Islamic Banking versus Conventional Banking (Thesis Sample)

Islamic Banking versus Conventional Banking
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Abstract
Banking is one of the most economic attributes in any economy. Countries have different policies and regulations that allow for the growth and development of the banking systems in the world over however, there are those who advocate for the conventional banking systems while others advocate for the Islamic banking systems. The Islamic banking system follows the Quran while the conventional system has no connotations regarding religion in its dealings. Differences in terms of efficacy in profits and costs emerged during the researching, creating a new impetus for the exploration of these two attributes in relation with the two systems. The differences were also noted and the impact of their structural attributes in relation to the way they conducted their activities. This report will examine the differences between the two systems and offer recommendations on the best way of handling these differences. Qualitative means of data collection and analysis were used to get the most conclusive differences that san the two systems. Further, the researcher based the conclusions and the recommendations on the findings and the literature review.
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Islamic Banking versus Conventional Banking  PAGEREF _Toc368512898 \h
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Name:  PAGEREF _Toc368512899 \h
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Abstract  PAGEREF _Toc368512900 \h
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Chapter One  PAGEREF _Toc368512901 \h
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Introduction  PAGEREF _Toc368512902 \h
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Research Aim  PAGEREF _Toc368512903 \h
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Research Objectives  PAGEREF _Toc368512904 \h
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Rationale of the study  PAGEREF _Toc368512905 \h
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Significance of the study  PAGEREF _Toc368512906 \h
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Limitations of the study  PAGEREF _Toc368512907 \h
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Chapter Two  PAGEREF _Toc368512908 \h
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Literature Review  PAGEREF _Toc368512909 \h
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Conventional banking systems  PAGEREF _Toc368512910 \h
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Islamic banking: an overview  PAGEREF _Toc368512911 \h
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Shariah compliant products  PAGEREF _Toc368512912 \h
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Asset quality  PAGEREF _Toc368512913 \h
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Efficiency: comparing Islamic and conventional banking  PAGEREF _Toc368512914 \h
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Literature gap  PAGEREF _Toc368512915 \h
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Conclusion  PAGEREF _Toc368512916 \h
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Chapter Three  PAGEREF _Toc368512917 \h
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Methodology  PAGEREF _Toc368512918 \h
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Research Design  PAGEREF _Toc368512919 \h
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Rationale for Quantitative Analysis  PAGEREF _Toc368512920 \h
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Data collection  PAGEREF _Toc368512921 \h
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Data analysis  PAGEREF _Toc368512922 \h
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Chapter Four  PAGEREF _Toc368512923 \h
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Findings and Discussion  PAGEREF _Toc368512924 \h
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Findings  PAGEREF _Toc368512925 \h
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Discussion  PAGEREF _Toc368512926 \h
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Literature vs. findings:  PAGEREF _Toc368512927 \h
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Chapter Five  PAGEREF _Toc368512928 \h
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Conclusions and Recommendations  PAGEREF _Toc368512929 \h
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References  PAGEREF _Toc368512930 \h
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Chapter One
Introduction
There are several well-known attributes that can be used to explain the banking function process. The most common two are production and intermediation approaches. When looking at the production approach, the activities called upon in the Nanking sector involve the production of services to the borrowers and depositors. Aspects such as capital, land, and labor are some of the traditional production factors that are used as inputs in readiness for the production of desired outputs. Banks, here, are viewed as the producers of deposit services and loans as they sue capital and labor. The major trend one notes in several researches from time immemorial is based on the intermediation process. Suggested by Sealey and Lindley (1977), the intermediation process is seen as a complementation of the production process. This deals with the bank acting as a mediator of any financial activities carried out within the financial services. The approach also assumes that the banks collect funds, which is deposits and purchased funds with the assistance of capital and labor, transforming them to loans and assets. The approach treats both labor and capital along with the volumes of earning assets as measures defining outputs (Iqbal and Molyneux, 2005).
Many view this as a better way of evaluating the importance of frontier efficiency for the financial institution’s profitability. This is because of the total costs minimized are needed to maximize profits. From this, one understands that the conventional banking systems assume that the main aim of a bank is to gain interests and profits from purchasing of deposits from depositors at lower interests rates. This is then followed by the reselling of these funds to the borrowers at a higher interest basing it on the competitive advantage that gathers from underwriting and information risks (Sarker, 1999). Thus, one can conclude that the profit gained by conventional banks emanates from the spread between the interest received from borrowers and that paid to depositors.
On the contrary, Islamic banking performs the same intermediary function but differs in terms of the interests. It does not receive any predetermined interests from the borrowers nor does it pay any predetermined interests to the depositors. To these banks, the profit is shared amongst each from agreements made by the depositors as well as the borrowers with the bank (Errico and Farahbaksh, 1998). They are fee-based banks and are like the conventional banks, apart from the aspect of predetermined interests for the payments or receipts of funds. The main difference, other than the sharing of profit rather than predetermining profits is the fact that the share of these profits depend entirely on the risk participation of the parties in question. This is based on the shariah laws as stipulated in the Holy Quran (Ariff, 2006).
Nonetheless, one must first and foremost refrain from coming up with direct comparison that touch on both the Islamic financial institutions (IFI) and the conventional financial institutions (CFI). The two have different operational attributes that very few acknowledge, whereas they form the basis of any operation that takes place within the organization. While the IFIs are based on Islamic religion, it would be difficult stating that the conventional banks are based on Christianity or other contemporary religions. Instead, a mixture of cultures has led to the development of these financial institutions, making it multi-faceted.
Research Aim
The aim of carrying out this research is to clearly describe the various differences between Islamic banking and Conventional banking, and to point out some of the strategies that need to be adopted to reduce these differences.
Research Objectives
To examine the various differences between Islamic Banking and Conventional Banking
To establish the key contributing factors for the persistence of these differences
To examine the operational difficulties in the two banking systems due to the differences between them
To recommend some of the strategies that should be adopted to minimize these differences
Rationale of the study
Though differences exist, there is a need to fully understand how they can be dealt with, without infringing on the beliefs, interests, and values of either institution. As the research proceeds, the recommendations will be based on what has been deduced from the interactions, the methodology, the reviewed literature and the noted impact of both on the economies where practiced. The pace at which each develops and the means through which they operate will be seen as a good way of meeting the goals of this research. There are certain questions that will be answered during this research that will dwell mainly on the differences and the strategies of overcoming these differences to meet the goals of the financial systems. Given that there is little literature on the same, this research will offer an opening for other researchers to fully understand how to carry out research despite the shortcomings noted. The literature review will examine the different outlooks that previous authors have given to the aspect of conventional and Islamic banking. The methodology will seek to answer the question of the gamut principles preventing the Islamic banking institutions from operating financially like the conventional institutions in the same level. There will be a findings and discussion chapter that will help analyze and deduce the data attained from the methodology as a way of trying to make sense of the emerging themes. The conclusion will offer an overview of the discussed attributes as well as the recom...