theory and practice which draws a line of demarcation between the two entities. Islamic banking and finance in hindi urdu fnc721 lecture. This research aims to evaluate the efficiency of a sample of 66 banks including both islamic and traditional banks in various countries ranging from egypt, pakistan, bangladesh, saudi arabia, kuwait, qatar, iraq, emirates, sudan, turkey, bahrain and jordan throughout 20092014. Since, the money is linked with the real assets therefore therefore it contributes directly in the economic development. Banking is a concept that has been used in our society in different form and shapes. This work examines the legal framework of islamic finance system in nigeria against. Growth in islamicbanking industry in last tenyears 0104 09 is marvelous in pakistan.
Islamic banking is different from the conventional banking as it is interest free. Islamic banking vs conventional banking 3346 words 14 pages. Islamic, islamic window, and coexisting islamic and conventional banking. The difference between islamic banking financing and. In the modern islamic banking system, it has become one of the serviceoriented functions of the islamic banks to be a zakat collection centre and they also pay out their zakat. Differences between islamic and conventional banks in respect of efficiency and. The document was issued as an exposure draft for comments, suggestions or inputs. Similarly, iran enacted a new banking law in august 1983 to replace conventional banking with interest free banking. The functions and operating modes of islamic banks are based on the principles of islamicshariah. Pdf islamic financial system and conventional banking. Jordan and malaysia islamic banking services are provided through conventional banking. Difference between conventional and islamic banking products sr.
Conventional banking free download as powerpoint presentation. Islamic banks offers deposit products based on the following structures. The research is based on financial data of 144 banks. Islamic savings accounts are based on syariah law practices. Introducing islamic banks into conventional banking systems. While they rate islamic banks higher than conventional banks on supporting the community in meaningful ways at 29% versus 23%, conventional banks receive significantly higher rating in areas such as outstanding apps for mobileinternet banking 37% versus 28%. The functions and operating modes of conventional banks are based on fully manmade principles. Introducing islamic banks into conventional banking systems prepared by juan sole. Islamic banking is banking based on islamic law shariah. Casual link betweenislamic and conventional banking. Creating stakeholders value through islamic ethical. Differences and similarities in islamic and conventional.
In the conventional banking model, risks are reflected in both asset and liability sides. The two main forms of islamic finance are bank finance and issuing islamic securities called sukuk. The history of banking is as old as 2000 bc when there were trading system and the gold coins. The banks interest comes before the clients as opposed to the islamic banking system. Back to topic about islamic banking vs conventional banking, the difference between these two types of bank so called islamic banking vs conventional banking is too little. Islamic banking exists either in the form of fullfledged islamic banks or as islamic banking windows in the conventional banks. How is an islamic savings account different from a. Islam prohibits earning money on interest which is employed under conventional savings accounts. Winner of the standing ovation award for best powerpoint templates from presentations magazine. Flexcube for islamic banking shariacompliant islamic banking. Banking or banking activity that complies with sharia islamic lawknown as islamic banking and finance, or shariahcompliant financehas its own products, services and contracts that differ from conventional banking. Welcome to islamic banking connect march 2016 bulletin. The changes of product structure in islamic banking.
Sudans efforts to align its entire banking system with shariah principles began in 1984. Differences between islamic bank and conventional banks. It has become essential in some countries and very relevant in others. In addition to this, conventional bank invests the deposits in nonshariah compliant avenues and subsequently earns nonshariah compliant returns. In general, islamic banking and finance has been described as having the same purpose as conventional banking but operating in accordance with the rules of shariah law institute of islamic banking and insurance, or having the same basic objective as other private entities, i. In fact, ernst and young estimated that islamic banking assets grew at an annual rate of 17. Products key features difference islamic banking vs conventional banking liability side 1 conceptual difference between islamic and conventional current account islamic current account conventional current account funds are invested in shariah compliantavenues no shariah based restriction on investment of funds. Islamic vs conventional banking allied bank limited. This paper has analyzed and compared the financial performance of islamic banks and conventional banks in malaysia. Banking and presents the major issues and constraints of islamic banking many studies finds that india has the potential of emerging as a significant market for islamic banking institutions, provided there is a favourable change in regulatory environment and increased awareness among muslims and india as a whole. The bank s interest comes before the clients as opposed to the islamic banking system.
This study is useful for depositors, bank managers, shareholders, investors, regulators and researchers in order to provide a true picture of islamic banks and conventional banks financial condition. While there is a large practitioner literature on islamic finance, in general, and specifically islamic banking, there are few academic papers up to now. Conventional banks aim to maximize returns and minimize risk. There is big movement started in the western countries especially united kingdom, australia and united state shanmugam, perumal and ridzwa, 2004. Islamic banking vs conventional banking mufti tariq masood. Differences between islamic bank and conventional conventional banks islamic banks 1. Cannot charge customer for not maintaining minimum balance since account is. What is difference between conventional mortgage financing. Differences between islamic banking and conventional banking. However, islamic banking returns are interest free so that interest rate changes are not expected to affect the deposit returns. Difference between islamic banking and conventional banking. There are different banking systems in the world but the most famous ones are conventional banking and the islamic banking. The views expressed in this working paper are those of the authors and do not necessarily represent.
Specifically, we present the number of conventional and islamic banks and note crisis periods. Comparative analysis of islamic banking and conventional. Evidences suggest islamic banking is very much practiced like modern conventional banking with certain restrictions imposed by sharia and addresses the large number of business requirements successfully hence perceiving islamic banking as totally foreign to business world is not correct. Welcome to islamic banking connect march 2016 why islamic banking muslims are guided by shariah principles and this includes guidance on managing financial affairs. Lending money and having it back with compounding interest is the essential function of the conventional bank. Banking summary of the previous lecture we studied the concept of time value of money in the conventional economic system and its basis on interest at a fixed rate. Introduction to islamic banking and finance is supported by a detailed, easy to use instructor manual, powerful test bank generator and dynamic powerpoint slides.
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