Why Islamic Banking is Superior to Western Banking and Their Comparisons Financial Essay
Abstract. The process of deregulation and disintermediation, the globalization of financial markets, the emergence of new competitors and the introduction of new information technologies have brought about profound changes in the banking sector. Banks have lost market share and are showing declining economic performance. Islamic finance is becoming global. South Africa, along with Britain and Hong Kong, has become the third non-Muslim country to issue an Islamic bond, or sukuk. And this is what the American investment bank is following. 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 Islamic banking is a banking system based on the principles of Islamic law, also called Sharia, and guided by Islamic economics. Two basic principles behind Islamic banking. Islamic finance prohibits speculation, gambling and prescribes that income must be obtained as profit rather than as interest. The article discusses the legal rules underlying Islamic finance with a view to developing equivalents for derivatives according to the principles of Sharia. The article analyzes the differences between. This article discusses Islamic banking products and interprets them in the context of financial intermediation theory. Anecdotal evidence suggests that many of the conventional products can be reformulated as Sharia compliant products so that the differences are smaller than expected. This article studies the empirical impact of Islamic banking on the development of the banking sector. It circumvents the lack of data through a newly built and expanded database, “IFIRST”, covering Islamic commercial banks around the world during the period 2005. To our knowledge, this database is unique in the sector. Other mature Asian Islamic financial markets include Bangladesh, Brunei and Pakistan, where Sharia-compliant assets account for a larger share of total banking assets. Surprisingly, Islamic finance in Indonesia is still in its infancy, even though the population is Muslim. Of the total, only Sharia-compliant assets are responsible. Furthermore, Islamic finance cannot be used to finance activities that Islam considers sinful, such as gambling or conventional banking. Levine 2005 explains that financial development can promote productivity and growth because the financial system contributes to information availability, enforcement, and transaction costs. Islamic finance is basically a profit and loss sharing system. Although it prohibits interest riba, it allows trading and profit and loss sharing instruments. These are structures that deviate from the traditional concept of lending, which can change the relationship from lending to an investment. The two most important products in the income statement. Although one would expect that the unique risks of the Islamic financial sector should lead to well-tailored prudential and risk management standards, many authors argue that Islamic banking, due to competition, is not much different from conventional banking and that many.