A Comparison of Islamic Banking Vs Conventional Banking Financial Essay
The Islamic financial market contributes to the total Islamic financial assets US 1. The banking sector consists of a group of commercial banks Shows the brief descriptions of all bank-specific and country-specific variables in our analysis. Bank risk in Eqs. 1 and 2 correspond to measures of bank stability, where the main dependent variable is bank default risk DEFAULT RISK, represented by the Z-score. The Z-score measures the soundness of banks and is widely used as: In Islamic banking, interest is prohibited, it is asset-based financing where trading of elements is not permitted by Islam. Conventional banking is based on man-made laws and the banking system is profit-oriented. The purpose of conventional banking is to make money through interest. It is not based on Sharia law, but it is based on Islamic banking, and as a result we can see that. 61 of Islamic. banks have the highest efficiency in comparison. 47 from traditional banks. The results of the DEA analysis confirm it. Advantages of conventional financing over Islamic financing. For conventional loans, if a borrower changes the terms of the financing, for example increasing the facility amount, the loan agreement only needs to be upgraded. For Islamic financing, a new sales and repurchase agreement BBA must be drafted, which will: This article examines the effect of different types of bank capital on the profitability and efficiency of conventional and Islamic banks. Our results show that higher quality capital forms improve profitability and efficiency for both systems, although the results are stronger for conventional banks. The capital effect is more pronounced because this study analyzes the determinants of bank profitability by examining the internal factors that influence the profitability of Islamic banks and conventional banks. It then compares the results of the two types to understand how they differ from each other. While previous researchers focused on Islamic or conventional banks, unlike conventional banks, whose main goal is to maximize profits from loans, Islamic banks comply with Islamic Sharia law, which strictly prohibits the use of interest. Since this is precisely a characteristic of Islamic banks, many were skeptical when the first Islamic banks were established, given the interest-free banking. The main difference between these two banking worlds is their approach to lending money. Islamic banking says no to interest because it is seen as exploitation, and instead shares the ups and downs with customers. Conventional banking, on the other hand, is all about interest-based business. The comparative analysis of the determinants of financial stability in the two systems shows that these determinants contribute to the financial stability of Islam in the short and long term in different ways. In Islamic banking, interest is prohibited, it is asset-based financing where trading of elements is not allowed by Islam. Conventional banking is based on man-made laws and the banking system is profit-oriented. The purpose of conventional banking is to make money through interest. It is not based on Sharia law, but it is. This study assesses the differences between the productivity of Islamic and conventional banks..