Islamic Banking Practices Compared to Conventional Banking...

Introduction The co-existence of conventional banking along with Islamic banking gives an exceptional platform to compare Islamic banking practices with those of conventional banking practices. It is clearly known that Islamic banks are different from those of conventional banks since they do not deal with interest (Riba), i.e. usury, which is totally banned in Islam. In other words, banks are not allowed to take an interest rate on the loans given to customers. The concept considered in Islamic banking is the profit-and-loss sharing (PLS) which is based on profit-sharing and joint-venture that goes with Islamic Sharia. In fact, PLS adapts the system of integration in which borrowers share profits and losses with banks with their†¦show more content†¦Importance of the Study The privilege of Islamic banking is that it provides the same services the conventional banks provide but with the Islamic Sharia. What is more important of this study is to find out more about the profit-and-loss sharing PLS paradigm. Objectives of the Study The main objective of this study is: (a) to find out the extent of using profit-and-sharing paradigm in Islamic banks in Jordan; (b) to search about the main principles of Islamic interest – free banking and operations compared to interest – based banking system in Jordan; and (c) to compare between conventional deposit rates and Islamic investment rates. This study examines the principles and criteria Islamic banking operates in providing their financial services which make different from those of conventional banks. The Methodology To find out more about the usage of profit-loss sharing paradigm in Islamic banking system, the researcher will consider the long-run relation and the short-run dynamics between conventional deposit rates and Islamic investment rates. To investigate about the profit-and-loss sharing paradigm, we follow (Chong Ming-Hua, 2009) long-run and short-run principles and efficiencies tests to compare the conventional deposit rates with those of Islamic banking rates. The Bivariate Granger Causality Test will be first used to determine the dependent and independent variables of this feature. Two hypotheses will be tested: (a) changes in theShow MoreRelatedIslamic Banking vs. Conventional Banking1586 Words   |  7 PagesIslamic Banking vs. Conventional Banking In most Islamic countries, they tend to practice two types of financing in banking industry which are conventional and Islamic banking. The country like in Malaysia has successfully developed an Islamic banking system that operates in parallel with the conventional banking system. 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