Introduction we can never imagine ourselves without banks.

Introduction

 

The banks play an important role in the society and
we can never imagine ourselves without banks. Now it has become a blood vein of
any economy .all of the financial and business transactions being held under
the banks. As we know that there are some advantages as well as disadvantages
of banks. The banks play an important role in the society and we can never
imagine ourselves without banks. Now it has become a blood vein of any economy
.all of the financial and business transactions being held under the banks. As
we know that there are some advantages as well as disadvantages of banks
.Islamic banks are rapidly getting market share in country economy. People need
benefit from banks about borrowers and depositor’s .The first establishment of
conventional banks was with no interest but after some time they added some
interest and gradually it become of the main source of earning of the banking system.
Islamic banking started to play a vital role in the economy in 1970 .The main
difference between Islamic banking and conventional banking is that interest
rate is prohibited in Islam. Where’s an Islamic banks belief in profit and loss
sharing. The banking principles and the rules and regulations equity structure
are different as well.

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Islamic Banks are
rapidly getting market share in country economy. People need benefit
from banks about borrowers and depositor’s .the first establishment of
conventional banks was with no interest but after some time they added some
interest and gradually it become of the main source of earning of the banking system.
Islamic banking started to play a vital role in the economy in 1970 .The main
difference between Islamic banking and conventional banking is that interest
rate is prohibited in Islam. Where are Islamic banks beliefs in profit and loss
sharing. The banking principles and the rules and regulations

 

Right now global financial crisis are going to be
increases due to a non proper functioning of conventional means western banking
system and due to increased in debts the attention of the people are converting
into Islamic banking system.

Academics and the policy maker like point to the
advantage of shariah complaint financial products. More importantly the shariah
complaint products are attractive .This paper describe Islamic banking products
the literature the structure and financial intermediation. This paper also
defined the business model of Islamic banks are more stable and efficient as
compare to conventional banks. This paper analyze the performance of the both
bank groups during the crisis .Islamic banks doesn’t allow anyone to charge the
interest only price of goods are services and the other hand beliefs the equal
distribution of profit and loss sharing .Islamic banks are more cost efficient
as compare to conventional banks in a large countries. However in a current
structure the flaws on both bank groups exist.

Islamic banks are more suitable where the people of
the middle family want to establish their business without giving interest
.Islamic banks are suitable for lower and middle class to establish their business.
There is a difference of the business model of the both banks like difference
in products, methodology, efficiency and stability. The one important feature
of the Islamic banking is that there is a equal risk for the depositors and the
Brower because there is equal distribution of profit and loss.

Another feature of the Islamic bank is mudarbah
contract the bank will provide the resources like loan while customer will put
on resources and efforts to run the business. Profit will be share on the
predetermined rules. If the business goes on loss the both banks and customers
bare the loss.

Another feature is musharkah contract as the bank is
one of the several investors where profit and loss will be shared among all
investor.

Another feature is murabah contract which resembles
the conventional banking in this sort of contract the bank will purchase the
product or goods on behalf of the client and then sell it to client where bank
keeps the ownership of the goods and lease it to the client.

 

 

 

 

Literature
review

Theoretical
evidence

Lot of people has done a lot of work on comparative
analysis on conventional and Islamic banks. There study was based on the
comparison of the both banks and their relationship between competition and
stability in the banking system .This argue was made by Carletti (2008) and Berger,
flapper and Turk arises in (2009)

In 1990 keeley debate on competition fragility
relation that large number of US bank resulted by the deregulation in the
banking industry .The camel approach is very important to determine the
profitability of the conventional and Islamic banks.

Recent Paper work shows different characteristics,
structures and macroeconomic variables of the banks across country .those
people are done by Bashir (2000),Abdus Samad and M.Kabir Hassan (1997),Rima
Turk Ariss(2006),Faisal (2004),Hassan and Bashir (2004),Serish
(2009),Toufiq(2005),Chukwuogor (2002),Anouar Hassoune (2002),M.S. Moon
(2007),Devid tripe(2002) Kosmidou(2004) and Spathis(2002).

 

Bashir (2000), his research was about on
determinants of profitability in Islamic banks.

Bashir and Hassan (2004) have research about
conducting regression analysis.

 

Rima Turk Ariss (2006) analysis on competitive
condition prevailing in Islamic and conventional global banking markets by
looking into difference of profitability measure between Islamic banks and
conventional banks.

M.S Moin (2007) was measured the performance of
first Islamic bank in Pakistan with comparison of 5 conventional banks.

Kosmidou (2004) measured performance and efficiency
of conventional banks in Greece and Europe in 2003_2004.

Devid Tripe (2002) studied about relationship
between capital level and return on equity of banks in New Zealand and
Australia in 1996_2002.

 

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