Comparison Between Islamic and Conventional Banks

Even if the Islamic Church discourages the elements of Riba, the Islamic society is not obliged to obtain real profits. It is good for society and it is considered an incentive for entrepreneurs. Based on the value of stability, safety and growth, the removal of the Riba has been modernized, thereby sharing the risk between borrowers and lenders (Zaher T. S. and Kabir Hassan M. 2001: 156-157). Islam prohibits a fixed or predetermined rate of return on financial transactions, not an uncertain rate of return such as the rate of return related to raising profits.

Islamic bank risk sharing and comparison with Western traditional bank loans: Islamic banks involve sharing of risks and benefits, lenders somewhat "partnering with customers" Bhatti, IM, (2008) customer project In the case studies of Islamic Bank and High Street Bank who are involved in the development and evaluation of specific companies / projects, some customers are branching from the branch to the Islamic Bank UK branch compared to Western banks such as Lloyds TSB moved. "They feel that banks are interested only in treating customers as debtors and treating themselves as creditors."

Today, the market value of Islamic banks is decreasing compared to traditional banks, the market capitalization ratio is only 1%, and in effect the Islamic banks are not much affected by the global financial crisis Hmm. With traditional bank restructuring and merger, Islamic banks face greater challenges. Traditional banks were able to return to profit at any time in 2010, and the top ten traditional banking net income (according to market capitalization before crisis) increased by 139% over the previous year. At the same time, the net profit of the Islamic Bank decreased by 55% during the same period.

Compared to traditional banking systems, the global financial crisis does not have a major impact on the Islamic banking industry, and it is stable in the early stages of the global financial crisis. Its main reason is their banking principles, transparency and repayment of assets, which do not enable speculative economic activities. The use of block chain technology has great potential in the Islamic finance industry. One of the main principles of the Islamic Bank is based on making a fair, transparent, and acceptable and enforceable contract between the parties involved in banking transactions. One of the fundamental differences between Islamic banks and traditional banks is the contractual relationship. The contract between the customer and the traditional bank is simple and the loan interest is charged. However, Islamic contracts are more complex, and you can use various contracts such as profit sharing arrangements, partnerships, agency arrangements.