This document summarizes a study on the prospects and problems of Islamic banking in Bangladesh from the perspective of Islamic and conventional bankers. The study found high demand among Bangladeshis for interest-free banking in accordance with Islamic principles. However, Islamic banks face criticisms that they do not fully apply Islamic rules and include some interest in their dealings. The study also notes lack of legal support, expertise, and training as impediments to the growth of Islamic banking in Bangladesh. Through surveys of Islamic and conventional bankers, the study aimed to assess views on opportunities and challenges for Islamic banking and inform policies to support its development.
11.the tendency of customers towards the acceptance of islamic banking in bah...Alexander Decker
This document summarizes a research study examining customer tendencies toward Islamic banking compared to conventional banking in Bahawalpur, Pakistan. The study used both descriptive and analytical research designs, collecting data through a questionnaire of 125 customers of Islamic banks. Key findings were that factors like interest-free banking, mutual participation, transparency, service quality and marketing strategies significantly influenced customer use of Islamic banking services over conventional services. However, the study was limited by its small sample size and focus only on one region of Pakistan. It suggests expanding the study nationally to gain more implications. In conclusion, the study found high acceptance and growing interest in Islamic banking in Bahawalpur, but that improvements could still be made through better marketing and customer services.
11.[39 50]the tendency of customers towards the acceptance of islamic banking...Alexander Decker
This document summarizes a research study examining customer tendencies toward Islamic banking compared to conventional banking in Bahawalpur, Pakistan. The study used both descriptive and analytical research designs, collecting data through questionnaires with 125 customers of Islamic banks. Key findings were that factors like interest-free banking, mutual participation, transparency, service quality and marketing strategies significantly influenced customer use of Islamic banking services over conventional services. However, the study was limited by its small sample size and focus only on the Bahawalpur region. It suggests expanding the study to the whole of Pakistan. In conclusion, the study found high acceptance and growing interest in Islamic banking in Bahawalpur, but that improvements could still be made through better marketing and customer services.
Analyzing the Attitude of Customers towards Islamic Banking and Conventional ...iosrjce
Bangladesh is a country where both Islamic and conventional banks contribute to the economic
development. Although relatively new in Bangladesh and contributing to a small portion of the banking sector,
Islamic banks have played a pivotal role in improving the banking sector by providing services which are more
based on the beliefs of the Muslims. This study aims to compare the attitude of Islamic and conventional banks’
customers towards various aspects of banking in order to identify which bank has better performance in
customer’s perspective. To develop this descriptive study a total of 250 customers were interviewed. A
structured questionnaire consisting of 18 questions incorporated in 6 categories were used. The study reveals
that Islamic banks precede conventional banks on all factors. The study will help not only conventional banks
but also Islamic banks to understand in which sectors they need to focus to develop more positive attitude in the
minds of the customers.
This document summarizes a research paper that compares the performance of Islamic and conventional banks in Pakistan between 2007-2011. The paper finds that Islamic banks performed better than conventional banks during this period. Key differences noted were that Islamic banks promote equity financing, while conventional banks rely solely on debt financing. Return on assets was also higher for Islamic banks, indicating they operate more efficiently. In conclusion, the paper finds that Islamic banks have a bright future within Pakistan's banking industry.
Factors affecting selection of Islamic banks over conventional banksMuhammad Abbas
This document is a research paper on factors affecting the selection of Islamic banks over conventional banks among business school graduates in Karachi, Pakistan. The paper includes an introduction, literature review, conceptual framework, methodology, results and analysis, conclusion, and recommendations. The methodology section describes how data was collected through a questionnaire of 234 respondents rated on a scale of 1 to 5. Results of chi-square and t-tests found the independent variables of Islamic banking concepts, Sharia compliance, contract-based relationships, and bank personnel behavior influence the dependent variable of selection of banking system. The conclusion is these factors affect graduates' selection and more education is still needed on Islamic banking concepts.
Customer awareness and satisfaction of islamic retail products in kuwaitAlexander Decker
This study examines customer awareness and satisfaction with Islamic retail banking products in Kuwait. A questionnaire was distributed to 150 Kuwaiti clients of Islamic banks to identify factors influencing customer choice of bank and level of awareness of Islamic banking principles and retail services. The study found 23 factors were important in choosing an Islamic bank, with bank reputation for Sharia compliance ranking last. Customers were aware of some products but not fully aware of others. Despite overall satisfaction, customers were still not fully satisfied with some areas like adherence to Sharia principles. The banking sector in Kuwait includes both conventional and Islamic banks and is growing more competitive. The study aims to understand customer preferences and satisfaction to help Islamic banks improve customer experience and loyalty.
This document provides an introduction to a master's thesis examining the efficiency of Islamic banking in Malaysia from 2000 to 2009. It begins with background information on the growth of Islamic banking globally and in Malaysia. It then states the problem being examined is that while Islamic banking has grown rapidly, analysis of efficiency at the cross-country level is still limited. The objectives are to measure the efficiency of Islamic banks in Malaysia during this period and compare the efficiency of full-fledged Islamic banks to Islamic windows. The methodology to be used is data envelopment analysis to evaluate input and output variables from Islamic banks.
This topic is for about Bangladesh bank industry.you can find out
why we invest on bank?
Investing on bank Risk or not?
which bank is prefer for investment?
what is our strategy management for banking industry?
11.the tendency of customers towards the acceptance of islamic banking in bah...Alexander Decker
This document summarizes a research study examining customer tendencies toward Islamic banking compared to conventional banking in Bahawalpur, Pakistan. The study used both descriptive and analytical research designs, collecting data through a questionnaire of 125 customers of Islamic banks. Key findings were that factors like interest-free banking, mutual participation, transparency, service quality and marketing strategies significantly influenced customer use of Islamic banking services over conventional services. However, the study was limited by its small sample size and focus only on one region of Pakistan. It suggests expanding the study nationally to gain more implications. In conclusion, the study found high acceptance and growing interest in Islamic banking in Bahawalpur, but that improvements could still be made through better marketing and customer services.
11.[39 50]the tendency of customers towards the acceptance of islamic banking...Alexander Decker
This document summarizes a research study examining customer tendencies toward Islamic banking compared to conventional banking in Bahawalpur, Pakistan. The study used both descriptive and analytical research designs, collecting data through questionnaires with 125 customers of Islamic banks. Key findings were that factors like interest-free banking, mutual participation, transparency, service quality and marketing strategies significantly influenced customer use of Islamic banking services over conventional services. However, the study was limited by its small sample size and focus only on the Bahawalpur region. It suggests expanding the study to the whole of Pakistan. In conclusion, the study found high acceptance and growing interest in Islamic banking in Bahawalpur, but that improvements could still be made through better marketing and customer services.
Analyzing the Attitude of Customers towards Islamic Banking and Conventional ...iosrjce
Bangladesh is a country where both Islamic and conventional banks contribute to the economic
development. Although relatively new in Bangladesh and contributing to a small portion of the banking sector,
Islamic banks have played a pivotal role in improving the banking sector by providing services which are more
based on the beliefs of the Muslims. This study aims to compare the attitude of Islamic and conventional banks’
customers towards various aspects of banking in order to identify which bank has better performance in
customer’s perspective. To develop this descriptive study a total of 250 customers were interviewed. A
structured questionnaire consisting of 18 questions incorporated in 6 categories were used. The study reveals
that Islamic banks precede conventional banks on all factors. The study will help not only conventional banks
but also Islamic banks to understand in which sectors they need to focus to develop more positive attitude in the
minds of the customers.
This document summarizes a research paper that compares the performance of Islamic and conventional banks in Pakistan between 2007-2011. The paper finds that Islamic banks performed better than conventional banks during this period. Key differences noted were that Islamic banks promote equity financing, while conventional banks rely solely on debt financing. Return on assets was also higher for Islamic banks, indicating they operate more efficiently. In conclusion, the paper finds that Islamic banks have a bright future within Pakistan's banking industry.
Factors affecting selection of Islamic banks over conventional banksMuhammad Abbas
This document is a research paper on factors affecting the selection of Islamic banks over conventional banks among business school graduates in Karachi, Pakistan. The paper includes an introduction, literature review, conceptual framework, methodology, results and analysis, conclusion, and recommendations. The methodology section describes how data was collected through a questionnaire of 234 respondents rated on a scale of 1 to 5. Results of chi-square and t-tests found the independent variables of Islamic banking concepts, Sharia compliance, contract-based relationships, and bank personnel behavior influence the dependent variable of selection of banking system. The conclusion is these factors affect graduates' selection and more education is still needed on Islamic banking concepts.
Customer awareness and satisfaction of islamic retail products in kuwaitAlexander Decker
This study examines customer awareness and satisfaction with Islamic retail banking products in Kuwait. A questionnaire was distributed to 150 Kuwaiti clients of Islamic banks to identify factors influencing customer choice of bank and level of awareness of Islamic banking principles and retail services. The study found 23 factors were important in choosing an Islamic bank, with bank reputation for Sharia compliance ranking last. Customers were aware of some products but not fully aware of others. Despite overall satisfaction, customers were still not fully satisfied with some areas like adherence to Sharia principles. The banking sector in Kuwait includes both conventional and Islamic banks and is growing more competitive. The study aims to understand customer preferences and satisfaction to help Islamic banks improve customer experience and loyalty.
This document provides an introduction to a master's thesis examining the efficiency of Islamic banking in Malaysia from 2000 to 2009. It begins with background information on the growth of Islamic banking globally and in Malaysia. It then states the problem being examined is that while Islamic banking has grown rapidly, analysis of efficiency at the cross-country level is still limited. The objectives are to measure the efficiency of Islamic banks in Malaysia during this period and compare the efficiency of full-fledged Islamic banks to Islamic windows. The methodology to be used is data envelopment analysis to evaluate input and output variables from Islamic banks.
This topic is for about Bangladesh bank industry.you can find out
why we invest on bank?
Investing on bank Risk or not?
which bank is prefer for investment?
what is our strategy management for banking industry?
The document discusses capital challenges faced by Islamic banks in Indonesia in expanding their business. It analyzes data from Bank Syariah Mandiri from 2005 to 2016. The results of a statistical analysis show that both capital and profits have a significant positive influence on the expansion of Bank Syariah Mandiri's financing. However, Islamic banks in Indonesia face challenges increasing their business expansion due to their dependence on capital from conventional bank shareholders and lack of support from the government compared to conventional banks. Government policies are needed to help Islamic banks become independent and better support their growth.
Current & Future challenges of banking sector in bd(DBBL)University of Dhaka
The document discusses the current and future challenges facing the banking sector in Bangladesh and how banks can address those challenges. Some of the major challenges mentioned include low quality of assets, surplus liquidity, lack of good governance and transparency, inadequate risk management systems, and political and macroeconomic risks. Strategies that can help banks overcome these challenges involve improving risk management practices, strengthening governance, providing training to employees, using new technologies, and attracting and retaining customers. The document also provides a brief overview of Dutch-Bangla Bank Limited and how it creates value for customers through various deposit, loan and digital banking products and services.
The document is a letter summarizing a student's research report on the SWOT analysis of City Bank in Bangladesh. The student conducted research on City Bank as assigned by their lecturer. The student followed the lecturer's guidelines in preparing the report and believes the knowledge gained will help with their future career. The student thanks those who provided assistance and hopes the report fulfills the course requirements.
Big is beautiful: The survival mantra for the Islamic banking industryLokesh Gupta
The mergers of Islamic banks in Malaysia and globally are much needed as the market is getting overcrowded where many small Islamic banks are fighting for their survival. Mergers among Islamic banks to create a mega Islamic bank will create synergy with an objective of achieving a more effective and competitive Islamic banking landscape. In this context, ‘Big is Better’ as size is important mainly because it will permit a mega Islamic bank to have greater access to funds as well as to expand its asset book and create value in the Islamic banking space where margins are restricted due to the tighter operational environment. This special report is to identify the potential benefits and challenges of merger amongst Islamic Banks in Malaysia.
The document summarizes major scams, irregularities, and heists in the Bangladeshi banking sector over the past decade. It details several instances where state-owned, private, and foreign commercial banks embezzled funds totaling billions of taka through fraudulent loans and money laundering. In response, the Anti-Corruption Commission filed cases against bank officials and borrowers, while the Bangladesh Bank appointed observers or conducted audits at troubled banks. Overall, widespread corruption and mismanagement have undermined the stability and performance of the banking sector.
Islamic and conventional banking differ in their core principles and operations. Islamic banking prohibits interest and invests according to Sharia law, focusing on profit/loss-sharing. It aims to stimulate broad business activity and equitable wealth distribution. In contrast, conventional banking charges interest to maximize shareholder wealth, concentrating resources among a few. Their objectives, financing modes, investment practices, risk-sharing approaches and impact on income distribution distinguish Islamic and conventional banking.
Do Islamic rural banks consider Islamic morality in assessing credit applicat...UniversitasGadjahMada
This study aims to investigate how moral issues are considered in Islamic rural banks credit application analysis. To examine what factors are to be considered, this study applies a mixed approach (qualitative and quantitative), using focus group discussions, analysis of documents, interviews, and survey methods. The findings of this study have shown some essential aspects that are considered in the financing analysis of Islamic Rural Banks (BPRS). The results also reveal that the managers of the BPRS have very similar perceptions of the importance of the 5Cs. As revealed in the findings, all BPRS concede that they are applying this model with a different level of significance. Most BPRS only focus on some key aspects that are considered more important than others.
Financial problem and recent scam in BdFeroza Khatun
The document discusses several problems facing Bangladesh's financial sector, including its money market, capital market, and insurance sector. Specifically:
1) The money market faces issues like high non-performing loans, lack of transparency and governance in banks, and inadequate risk management. Microcredit institutions struggle with over-lending and high interest rates.
2) Capital markets have problems like lack of effective regulation and surveillance, price manipulation, and delays in settlements.
3) The insurance sector faces centralization, political instability, lack of supervision, legal complexity, and lack of product diversification.
4) Recent scams include the 2016 Bangladesh Bank heist where hackers attempted to steal $1 billion but succeeded in
This is an academic research of "The impact of change in the interest rate of conventional banks on the deposit of Islamic banks in Bangladesh". I conducted a survey on 60 depositors of different Islamic banks of Bangladesh to check my hypothesis.
The document discusses the differences between public and private banks in Bangladesh. It provides lists of public banks such as Sonali Bank and private banks such as BRAC Bank. It then analyzes the strengths, weaknesses, opportunities, and threats of both public and private banks. Finally, it concludes that both types of banks are essential for economic development in Bangladesh and provides recommendations such as using more IT, introducing new products, and providing staff training.
Functional Difference of bank and non bankHr Shamim
The document provides an overview of a report comparing the functional differences between EXIM Bank and LankaBangla Finance. It includes an introduction outlining the objectives and methodology of the study. It also provides background information on EXIM Bank, including its history and performance. Similarly, it provides an overview of LankaBangla Finance, including its history and achievements. The document outlines the organization of the full report through a table of contents and executive summary. It aims to analyze and compare the two financial institutions.
Difference between Islamic banks and Conventional banksMuhammad Danish
this document contains a detailed comparison of the Islamic banking system and conventional banking system. we take the examples of HBL and Meezan bank limited
Current and future challenges of banking sector- report on DBBLUniversity of Dhaka
Banks play an important role in a country's economic development by mobilizing savings, facilitating capital formation, and creating credit. They face challenges in Bangladesh like low quality assets, surplus liquidity, lack of good governance, and inadequate risk management. Banks can address these challenges through risk management, credit risk mitigation, training employees, and using new technologies. Dutch-Bangla Bank provides unique products and services like mobile banking, internet banking, and agent banking to create value for customers. However, infrastructure issues still hinder fully online banking in Bangladesh.
Consumer behavior analysis in selection of a bankTrupti Desai
The document summarizes research on consumer behavior when choosing a bank in India. It discusses the origins and structure of banking in India. Research methodology included questionnaires with 100 consumers in Ahmedabad and Baroda. Key findings were that consumers primarily consider rate of interest, convenience, easy loans and ATM access when selecting a bank. There was no major differentiating factor between banks and consumers desired more attractive offers, education on offerings, and improved security. Recommendations included targeting influencers to gain more business and assuring security of consumer investments.
This proposal discusses developing an effective online strategy for the Islamic banking sector in Libya. The objectives are to improve performance, ensure sustainable growth, and understand how online banking is evolving in Islamic and conventional banks in Libya from the customer's perspective. The proposal will examine the internal strengths and weaknesses as well as external opportunities and threats to frame a strategy. It will also focus on online transactions, human resource development, and strategies for internal and external relations.
The Basel Committee on Banking Supervision introduced stricter Basel III regulations after the 2008 financial crisis to strengthen banks' capital requirements and promote a more resilient banking sector. The key changes included higher minimum capital requirements, a capital conservation buffer, a countercyclical capital buffer, strengthened capital treatment for trading book exposures and securitizations, more stringent counterparty credit risk rules, and the introduction of a non-risk-based leverage ratio. The regulations aimed to reduce systemic risk, improve risk management practices, and promote a safer banking system overall.
This document compares and contrasts Islamic and conventional banking systems. It discusses that both systems perform similar functions like accepting deposits and providing credit, but they differ in how they operate. Islamic banks follow sharia law and do not charge interest, instead operating via profit/loss sharing partnerships or asset purchases with rent charges. Conventional banks charge fixed interest rates on loans. The document also outlines some similarities and differences between the two systems, as well as providing examples of Islamic banking types and schemes in Pakistan.
Evaluation of banking sector’s development in bangladesh in light of financia...Alexander Decker
The document evaluates the development of Bangladesh's banking sector in light of financial reforms over the past decades. It discusses the initial phases of reform from the 1980s to 1990s which focused on promoting private ownership and reducing government control of banks. The second phase from 1990 introduced measures like interest rate deregulation, priority sector lending incentives, and licensing new private banks. Subsequent reforms strengthened regulatory frameworks, adopted Basel standards, and restructured some state-owned banks through the 2000s. The study aims to evaluate how successfully the banking sector has evolved in terms of improving access to services, financial deepening, operational efficiency, and stability. Key indicators are analyzed using the World Bank's framework to measure the impact of reforms on financial development.
Financial Performance Analysis of Islamic Bank in Bangladesh: A Case Study on...Premier Publishers
Banking sector is an important sector of an economy of a country, so it is necessary to monitor and evaluate the performance of it. The aim of this paper was to examine the performance of Islamic banking of Bangladesh in particular the experience for Al-Arafah Islamic Bank Limited. The paper goes further to explore some experience on the domestic and global challenges which are facing Islamic banking sector. Performance evaluation methodology used to ascertain the objectives in terms of profit maximization, capital structure and liquidity ratios. We used the financial data of bank from 2010 to 2014 and observed that the trend of all the indicators are positive. The ability, efficiency and number of products of Al-Arafah Islamic Bank Limited are increasing gradually. The investment of Al-Arafah Islamic Bank Limited is mostly on short term basis which is generally similar to other Islamic banks in Bangladesh. Islamic banks are facing some difficulties in their operations especially for non-shariah structure of their stakeholders. This study suggests that Islamic banks of Bangladesh should increase Islamic capital market, Islamic financial instruments, and proper zakat distribution and employment opportunities for the betterment of the society.
A comparative study on islamic banking in bangladeshMd. Shahinuzzaman
A banking system that is based on the principles of Islamic law (also known Shariah) and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest. Collecting interest is not permitted under Islamic law. Where the conventional banking follows conventional interest-based principle.
The document discusses capital challenges faced by Islamic banks in Indonesia in expanding their business. It analyzes data from Bank Syariah Mandiri from 2005 to 2016. The results of a statistical analysis show that both capital and profits have a significant positive influence on the expansion of Bank Syariah Mandiri's financing. However, Islamic banks in Indonesia face challenges increasing their business expansion due to their dependence on capital from conventional bank shareholders and lack of support from the government compared to conventional banks. Government policies are needed to help Islamic banks become independent and better support their growth.
Current & Future challenges of banking sector in bd(DBBL)University of Dhaka
The document discusses the current and future challenges facing the banking sector in Bangladesh and how banks can address those challenges. Some of the major challenges mentioned include low quality of assets, surplus liquidity, lack of good governance and transparency, inadequate risk management systems, and political and macroeconomic risks. Strategies that can help banks overcome these challenges involve improving risk management practices, strengthening governance, providing training to employees, using new technologies, and attracting and retaining customers. The document also provides a brief overview of Dutch-Bangla Bank Limited and how it creates value for customers through various deposit, loan and digital banking products and services.
The document is a letter summarizing a student's research report on the SWOT analysis of City Bank in Bangladesh. The student conducted research on City Bank as assigned by their lecturer. The student followed the lecturer's guidelines in preparing the report and believes the knowledge gained will help with their future career. The student thanks those who provided assistance and hopes the report fulfills the course requirements.
Big is beautiful: The survival mantra for the Islamic banking industryLokesh Gupta
The mergers of Islamic banks in Malaysia and globally are much needed as the market is getting overcrowded where many small Islamic banks are fighting for their survival. Mergers among Islamic banks to create a mega Islamic bank will create synergy with an objective of achieving a more effective and competitive Islamic banking landscape. In this context, ‘Big is Better’ as size is important mainly because it will permit a mega Islamic bank to have greater access to funds as well as to expand its asset book and create value in the Islamic banking space where margins are restricted due to the tighter operational environment. This special report is to identify the potential benefits and challenges of merger amongst Islamic Banks in Malaysia.
The document summarizes major scams, irregularities, and heists in the Bangladeshi banking sector over the past decade. It details several instances where state-owned, private, and foreign commercial banks embezzled funds totaling billions of taka through fraudulent loans and money laundering. In response, the Anti-Corruption Commission filed cases against bank officials and borrowers, while the Bangladesh Bank appointed observers or conducted audits at troubled banks. Overall, widespread corruption and mismanagement have undermined the stability and performance of the banking sector.
Islamic and conventional banking differ in their core principles and operations. Islamic banking prohibits interest and invests according to Sharia law, focusing on profit/loss-sharing. It aims to stimulate broad business activity and equitable wealth distribution. In contrast, conventional banking charges interest to maximize shareholder wealth, concentrating resources among a few. Their objectives, financing modes, investment practices, risk-sharing approaches and impact on income distribution distinguish Islamic and conventional banking.
Do Islamic rural banks consider Islamic morality in assessing credit applicat...UniversitasGadjahMada
This study aims to investigate how moral issues are considered in Islamic rural banks credit application analysis. To examine what factors are to be considered, this study applies a mixed approach (qualitative and quantitative), using focus group discussions, analysis of documents, interviews, and survey methods. The findings of this study have shown some essential aspects that are considered in the financing analysis of Islamic Rural Banks (BPRS). The results also reveal that the managers of the BPRS have very similar perceptions of the importance of the 5Cs. As revealed in the findings, all BPRS concede that they are applying this model with a different level of significance. Most BPRS only focus on some key aspects that are considered more important than others.
Financial problem and recent scam in BdFeroza Khatun
The document discusses several problems facing Bangladesh's financial sector, including its money market, capital market, and insurance sector. Specifically:
1) The money market faces issues like high non-performing loans, lack of transparency and governance in banks, and inadequate risk management. Microcredit institutions struggle with over-lending and high interest rates.
2) Capital markets have problems like lack of effective regulation and surveillance, price manipulation, and delays in settlements.
3) The insurance sector faces centralization, political instability, lack of supervision, legal complexity, and lack of product diversification.
4) Recent scams include the 2016 Bangladesh Bank heist where hackers attempted to steal $1 billion but succeeded in
This is an academic research of "The impact of change in the interest rate of conventional banks on the deposit of Islamic banks in Bangladesh". I conducted a survey on 60 depositors of different Islamic banks of Bangladesh to check my hypothesis.
The document discusses the differences between public and private banks in Bangladesh. It provides lists of public banks such as Sonali Bank and private banks such as BRAC Bank. It then analyzes the strengths, weaknesses, opportunities, and threats of both public and private banks. Finally, it concludes that both types of banks are essential for economic development in Bangladesh and provides recommendations such as using more IT, introducing new products, and providing staff training.
Functional Difference of bank and non bankHr Shamim
The document provides an overview of a report comparing the functional differences between EXIM Bank and LankaBangla Finance. It includes an introduction outlining the objectives and methodology of the study. It also provides background information on EXIM Bank, including its history and performance. Similarly, it provides an overview of LankaBangla Finance, including its history and achievements. The document outlines the organization of the full report through a table of contents and executive summary. It aims to analyze and compare the two financial institutions.
Difference between Islamic banks and Conventional banksMuhammad Danish
this document contains a detailed comparison of the Islamic banking system and conventional banking system. we take the examples of HBL and Meezan bank limited
Current and future challenges of banking sector- report on DBBLUniversity of Dhaka
Banks play an important role in a country's economic development by mobilizing savings, facilitating capital formation, and creating credit. They face challenges in Bangladesh like low quality assets, surplus liquidity, lack of good governance, and inadequate risk management. Banks can address these challenges through risk management, credit risk mitigation, training employees, and using new technologies. Dutch-Bangla Bank provides unique products and services like mobile banking, internet banking, and agent banking to create value for customers. However, infrastructure issues still hinder fully online banking in Bangladesh.
Consumer behavior analysis in selection of a bankTrupti Desai
The document summarizes research on consumer behavior when choosing a bank in India. It discusses the origins and structure of banking in India. Research methodology included questionnaires with 100 consumers in Ahmedabad and Baroda. Key findings were that consumers primarily consider rate of interest, convenience, easy loans and ATM access when selecting a bank. There was no major differentiating factor between banks and consumers desired more attractive offers, education on offerings, and improved security. Recommendations included targeting influencers to gain more business and assuring security of consumer investments.
This proposal discusses developing an effective online strategy for the Islamic banking sector in Libya. The objectives are to improve performance, ensure sustainable growth, and understand how online banking is evolving in Islamic and conventional banks in Libya from the customer's perspective. The proposal will examine the internal strengths and weaknesses as well as external opportunities and threats to frame a strategy. It will also focus on online transactions, human resource development, and strategies for internal and external relations.
The Basel Committee on Banking Supervision introduced stricter Basel III regulations after the 2008 financial crisis to strengthen banks' capital requirements and promote a more resilient banking sector. The key changes included higher minimum capital requirements, a capital conservation buffer, a countercyclical capital buffer, strengthened capital treatment for trading book exposures and securitizations, more stringent counterparty credit risk rules, and the introduction of a non-risk-based leverage ratio. The regulations aimed to reduce systemic risk, improve risk management practices, and promote a safer banking system overall.
This document compares and contrasts Islamic and conventional banking systems. It discusses that both systems perform similar functions like accepting deposits and providing credit, but they differ in how they operate. Islamic banks follow sharia law and do not charge interest, instead operating via profit/loss sharing partnerships or asset purchases with rent charges. Conventional banks charge fixed interest rates on loans. The document also outlines some similarities and differences between the two systems, as well as providing examples of Islamic banking types and schemes in Pakistan.
Evaluation of banking sector’s development in bangladesh in light of financia...Alexander Decker
The document evaluates the development of Bangladesh's banking sector in light of financial reforms over the past decades. It discusses the initial phases of reform from the 1980s to 1990s which focused on promoting private ownership and reducing government control of banks. The second phase from 1990 introduced measures like interest rate deregulation, priority sector lending incentives, and licensing new private banks. Subsequent reforms strengthened regulatory frameworks, adopted Basel standards, and restructured some state-owned banks through the 2000s. The study aims to evaluate how successfully the banking sector has evolved in terms of improving access to services, financial deepening, operational efficiency, and stability. Key indicators are analyzed using the World Bank's framework to measure the impact of reforms on financial development.
Financial Performance Analysis of Islamic Bank in Bangladesh: A Case Study on...Premier Publishers
Banking sector is an important sector of an economy of a country, so it is necessary to monitor and evaluate the performance of it. The aim of this paper was to examine the performance of Islamic banking of Bangladesh in particular the experience for Al-Arafah Islamic Bank Limited. The paper goes further to explore some experience on the domestic and global challenges which are facing Islamic banking sector. Performance evaluation methodology used to ascertain the objectives in terms of profit maximization, capital structure and liquidity ratios. We used the financial data of bank from 2010 to 2014 and observed that the trend of all the indicators are positive. The ability, efficiency and number of products of Al-Arafah Islamic Bank Limited are increasing gradually. The investment of Al-Arafah Islamic Bank Limited is mostly on short term basis which is generally similar to other Islamic banks in Bangladesh. Islamic banks are facing some difficulties in their operations especially for non-shariah structure of their stakeholders. This study suggests that Islamic banks of Bangladesh should increase Islamic capital market, Islamic financial instruments, and proper zakat distribution and employment opportunities for the betterment of the society.
A comparative study on islamic banking in bangladeshMd. Shahinuzzaman
A banking system that is based on the principles of Islamic law (also known Shariah) and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest. Collecting interest is not permitted under Islamic law. Where the conventional banking follows conventional interest-based principle.
What is the trust of consumer toward the Islamic bankingAwais Sargana
This report summarizes research on consumer trust toward Islamic banking. A questionnaire was administered to 100 respondents to understand their awareness and perceptions. The results found that most people are aware of how Islamic banking operates without interest. Respondents also understood the religious and financial benefits of Islamic banking. The report recommends that Islamic banks increase education on their principles to further build trust. Overall, the research found that greater awareness leads to more positive perceptions of Islamic banking.
This document discusses the performance, challenges, and prospects of Islamic banking in Bangladesh. It begins by providing context on the role of Islamic banking in developing countries like Bangladesh and its importance in the economic development process. The paper then analyzes the performance of Islamic banks in Bangladesh since they began operating about 1.5 decades ago. It identifies some problems and opportunities for Islamic banks and provides recommendations. The study notes there is high demand among Bangladeshis for sharia-compliant banking services. It concludes that addressing challenges through a supportive legal framework can help the continued expansion of Islamic banking in the country.
The document discusses foreign equity investment in Pakistan's Islamic banking system. It provides background on the introduction of interest-free banking in Pakistan in the 1970s. It then analyzes performance measures for Islamic, government, and private banks in Pakistan from 2006-2010 based on ratios like return on assets, equity, and liquidity. Overall, Islamic banks showed gradually increasing balance sheets but zigzagging income statements, while government banks grew steadily except for reserves. The conclusion is that Islamic banking provides an alternative to conventional systems and attracts foreign investment due to its adherence to strong beliefs.
This document provides background information on Islamic banking and profit and loss sharing (PLS) mechanisms. It discusses how Islamic banks were initially built on PLS rather than interest, but now focus more on being interest-free while abandoning PLS. It proposes that asymmetric information is one reason for the weak implementation of PLS. The document then provides details on Islamic banking principles and the two pillars of being interest-free and using PLS. It explains the PLS mechanisms of mudarabah and musharakah, and discusses their origins and legitimacy in the Quran.
Growth of economy thorough islamic banking Hamail A Ahmed
Islamic banking originated from partnerships established by the Prophet Muhammad where capital, labor, and entrepreneurship were combined to share profits and losses. Islamic banks in Pakistan include Meezan Bank, Habib Bank, and Bank of Khyber. Despite Indonesia being majority Muslim, Islamic banking assets only account for 5% of total banking assets, showing room for growth. The Indonesian government aims to increase this to 15% by 2023 through various strategies. Key advantages of Islamic banking include prohibiting interest and speculation, emphasizing real economic activity, and profit/loss sharing. However, issues related to liquidity management, asset valuation, and monetary policy implementation remain challenges for Islamic banking.
Knowledge and perception of students regarding islamic banking in Sindh Pakistansanaullah noonari
Abstract
This research investigated the relationship between the university student’s perception and knowledge about
different concepts and terms used in the Islamic banking and products and services offered. Impact of age,
gender, area of study, area of residence, CGPA and family’s monthly income on the perception and knowledge
of students about Islamic banking was also analyzed. Data was collected from the postgraduate students
(Respondents # 60) selected randomly from two public sectors universities (Sindh Agriculture University Tando
jam and University of Sindh) along with one private sectors (ISRA) university of Hyderabad. Simple linear
regressions were used in order to check the impact of socioeconomic characteristics on the knowledge and
perception of students. University students were mainly surveyed to assess the knowledge and perception of
country’s intellectual cream of Islamic banking crop. Results showed that religious sincerity, not the better
knowledge of Islamic banking was the strongest predictor of personal banking performances. Result reflected
that overall perception and knowledge of students was significantly different from zero. Result suggested that
students had better perception about the Islamic banking but poor knowledge. It was found that the Arabic
language in specifying the products and services hindered the understandings of the students. Coefficient of age
and income showed a positive relation with the perception and knowledge of students regarding Islamic banking
in both public sector universities and Private Sector University. Result for area of study also displayed positive
relation with the perception and knowledge of students regarding Islamic banking. Gender, area of residence and
CGPA were not statistically significant which means these did not affected significantly on the perception and
knowledge of students about Islamic banking however in case of private Sector University CGPA count to be
factor, significantly effecting the perception of students.
Keywords: Islamic banking, perception, knowledge, products and services.
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This document discusses the Indian banking industry and compliance with Basel III norms. It provides background on the history and development of banking in India, from the establishment of presidency banks in the early 1800s to the modern banking system. It also discusses key events that transformed the banking system such as nationalization, financial sector reforms, and the establishment of new private banks. Finally, it notes that the electronic age and development of electronic banking has introduced new risks around data security and integrity that require improved risk management techniques.
Islamic banking is gaining popularity globally as an interest-free alternative to conventional banking that complies with Sharia (Islamic law). Some key financing models used in Islamic banking include Mudarabah (profit-loss sharing), Murabahah (cost-plus sale), and Ijarah (leasing). While Islamic banks operate similarly to conventional banks in mobilizing deposits and allocating funds, they prohibit interest and invest funds using Sharia-compliant contracts. The emergence of Islamic banking has provided an innovative financial system, though it faces challenges in developing new products to better compete with conventional banks.
This study examines customer satisfaction levels with Islamic and conventional banks in Bahawalpur, Pakistan. 85 customers of 2 Islamic banks and 4 conventional banks were surveyed. The findings showed that customers were satisfied with both bank types but conventional bank customers reported higher satisfaction. Economic benefits, interest rates, and reputation were main motivators for conventional banks. Interest-free loans, Islamic principles, and religious environment motivated customers to Islamic banks. Overall, the study aimed to compare customer satisfaction and motivational factors between Islamic and conventional banking in the region.
Challenges facing the development of islamic bankingAlexander Decker
This document summarizes the challenges facing the development of Islamic banking in Kenya based on a case study of four Islamic banks. The key challenges identified are:
1) Lack of a supportive legal framework for Islamic banking, as commercial and banking laws are based on interest and prohibit some Islamic banking practices.
2) Need for specialized Islamic banking courts and amendments to existing laws to accommodate Islamic banking principles and resolve disputes.
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This document compares customer satisfaction levels between Islamic and conventional banks in Pakistan. It analyzes data collected from questionnaires distributed to customers of 3 Islamic banks (Bank of Khyber, Almeezan bank, Albaraka bank) and 3 conventional banks (Habib bank limited, united bank limited, Allied bank limited). The data shows higher customer satisfaction levels at conventional banks compared to Islamic banks, possibly due to conventional banks' greater global image, product variety, and marketing efforts. The document recommends Islamic banks improve services, awareness, and product offerings to better compete with conventional banks.
This document analyzes the efficiency of conventional and Islamic banks in Indonesia using data envelopment analysis from 2002-2006. The study finds that Islamic banks are slightly more efficient than conventional banks, though both are improving. Income is the most efficient factor for both bank types, while labor is always inefficient. Deposits are improving in conventional banks but worsening in Islamic banks, while financing has been a problem for conventional banks but high for Islamic banks. The document recommends Islamic banks focus more on attracting floating customers and improving human resources.
Overview on IBBPLC the First Shariah Based Bak of South Aisa.pdfArfanAhmed22
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- Islamic banks in Bangladesh focus on socially responsible financing including agriculture, SMEs, housing, and poverty alleviation. They also provide various deposit products to promote causes like Hajj and waqf.
- The future of Islamic banking in Bangladesh looks promising due to the large Muslim population, growing demand, and central bank support through regulatory reforms and
Overview on IBBPLC the First Shariah Based Bak of South Aisa.pdfArfanAhmed22
This document provides an overview of Islamic banking in Bangladesh. It discusses the history and evolution of Islamic banking from its founding principles in the 1950s to its current state. Some key points:
- Bangladesh has over 2,300 Islamic banking branches and windows serving over 4 million customers, with total deposits and investments of over $43 billion and $29 billion respectively.
- Islamic banks in Bangladesh focus on socially responsible financing including agriculture, SMEs, housing, and poverty alleviation. They also provide various deposit products to promote causes like Hajj and waqf.
- The future of Islamic banking in Bangladesh looks promising due to the large Muslim population, growing demand, and central bank support through regulatory reforms and
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The Factors Affecting Mudharabah Deposits of Sharia Banking in Indonesiainventionjournals
Mudharabah deposit is one of main fund resource of sharia bank, teherefore the growth must be maintained. This research is aimed to find whether there are influences of profit-sharing rate of mudharabah saving, interest rate of saving in conventional bank, growth rate of Jakarta Islamic Index (JII), and Gross Domestic Product (GDP) to the amount of mudharabah saving in sharia banks. The sharia banks which are used in this research are all of sharia commercial bank in Indonesia.The method of this research is Ordinary Least Square (OLS) with quarterly panel data from 2006 to 2015 of the twelve sharia banks which are observed. The approach model which is used in this research is Fixed Effect Model. The result of this research showed that profit-sharing rate of mudharabah saving, interest rate of saving, growth rate of Jakarta Islamic Index (JII), and Gross Domestic Product (GDP) have significant influences to the amount of mudharabah saving in sharia banks. Profit-sharing rate of mudharabah saving, growth rate of Jakarta Islamic Index (JII), and Gross Domestic Product (GDP) have positive influences to the amount of mudharabah saving, Meanwhile, interest rate of saving in conventional bank has a negative influence to the amount of mudharabah saving
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1. 8th International Conference on Islamic Economics and Finance
Prospects and Problems of Islamic Banking from Bank’s Perspective: A
Study of Bangladesh
Dr. Muhammad Z Mamun 1
This paper focuses on the prospect and growth potentials of Islamic banks in
Bangladesh as perceived by Islamic and conventional bankers. The study noted
that there is a high demand for interest-free banking services from a segment of
people in Bangladesh who have a strong desire to abide by the rules and
principals set by Shariah. Along with religious requirement, economic
exigencies provide a new outlook to the role of banking in promoting
investment/ productive activities, influencing distribution of income and adding
stability to the economy. The Islamic banking sector is, however, criticized on
several grounds by the Conventional bankers. The banks are believed not to
apply the rules of Shariah completely. Islamic banks are said to include interest
in their dealings to compete effectively with the Conventional banks. Moreover,
conventional banks offering Islamic banking as a parallel service are thought to
do so only to add to their profitability, by attracting people who value the
Shariah based system by enjoying the advantages of the special treatments from
the Central bank. According to the survey, suitable and supportive legal
framework would facilitate better growth of this sector. Moreover, the lack of
an inter-bank money market and sufficient supportive and link institutions in the
sector, act as impediments to growth of Islamic banking. Also, banks perceive
the availability of training and education on Islamic banking to be inadequate
in Bangladesh. To deliver superior services to the clients and to attain greater
efficiency, there is a need to have more institutions providing information on the
operations and principals of Islamic banking.
Key Words: Conventional bank, Islamic bank, Shariah, Profit-loss sharing.
1.0 ISSUE
Bangladesh is the world's third largest Muslim majority country, with Muslims making up
more than 85 percent of the population; A significant portion of the population demanding
interest-free banking for quite a long time. In August 1974, Bangladesh signed the Charter of
Islamic Development Bank and committed itself to reorganize its economic and financial
system as per Islamic Shariah1. As a consequence of this, the first interest-free Shariah-based
bank in South and Southeast Asia, Islami Bank Bangladesh Limited was established in
Bangladesh in 1983. Since then, six more full-fledged private Islamic banks, 10 conventional
banks with parallel Islamic banking services and a number of conventional banks with
Islamic banking windows have been established.
According to the Bangladesh Bank (BB), the central bank of the country, the total deposits of
the Islamic banks and Islamic banking branches of the conventional banks stood at Tk 286.5
billion ($ 4.09 billion) at the end of June 2007. This was 23.6 per cent of the deposits of all
private commercial banks and 14.3 per cent of the deposits of the total banking system. Total
investment of the Islamic banks and the Islamic banking branches stood at Tk 265.4 billion ($
1
Professor, Institute of Business Administration (IBA), University of Dhaka, Bangladesh.
Email: mzmamun@yahoo.com
1
2. Center for Islamic Economics and Finance, Qatar Faculty of Islamic Studies, Qatar Foundation
3.79 billion) at the end of June 2007. This was 26.9 per cent of all private banks and 17.2 per
cent of the total banking system of the country. The remarkable shifting or conversion of the
conventional banks and their branches into the Islamic lines signals high acceptance of the
interest-free banking by the public in general. The Islamic banking industry continued to
show strong growth since its inception in 1983 in line with the growth of the economy, as
reflected by the increased market share of the Islamic banking industry in terms of assets,
financing and deposits of the total banking system (Rashid et al. 2004).
However, Islamic banking in Bangladesh is facing numerous problems or challenges. First,
they have not yet been successful in devising an interest-free mechanism to place their funds
on a short-term basis. Studies conducted on Islamic banking in Bangladesh show that the
future of Islamic banks hinges on their ability to find a viable alternative to interest for
financing all types of loans. Ahmad and Hassan (2007) concluded that Islamic banks in
Bangladesh should recognize the fact that their success in abolishing interest has been only
partial and they have a long way to go in their search for a satisfactory alternative to interest.
They face the same problem in financing consumer loans and government deficits. Second,
the risk involved in profit-sharing seems to be so high that almost all of the Islamic banks in
Bangladesh have resorted to those techniques of financing which bring them a fixed assured
return. As a result, there is a lot of genuine criticism that these banks have not abolished
interest but, in fact, only changed the nomenclature of their transactions.
In terms of individual consumers, the evidence to date suggests that the presence of Islamic
finance involves a substantial degree of market segmentation. While religious conviction is a
logical key determinant of the use of Islamic finance services, it is often not the only concern,
with most consumers also identifying bank reputation, service quality and pricing as being of
relevance in determining their patronage of a particular financial institution. In contrast to the
widespread and extensive analysis of attitudes, perceptions and knowledge of conventional
financial institution products and services, the parallel analysis of the same concerns in
Islamic finance is still in its infancy. This is an important deficiency in the literature given the
global growth in Islamic financing techniques and the evolution of dual banking systems in
many parts of the Middle East and South-East Asia encompassing both Islamic and
conventional financial services. Further works on the attitudes and beliefs towards Islamic
banking are thus necessary in finding the prospects and growth of this rapidly growing sector.
Since there are no profit-and-loss-bearing securities in Bangladesh, Islamic banks have been
allowed to maintain their Statutory Liquidity Requirement (SLR) with Bangladesh bank at
the rate of 10% (recently made 11%) of their total deposit liabilities, whereas the requirement
is 18% (recently made 19%) for conventional banks in Bangladesh. However, the Islamic
banks do not have the legal support of the Central bank in Bangladesh, neither have they had
the necessary expertise and trained manpower to appraise, monitor, evaluate and audit the
projects that are required to finance. As a result, they can not expand despite having huge
excess financial liquidity (Lakshmi 2004).
As Islamic banking practices are expanding into conventional banks, Islamic lenders must
pay greater attention to educating others about the sector. Meanwhile, banks also suffer from
a chronic shortage of staff with knowledge and expertise of Islamic finance, as method of
auditing and appraising in Islamic banks differs considerably from that of conventional
banking system. Hence, this issue may be redeemed by emphasizing more on training on
Islamic banking system.
2
3. 8th International Conference on Islamic Economics and Finance
With the rapid rise of Shariah-based systems, this study seeks to find out the view of the
bankers regarding the acceptability, opportunities and challenges of Islamic banking in
Bangladesh as Islamic banking is rapidly growing area of banking and holds great potential in
the banking sector of Bangladesh. This study will benefit the Islamic banks, as well as other
conventional banks adopting Islamic banking windows to capture their growth opportunities.
This study will also help the policy makers and regulators to support, assist and formulate
policies regarding Islamic banking in Bangladesh.
2.0 OBJECTIVES
The broad objective of the study is to find out the prospect and problems of Islamic banking
in Bangladesh from bankers’ perspective – both Islamic and Conventional. Specifically this
study will look into:
a) The factors that motivate banks to adopt Islamic banking methods
b) The reasons which attract consumers towards Islamic banks
c) The factors responsible for hindering growth of Islamic banks
3.0 METHODOLOGY
The study was conducted using both primary and secondary data and pertinent literature
survey. The primary data was collected through interview and structured questionnaire survey
of bank personnel of both categories of banks (Islamic and Conventional). Secondary data
has been collected from various research books on Islamic banking and related publications.
An extensive literature survey was undertaken to develop an insight into the nature and
traditions of the Islamic banking sector in Bangladesh.
There are a total of 47 scheduled banks (listed with the central bank) in Bangladesh. These
banks can be grouped into three categories: 1) Seven purely Islamic banks, 2) 10 banks
offering Islamic banking as a parallel service and 3) Other conventional banks not offering
Islamic banking (30). In light of above the population is divided into two sets: The first
contains 17 banks which provide either pure or parallel Islamic banking services and the
second population consists of the 30 banks which only provide conventional banking
services.
A sample of 11 banks from the 1st set and 13 banks for the 2nd set are chosen on judgmental
basis. For each set, a minimum of 100 responses were collected with minimum eight
respondents from each of the banks using a structured questionnaire. Face-to-face interview
was also conducted with a selected number of respondents from these banks. Statistical Index
analysis incorporating t-test is conducted to see the differential views of the Islamic and
conventional bankers regarding the prospects of Islamic banking in Bangladesh.
4.0
4.1 Origin of Islamic Banking
LITERATURE REVIEW
The origin of Islamic banking can be traced back to the practice of mudaraba2 by the Prophet
Muhammad (SM) himself. Islamic banking operates on principles adhering to the Quranic
norms forbidding usury and transactions, including granting of loans or credits for interest.
The economic rationale for eliminating riba3 (interest) and establishing the Islamic banking
system is based on values of justice, efficiency, stability and growth. It is assumed that under
3
4. Center for Islamic Economics and Finance, Qatar Faculty of Islamic Studies, Qatar Foundation
the system of Islamic banking, the industrial and/or commercial risk is shared more equitably
between the entrepreneur and the capital owner and the returns on investment are shared
among the investors on the basis of their proportionate capital. The conventional banks tend
to serve the most creditworthy borrowers, while the Islamic banking system presumably
looks for the most productive and profitable projects. The Islamic banking approach
theoretically opposes the idea of discrimination in offering banking services to people of
different social standings and provides for social cohesion between different classes.
The predominant feature of Islamic banks is the provision regarding the prohibition of
interest. This characteristic sets the Islamic banks apart from conventional banks. The
rationale, besides the Quranic injunction, that Muslim scholars provide behind this provision
are as follows:
• The interest system is perceived to be incapable of allocating available liquid funds
among firms and activities in the society according to the considerations of efficiency,
productivity and growth. An Islamic system based on profit/loss sharing financial
methods would offer an efficient substitute in principal.
The interest system maintains a pattern of distribution which is biased towards wealthy
individuals and large businesses who can afford to pay and receive interest. An Islamic
financial system, on the other hand, justifies and income distribution pattern that
promotes economic efficiency, productivity and other actual factors contributing to the
total value added.
The interest system contributes to ‘passive behavior’ to develop among people who
possess liquid funds since the availability of excess funds acts as a deterrent from
participating in risk financing. Islamic system as it promotes profit/loss sharing mode
encourages risk sharing and active participation of the providers of the funds in the
businesses they invest.
Prohibition of interest does not affect saving/investment or mobilization of funds as it is
based on the religious principles and is considered more ethical by religious people.
•
•
•
Islamic banking has the same purpose as conventional banking except that it operates in
accordance with the rules of Shariah, known as Fiqh al-Muamalat4. Amongst the common
Islamic concepts used in Islamic banking are profit sharing (Mudaraba), safekeeping
(Wadiah5), joint venture (Musharakah6), cost plus (Murabahah7), and leasing (Ijarah8). Some
of the salient features of Islamic Banking may be summed up as (Siddiqui, 2004):
1. While permitting the individual the right to seek his economic well-being, Islam makes a
clear distinction between what is halaal9 and what is haraam10 in pursuit of such economic
activity. Islamic banking is restricted to Islamic acceptable deals, which exclude those
involving alcohol, pork, gambling, etc. Thus ethical investing is the only acceptable form of
investment, and moral purchasing is encouraged. In broad terms, Islam forbids all forms of
economic activity, which are morally or socially injurious.
2. While acknowledging the individual's right to ownership of wealth legitimately acquired,
Islam makes it obligatory on the individual to spend his wealth judiciously and not to hoard
it, keep it idle or to squander it.
3. While allowing an individual to retain any surplus wealth, Islam seeks to reduce the
margin of the surplus for the well-being of the community as a whole, in particular the
destitute and deprived sections of society by participation in the process of Zakat11.
4
5. 8th International Conference on Islamic Economics and Finance
4. While making allowance for the ways of human nature and yet not yielding to the
consequences of its worst propensities, Islam seeks to prevent the accumulation of wealth in a
few hands to the detriment of society as a whole, by its laws of inheritance.
5. Viewed as a whole, the economic system envisaged by Islam aims at social justice
without inhibiting individual enterprise beyond the point where it becomes not only
collectively injurious but also individually self-destructive.
The Islamic financial system employs the concept of participation in the enterprise, utilizing
the funds at risk on a profit-and-loss-sharing basis. This by no means implies that investments
with financial institutions are necessarily speculative. This can be excluded by careful
investment policy, diversification of risk and prudent management by Islamic financial
institutions. Islamic banks and banking institutions that offer Islamic banking products and
services are required to establish Shariah advisory committees/consultants to advise them and
to ensure that the operations and activities of the bank comply with Shariah principles.
Islamic banking should be synonymous with full-reserve banking, with banks achieving a
cent percent reserve ratio. However, in practice, this is rarely the case.
4.2 Global Status of Islamic Banking
Islamic finance – financial institutions, products and services designed to comply with the
central tenets of Shariah – is one of the most rapidly growing segments of the global finance
industry. Islamic banking, based on the Qur'anic prohibition of charging interest, has moved
from a theoretical concept to embrace more numerous banks with multi-billion dollar
deposits world-wide. Islamic banking is widely regarded as the fastest growing sector in the
Middle Eastern financial services market. Starting with the Dubai Islamic Bank in 1975 (and
operations in the United Arab Emirates, Egypt, the Cayman Islands, Sudan, Lebanon, the
Bahamas, Bosnia, Bahrain and Pakistan), the number of Islamic financial institutions
worldwide now exceeds over three hundred, with operations in seventy-five countries and
assets in excess of US$400 billion (El-Qorchi 2005). Though initially concentrated in the
Middle East (especially Bahrain) and South East Asia (particularly Malaysia), Islamic finance
principles are now increasingly found elsewhere. It includes developed economies where a
small number of Islamic financial institutions have been established and where large
conventional banks have opened Islamic financing windows (such as in Europe and the
United States) (El-Qorchi 2005).
While Islamic finance has been practiced for many centuries, it is important to recall that only
in the last thirty years have the Islamic financial institutions offering Shariah-compliant
products and services become more widespread and substantial. Indeed, even in Muslim
countries it is only very recently that analogous Islamic finance products and services have
been offered in direct competition to the financial products and services offered by
conventional banks. Clearly, as Islamic products and services enter these markets, an
important consideration is the attitudes, perceptions and knowledge of market participants
towards these new methods of finance. For individual consumers and business firms, these
factors determine the extent to which they choose to patronize these alternative products and
services. Key concerns include the influence of religious persuasion and the relative pricing,
costs and benefits, convenience and access of Islamic products and services versus
conventional bank products and services. For conventional financial institutions, the presence
of financial institutions offering Islamic financial products and services may affect their
competitive position and how they construct new marketing strategies. It may also influence
to their decision to introduce Shariah-compliant products and services themselves.
5
6. Center for Islamic Economics and Finance, Qatar Faculty of Islamic Studies, Qatar Foundation
Many scholars believe that there are three contemporary phenomena which can explain the
high growth of the Islamic banking sector (Siddiqi, 2002). The first is the widespread
dissatisfaction with the performance and consequences of the monetary and financial sector
all over the world since the end of the world war two, especially since the 1970s. The second
is the fact that the Islamic financial movement appeared on the scene as an offshoot of a
much broader resurgence among the Muslims. And the third factor is the Islamic approach to
money, banking and finance which carried strong moral overtones since its inception. There
is a widely shared perception that there is much more inequality in the distribution of income
and wealth today than at any other time in the entire past of mankind. The fact that its rise
coincided with the Muslim countries’ coming out of colonial rule speaks volumes about its
place in the Muslim psyche.
4.3 Other Related Studies
A substantial literature on individual consumers’ attitudes towards conventional financial
products and services is already in place, especially concerning selection criteria (or
patronage) and customer satisfaction. Kaynak and Whiteley(1999), for example, observed
that the convenience of a bank was a primary motivation for customers in selecting a specific
institution. Further, the convenience motivation include location or other factors such as
service quality (Wel and Nor 2003, Lee and Marlowe 2003). In contrast, Almossawi (2001)
concluded that the bank’s reputation was the most significant factor in the use of
conventional banks’ services, while Owusu-Frimpong (1999), Ta and Har (2000) and Kaynak
and Harcar (2005) found that profitability factors, such as low service charges and high
interest rates, were the major reasons why customers chose a particular bank. Kaynak and
Harcar (2005) also concluded that a fast and efficient service was also an attractive feature
valued by current and potential customers, while Gerard and Cunningham (2001) considered
that for most customers the most important criterion for bank selection was feeling secure. In
related work, Devlin (2002) showed that professional advice was the most significant
motivation for the choice of a home loan institution by customers in the United Kingdom.
The increasingly competitive environment in which conventional banks operate has seen
customer satisfaction the focus of increasing attention. Generally, there is a consensus among
many studies that service quality is the primary factor in customers’ satisfaction with
conventional bank services (Jamal and Naser 2002). In sharp contrast to the voluminous work
on consumers’ perceptions, patronage and satisfaction with conventional bank services,
relatively little work has been undertaken including Islamic banks. Erol and El-Bdour (1989)
is considered to be the first study in Jordan of individual consumers’ attitudes towards
Islamic banking. The main finding was that factors such as a fast and efficient service, the
bank’s reputation and image, and confidentiality were the primary bank criteria for the choice
of bank, whether Islamic or conventional. This implied that religious motivation in bank
selection did not appear very important. Interesting, the study also found that bank customers
(at least in Jordan) were generally aware of Islamic banks and their methods, usually from
information provided by relatives and neighbors, but that expansion in the number of Islamic
bank branches appeared to be insignificant in determining patronage.
In Egypt, Hegazy (1995) compared the demographic profiles of four hundred customers of
two banks: the Islamic Faisal Islamic Bank and the conventional Bank of Commerce and
Development. The results showed that 98.8 percent of the Islamic bank’s customers were
Muslims married with children, while 32.4 percent of the conventional bank’s customers
6
7. 8th International Conference on Islamic Economics and Finance
were Christians and 54.3 percent were Muslims. This suggested that the choice of an Islamic
bank is based, in part, on a religious motivation. A number of studies have examined the
decision-making criteria business firms use when selecting a conventional bank. Gerrard and
Cunningham (2000) concluded that specific types of businesses often had very particular
attitudes towards conventional banks. For example, gazetted hotels in Singapore indicated
that the pricing of services and location were important factors implied in their selection due
to their historically limited dealing with banks.
In studies of firms in Hong Kong by Lam and Burton (2005) the key finding was that the size
of the bank was a significant factor in the choice of a conventional bank because of the need
for increasing amounts of credit. In Malaysia, Ahamad and Haron (2002) considered business
attitudes towards Islamic banking products and services by forty-five corporate customers.
The major finding was again that economic factors, such as profitability and the quality of
services, were more significant for Malaysian corporate customers than religious reasons.
However, one qualifying factor could be that the majority of respondents were non-Muslims
who were generally less aware of the existence of Islamic banks and the substitutability of
Islamic finance methods for conventional bank products and services. In fact, most
respondents, both Muslim and non-Muslim, had a low level of knowledge about Islamic
finance, especially most of the business financing methods. As with the work on individual
consumer preferences in Malaysia, this study recommended that Islamic financial institutions
in Malaysia needed to better market their products and services.
There are very few studies that have considered the attitudes of financial institutions towards
Islamic methods of finance. Jalaluddin (1999) interviewed eighty Australian financial
institutions based in Sydney on their attitudes towards Islamic profit/loss sharing methods of
finance and whether they would be agreed to lend funds in accordance with these methods.
Overall, more than forty percent of respondents were prepared to lend funds on a profit/loss
sharing basis, motivated in part by the need to provide business support, strong growth in the
demand for funds, the high risks of default under the conventional banking system, and the
potential for higher returns to lenders. On the other hand, complications with firm
management, a lack of familiarity with business conditions, and risk sharing with borrowers
acted against financial institutions lending on a profit/loss sharing basis.
In another paper on financial institution attitudes towards Islamic finance, Karbhari et al.
(2004) undertook focused interviews with financial institutions in London to investigate their
attitudes towards the problems, challenges and opportunities facing Islamic banks in the
United Kingdom. The major finding of this study was that most if not all respondents were
convinced that involving Islamic methods of finance in conventional banks’ operations would
help promote the establishment of Islamic banks in the UK. In turn, this would increase
Muslim and non-Muslim British customers’ understanding of Islamic methods of finance. In
addition, most of the respondents believed that the UK government did not support the
establishment of Islamic banks. Karbhari et al. (2004) concluded that an education program
could be a useful way to undertake future change in the UK financial sector with the partial
evolution of a dual-banking system.
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8. Center for Islamic Economics and Finance, Qatar Faculty of Islamic Studies, Qatar Foundation
5.0 PERCEPTION OF ISLAMIC BANKERS OF BANGLADESH TOWARDS
ISLAMIC BANKING SYSTEM
5.1 Characteristic Variables of the Islamic Banking System
The Islamic bankers gave their option, in a scale of 2 (strongly agree) to – 2 (strongly
disagree), to eight characteristic variables of the Islamic banking system (Table 1). The most
important variable perceived by the respondents is found to be the high growth in net income
of the sector (1.05). Islamic banks offer loans for a variety of projects and the criterion for
allowing a loan is not necessarily the credibility of the borrower. The success potential of the
project is given main consideration, which should theoretically bring in higher income for the
bank. In the same token the perception that Islamic banking is more profitable (0.84) is also
an important character. Islamic banking as a whole is perceived to be more profitable than
conventional banking reflects the subjective assessment of the respondents. Whether the
Islamic banks truly abide by the actual Shariah rules or not, the system of banking is assumed
to be more rewarding in monetary terms.
The other notable feature is profit-loss sharing (PLS) method (0.79). Broadly, the profit-loss
sharing is a contractual arrangement between two or more transacting parties, which allows
them to pool their resources to invest in a project to share in profit, loss and other risks. The
PLS method complies with the equitable sharing of risks and profits between the parties
involved in a financial transaction: (i) the entrepreneur or the actual user (borrower) of
capital, (ii) the bank which serves as a partial user of capital funds and as a financial
intermediary, and (iii) the depositors who are the suppliers of savings or capital funds. It is
believed that in many cases interest is the cause of huge fluctuations in the business cycle of
an economy, and since the PLS method is an alternative; it offers many benefits to an
economy. This is unlike the interest-based commercial banking system, where all the pressure
is on the borrower as they must pay back their loan, with the agreed interest, regardless of the
success or failure of his venture.
Since the religious belief draws a segment of customers to Islamic banking, the sector has
experienced steady growth in the number of clients (0.76) and fixed deposits (0.60).
According to the respondents, the growth of fixed deposits in Islamic banking is high and
positive even it operates on the principle of ‘zero-interest’. The depositors are by default,
entitled to any profit/loss the banks earns; and this may at times give them a higher return in
comparison to a fixed interest rate scheme. This may also signal that the amount of deposit by
each client is increasing which again reinforces the belief that Islamic banking is lucrative, as
there is significant growth of fixed deposits. The high growth of the number of fixed clients is
because of limited number of Islamic banks and is another major reason that makes this
system of banking so attractive. A limited number of banks were set up which provided
Islamic banking services, but in the last few years, many conventional banks opened up
parallel services offering Islamic banking services when they realized that a large customer
base exists for Islamic banking system.
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9. 8th International Conference on Islamic Economics and Finance
Table 1: Characteristic Variables of the Islamic Banking Perceived by Islamic Bankers
Sl.VariablesIndex St.
No.Dev.
1High growth of net income in the Islamic banking sector1.05 0.72
2Islamic banking is more profitable than conventional banking0.84 1.08
3Profit-Loss sharing method represents economic advantages0.79 0.84
4High growth of the number of fixed clients in the Islamic banking 0.76 0.94
sector
5High growth of fixed deposits in the Islamic banking sector0.60 0.87
6Zero interest rate minimizes risk0.58 0.95
7High growth of debt-financed assets Islamic banking sector0.47 0.82
8Preferential treatment from central bank contributes to higher 0.26 1.06
profitability
The other characteristic variables mentioned for the Islamic banking sector are zero interest
rate (0.58). The Islamic banking system relies on zero interest rate and believes that zero
interest rate minimizes risk. This can be true in an instance when the bank is unable to earn
sufficient profit and it will be excused from paying any returns/payments of interest to its
depositors in that situation. In contrast with conventional finance methods, Islamic financing
is not centered only on credit worthiness and ability to repay the loans and interest; instead
the worthiness and profitability of a project are the most important criteria of Islamic
financing while the ability to repay the loan is sub-segmented under profitability.
The high growth of debt-financed assets (0.47) reveals that more and more people are taking
loans from Islamic banks to purchase wide ranging products. An innovative approach applied
by some banks for home loans are called Musharaka al-Mutanaqisa that allows for a floating
rate in the form of rental. Many Islamic banks have adapted the PLS method to make it
applicable to increasing range of debt-financed assets. It would appear that this form of debt
is becoming popular in recent years because of the flexibility it provides, and because it does
not entail the burden of a fixed interest rate.
The preferential treatment from central bank (0.26) is perceived to be a less significant
character of Islamic banks. The Bangladesh Bank has a lenient policy for Islamic banking
where the liquidity and reserve ratio stands to be only 11% and 4% respectively. From the
responses it can be deduced that the bankers believe the preferential framework for the
Islamic banks stimulates to some extent growth. As mentioned previously, BB’s leniently
policy in turn increases their liquidity and their funds are more available for use in profitable
investment projects.
5.2 Main Reasons for Adoption of Islamic Banking System
The study tried to find out factors motivating the adoption of Islamic banking system in a
scale of 2 (strongly agree) to – 2 (strongly disagree). The most important factor motivating
the adoption of Islamic banking is perceived to be the religious belief of a segment of
customers (1.27). As noted the segment of religious people among banking customers feel a
strong need to adhere to Islamic principles and rules in every aspect of their lives, and hence
banks are drawn to this system. This has a two-fold impact on the growth of Islamic banking.
Firstly, because of the religious orientation of the people of Bangladesh, Islamic banks are an
attractive venture as they present a huge marketing and income opportunity. As a result the
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10. Center for Islamic Economics and Finance, Qatar Faculty of Islamic Studies, Qatar Foundation
market share of Islamic banking is on the rise. Secondly, religious belief appears to be the
prime motivator for customers to avail of Islamic banking. The respondents surveyed quoted
this variable for being the dominating factor for banks to adopt Islamic banking structure.
Islamic bankers reinforce moderately the fact that the clients pursue the system because of
higher profitability (0.35). Many respondents also expressed the belief that because of the
havoc wreaked on conventional banks by the global financial crisis, Islamic banks will
flourish in the upcoming years because of expectations of higher profits and greater security.
The survey revealed that expectation of higher profit is not only limited to the clients only;
rather the bank management team also comes under its influence as well because of shared
profit and loss. The profitability of this sector has been one of the predominating reasons for
many conventional banks to adopt Islamic banking system and provide parallel services to
their clients. The Islamic bank managers also perceive moderately the fact that the system is
efficient (0.28). On the other hand they do not endorse that the preferential treatment from
central bank (- 0.13) is a main reason for adoption of the system by the banks.
Table 2: Main Reasons for Adoption of Islamic Banking System
VariableIndex
Religious beliefs of potential customers is main reason for adoption
Comparatively higher profitability is main reason for adoption
Higher efficiency is main reason for adoption
Preferential treatment from BB is main reason for adoption
Factors That Customers Like of Islamic Banks
1.27
0.35
0.28
-0.13
Sl.
No.
1
2
3
4
5.3
St.
Dev.
0.96
1.05
1.03
1.08
The bankers option regarding variables that consumers like of Islamic banks in a scale of 2
(strongly agree) to – 2 (strongly disagree) is shown in table 3. The main factor liked by the
consumers toward Islamic banking is it’s coherence with the Islamic principles (1.15). The
respondents believe that Islamic financial movement appeared on the scene as an offshoot of
a much broader resurgence among the Muslim people. There is a widely shared perception
that there is much more inequality in the distribution of income and wealth today than at any
other time in the entire past of mankind. This applies to the distribution within nations as well
as between nations. There is also a prevalent belief that the Islamic approach to money,
banking and finance could possibly provide the solution.
The bankers believe that consumers are drawn to Islamic banking as they feel the service
level to some extent superior (0.55). The respondents believe that improved levels of service
will make this sector more attractive. If services can be made more fluid by eliminating the
bureaucratic elements, then more and more customers will be drawn to this sector, which will
lead to the flourishing of this sector. While the inherent standard-operating–procedures of
Islamic banking, like the PLS method and zero-interest rate, are viewed to be economically
superior to those of conventional banking, it is up to the Islamic banks to provide better and
efficient services to make this sector more attractive. The response regarding the variable
convenience of account handling is found to be insignificant (0.14). It can be noted here that
Islamic banks allow opening of accounts with a modest amount of money.
Profit motive also appears to have no significance in attracting clients (- 0.04). An important
characteristic which forms the basis for the development of Islamic banks is the relationship
with depositors. They deal with their customers on investment grounds rather than a pre-
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11. 8th International Conference on Islamic Economics and Finance
determined fixed interest rate. They invest the money of their depositors on high profitable
projects after going through a strategic analysis in order to give a substantial return to their
depositors. The popularity of Islamic bank can be linked to the expectation of higher profit
gained through the Islamic banking system even though the clients are not much attracted by
this. The officials surveyed are of the opinion that the client base of Islamic banks believes in
profit-loss-sharing through their transaction in the Islamic bank modes.
Table 3: Factors That Attract Customers to Adopt Islamic Banking
VariableIndex
Adherence of Shariah rules is main factor to attract customers
Better service level is main factor to attract customers
Convenience of account handling is main factor to attract customers
Expectation of higher profits is main factor to attract customers
Factors Hindering Growth of Islamic Banks
1.15
0.55
0.14
-0.04
Sl.
No.
1
2
3
4
5.4
St.
Dev.
1.06
1.03
1.11
1.15
The bankers gave their option to 8 variables that hinders the growth of Islamic banking in a
scale of 2 (strongly agree) to – 2 (strongly disagree). Regarding hindrances for growth the
Islamic bank managers’ shows strong agreement on the need of exclusive regulatory
framework (1.16). Currently the Islamic banks are regulated by the same framework as that
of conventional banks. Since the two banking systems work differently, many issues of
Islamic banking cannot be settled by the existing policy. The role of the state in pursuing the
comparative advantages of Islamic finance is also crucial in removing legal hurdles in the
way of Islamic financial practices and enacting laws enabling the adoption of such practices.
It can be said that launching of new framework supporting the interbank money exchange
between Islamic and conventional banks will stimulate further growth of Islamic banks.
Furthermore, a compatible regulatory framework will create an avenue for Islamic banks to
compete freely with conventional institutions. It is further recommended to introduce a
separate Islamic Bank Act to govern banks that provide facilities under the Islamic window
concept. The respondents revealed that such a mechanism would protect both Islamic banks
and its customers and at the same time reduce the chances of debts going bad.
The second-most important factor in deterring the growth of Islamic banking is the lack of
support from the link institutions (0.98). Respondents have disclosed that because of the lack
of secondary financial market for Islamic financial products, they cannot achieve true
comparison with the conventional system. Development of supportive secondary money
markets is essential to expand the growth of Islamic banking.
Inadequate post financing supervision has given many account holders the chance to take
advantage of the Islamic banks' profit-loss sharing system (0.90). Islamic banks offer loans
for a variety of projects and the criterion for allowing a loan is not necessarily the credibility
of the borrower. The success potential of the project is given main consideration, which
should theoretically bring in higher profit for the bank, while the ability to repay the loan is
sub-segmented under profitability. However, the occurrence of bad debt has presented itself
as quite a threat for the prosperity of Islamic banking. Under the present system of banking,
there is a lack of proper supervision of post financing circumstances; hence the defaulting
rate is high. So it can be gathered that an apt system of post financing administration would
help the Islamic banking sector flourish.
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12. Center for Islamic Economics and Finance, Qatar Faculty of Islamic Studies, Qatar Foundation
Sl.
No.
1
2
3
4
5
6
7
8
Table 4: Factors Hindering Growth of Islamic Banking System
VariableIndex
Necessity of new regulatory framework to be introduced for
coordination
Shortage of supportive and link institutions
Need for greater post financing situation in banks
Inadequate training and education facilities
Political intervention in borrower selection contributes to bad debts
Lack of suitable financing modes for inter-bank borrowing
Lack of qualified human resource
Rising ratio of bad debts to total debts
1.16
0.98
0.90
0.80
0.73
0.72
0.39
0.11
St.
Dev.
0.55
0.64
0.94
0.88
0.92
0.86
1.09
0.93
Training facilities, coherent with the framework of Shariah banking is not available in a
sufficient number (0.8). Most of the training given to the officers and staff of banks are in
line with the conventional banking system. Compared to conventional banking concepts,
Islamic banking is a very new discipline and has distinct rules and principles. This implies for
a need of training in the procedures and principles of Islamic banking which would further
accelerate the growth of the sector. By continuing to provide well-researched, high quality
technical and product-focused training courses and faculty of recognized industry experts, the
development of human capital can be assisted. One of the most important challenges that
Islamic banks in Bangladesh face is the lack of Islamic banking professionals and the lack of
Shari’ah scholars who have specialized in Islamic economics. Further the Shari’ah board
should have a fair influence on the bank’s operational and strategic planning.
From the survey it became evident that the bad debt is to some extent multiplying. The
research has shown that intervention by political leaders has led to a handful number of debts
going bad (0.73). Islamic bank has an effective method of choosing its borrowers. However
at times, this process is marred by the intervention of dishonest politicians, who use their
political power to influence selection of borrowers. Eventually this leads to rising bad debts,
since most of the fraudulently chosen borrowers become defaulters. It can be deduced that if
the infrastructure is strengthened, the negative impact of politics can be lessened. Also most
Islamic bankers acknowledge the absence of inter-bank borrowing (0.72) to be a deterring
factor in the growth of Islamic banking. As a factor responsible to dwarfing the growth of
Islamic banking, respondents considered the lack of infrastructural inadequacies to be a major
deterring cause. The lack of suitable financing modes is also connected to the impeding
condition of inter-bank borrowing.
It is alleged that there is a lack of qualified human resource in the Islamic bank sector which
to some extent is a significant factor for hampering growth (0.39). As Islamic banking is a
relatively new concept in Bangladesh, particularly to bankers, there exists an ambiguous
understanding on the Islamic principles of banking. One of the most important challenges that
Islamic banks in Bangladesh face is the lack of Islamic banking professionals and the lack of
Shari’ah scholars who have specialized in Islamic economics. So far, no institutions have
been set up in Bangladesh to provide education and training to the personnel of Islamic
banking. However the respondents believe that this does not overcome the magnetizing effect
of religious stronghold of their targeted clientele.
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13. 8th International Conference on Islamic Economics and Finance
Lastly the bankers consider bad debts to some extent rising (0.11) and are a deterring factor
in their growth. However, in recent times the ratio of bad debts for Islamic banks has been on
the rise, which poses an alarming signal for this sector. Because Islamic banks employ the
profit-sharing method, and not the fixed-interest method, Islamic banks are deprived of
earnings whenever a borrower under-states his profit from a particular venture in order to
evade taxes. The respondents believe that this may act as a deterring force to the adoption of
Islamic banking principles in the future.
5.5 Islamic Banking System as a Whole
From above sub-sections the major explanation for Bangladesh's Islamic finance boom is its
operation in line with Islamic Shariah. The basic intention behind banking with Islamic banks
is the desire of Muslims to reorganize their financial activities in a way that do not contradict
the principles of Shariah and enable them to conduct their financial transactions without
indulging into riba. Hence by the prohibition of riba and following the PLS system, was the
source of inspiration for establishing Islamic banks. One of the reasons for this is that the
outcome of the productive effort is uncertain, and so interest necessarily involves an element
of gharar12 that is, uncertainty.
Other than this religious appeal, there are economic reasons which have contributed to the
emergence of Islamic Banking in Bangladesh as an alternative to conventional banking.
Some economists consider the role of interest in the conventional banking mechanism as a
major negative factor that contributes to cyclical fluctuations in the economy. Islamic
banking seems to provide a response to both religious and economic issues. While religious
requirement calls for avoiding any transaction based on interest, economic exigencies provide
a new outlook to the role of banking in promoting investment/ productive activities,
influencing distribution of income and adding stability to the economy.
6.0 PERCEPTION OF CONVENTIONAL BANKERS ABOUT ISLAMIC BANKING
SYSTEM
Growth Factors of Islamic Banks as Perceived by Conventional Bankers6.1
The conventional bankers view regarding the factors perceived to be responsible for the
growth of the Islamic banking in a scale of 2 (strongly agree) to – 2 (strongly disagree) is
shown in Table 5. According to them, the preferential treatment received by Islamic banks
from central bank contributes to their profitability (0.76). The respondents believe that it is
one of the most significant reasons for the development of the sector. Banks in the Islamic
sector tend to receive some preferential treatments from the Bangladesh Bank (BB). Firstly,
BB allows Islamic Banks to maintain a Statutory Liquidity Requirement of 11% where as this
requirement is 19% for the conventional banks. This preferential provision allows the Islamic
banks to divert some liquid funds for investment and thereby generate extra profit. Secondly,
BB allowed Islamic Banks independent scope to fix their profit-and-loss sharing (PLS) ratios
and markups commensurate with their own policy and banking environment. This freedom in
fixing PLS ratios and markup rates has provided scope for Islamic banks to follow the
Shariah principles independently. Lastly, BB allows Islamic Banks to reimburse 10% of their
proportionate administrative cost on a part of their balances held with Bangladesh Bank. This
facility has given some scope for enhancement of their profit base.
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14. Center for Islamic Economics and Finance, Qatar Faculty of Islamic Studies, Qatar Foundation
However, the respondents agreed that the profit-loss sharing method is advantageous to the
economic performance of the banks (0.47). This method states that all parties involved in a
particular financial transaction will equally share any profit or loss incurred. Economists
believe that interest contributes to instability in the economy. Hence, an interest free banking
system is more favorable in this sense. However, without a strong infrastructure, the benefits
of an interest-free banking system may well erode. The conventional bankers do belief, if not
very strongly, that conventional banking is more profitable than Islamic banking (0.14). That
is why, they believe, Islamic banking has not flourished yet, and most of banks in Bangladesh
do not offer Islamic banking services. They believe that, because of the higher profitability of
conventional banking, banks throughout the country devote more resources to this sector. But
few banks are trying to capture the market share of the segment that prefer Islamic banking
system.
The Islamic banks operate on the Shariah based system of no interest payments. This
minimizes risks for the banks as in the event of a loss; the bank would not be compelled to
pay to the depositors. The respondents believe that Islamic banks do not, in practice, offer a
zero interest rate to the customers. They tend to charge an amount to equate the payment of
interest. As a result, this does not act as a risk minimizing factor for the banks (- 0.05).
Table 5: Growth Variables of the Islamic Banking Perceived by Conventional Bankers
Sl. No.VariableIndex
1Preferential treatment from BB contributes to profitability for ventures0.76
in Islamic banking
2Profit-loss sharing represents economic advantages0.47
3Conventional banking is more profitable than Islamic banking0.14
4Zero interest rate minimizes risk-0.05
6.2 Factors That Can Attract Conventional Banks to Adopt Islamic Banking System
The study tried to identify the factors that may attract the conventional banks to adopt Islamic
banking system. The survey showed that the respondents consider "religious beliefs of
potential customers" (1.27) can be the main reason for adopting Islamic banking. According
to them, there is a market segment constituting people interested in engaging in Shariah based
banking. Capitalizing on the demand of this segment can be the main objective for
investments in Islamic banking. Islamic Banking operates on principles adhering to the
Quranic norms, forbidding any transaction involving interest. Hence, it provides people with
the opportunity to engage in transactions that are in harmony with their religious beliefs.
Therefore, it appears that whether conventional banks decide to offer Islamic banking
services in the future would depend largely on the marketing opportunities that this segment
offers, and the speed with which this segment is growing.
Next important attracting factor is preferential treatment from central bank (0.49) for
adopting Islamic banking. The respondents believe that preferential treatments that Islamic
Banks receive from the Bangladesh bank may contribute to their profitability. The major
contributor to profitability is the low reserve ratio that is allowed for Islamic Banks. This
enables the banks to utilize more resources and invest them in profitable ventures.
Bangladesh Bank has also demonstrated leniency in when it comes to the fulfillment of
statutory requirements by Islamic banks. Although this may help the Islamic banks to be
more profitable, the respondents also believe that this does not offer a major advantage, and
cannot be the sole basis for conventional banks to adopt Islamic banking.
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15. 8th International Conference on Islamic Economics and Finance
Conventional banks are inclined towards the fact of relatively higher profitability as the
incentive for adopting Islamic banking (0.38). According to the survey, Islamic Banking
offers comparatively higher profitability compared to conventional banking system. This is
mainly because Islamic Banking tends to attract a wide range of customers who value the
Shariah based system. Also, the flexibility in the laws governing the operations of Islamic
banks has made significant contributions to the growth of this sector as well, according to the
respondents.
According to most respondents, it is the desire to serve the "religious segment” that induces
banks to adopt Islamic banking. Most respondents do not think of the Islamic banking system
as being more efficient than the conventional system (-0.18). Hence, they believe that this is
not one of the reasons for adopting Islamic banking. The respondents believe that improved
levels of service will make this sector economically more advantageous, and will
complement the legal advantages that this sector possesses. However, respondents also noted
that the fulfillment of social responsibilities, even at the expense of reduced profits, is
sometimes the main motivation behind the establishment of Islamic banks. This perception
may be barring the attainment of efficient services in this sector.
Table 6: Factors That Can Attract Conventional Banks to Adopt Islamic Banking System
Sl.VariableIndex
No.
1 Religious belief of potential customers can be main reason for adoption1.27
2 Preferential treatment from BB can be main reason for adoption0.49
3 Comparatively higher profitability can be main reason for adoption0.38
4 Higher efficiency can be main reason for adoption-0.18
6.3 Factors That Discourage Adoption of Islamic Banking by Conventional Banks
To identify the reasons for not adopting Islamic banking system by the traditional banks the
respondents are given to rank 5 different options (Table 5) in a scale of 2 (strongly agree) to –
2 (strongly disagree). None of the options found to be strong reasons for not adopting the
Islamic banking system. Most conventional bankers agree that there is a little insufficiency in
supportive and link institutions in Islamic banking system (0.23). Most respondents agree that
a major reason for not adopting Islamic Banking is a shortage of supportive and link
institutions in the Islamic Sector in Bangladesh. Islamic Banks need a number of supportive
institutions/arrangements to perform functions that are being carried out by various financial
institutions in the conventional framework.
Due to a small number of banks operating in the Islamic banking sector (16) in Bangladesh,
the inter-bank money market is severely limited when compared to that for the conventional
banking systems (31). However, again most respondents feel that this fact acts as a reason for
not adopting Islamic banking (0.20). An inter-bank money market has two main functions:
firstly, to provide the Islamic financial institutions with the facility of funding and adjusting
their portfolios over the short-term and secondly, to serve a channel for the transmission of
monetary policy. Financial instruments and inter-bank investment allow surplus banks to
channel funds to deficit banks, thereby maintaining the funding and liquidity mechanism
necessary to promote stability in the system.
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16. Center for Islamic Economics and Finance, Qatar Faculty of Islamic Studies, Qatar Foundation
The conventional banks believe that a lack of support from the government also act to some
extent a reason for not adopting Islamic banking (0.10). Islamic banking is a newly emerging
sector. Bangladesh Bank exercises authority over Islamic banks under laws and regulations
engineered to control and supervise traditional banks whose goals and functions are different
from Islamic banks. The commercial, banking, and company laws contain provisions that are
narrowly defined and prohibit the scope of Islamic banking activities within conventional
limits. Hence, it is necessary that special laws for the introduction and practice of Islamic
banking be put in place. This will greatly enhance the ability of Islamic Banks to compete
effectively with conventional banks.
There is a lack of training and educational facilities in Islamic banking in Bangladesh. As a
result, the work force available to the banks in this sector is not sufficiently qualified.
However, an index close to zero (0.03) shows that conventional bankers are indifferent
towards the belief that a lack of qualified human resources makes Islamic banking less
attractive. Because of the belief that conventional banks are more profitable, this sector is not
able to attract the brightest minds of the country. In Bangladesh, this is a relatively new sector
and sufficient training is not provided by the existing institutions on the operations and
management of this sector.
The conventional banks disagree that a rise in the bad debt to total debt ratio is the main
reason for not adopting Islamic banking (- 0.21). Despite the preferential treatment received
by the Islamic Banks, the bad debts of this sector show a rising trend, which poses a
significant problem for the growth of this sector. The respondents believe that this may act as
a deterring force to the adoption of Islamic banking principles in the future.
Table 6: Factors That Discourage Adoption of Islamic Banking by Conventional Banks
Sl.VariableIndex
No
1 Shortage of supportive and link institutions is main reason for non adoption0.23
2 Absence of Islamic inter-bank money market is main reason for non0.20
adoption
3 Lack of legal support from government is main reason for non adoption0.10
4 Lack of qualified human resource is main reason for non adoption0.03
5 Rise in ratio of bad debts to total debts in Islamic banking sector is main -0.21
reason for non adoption
6.4 Comparison of Variables Common to both Islamic and Conventional Banks
A comparative analysis is made of the response variables (8) common to both Islamic and
conventional bankers (Table 7). The responses from the two groups found to be quite
different except for a couple of cases. Both the groups strongly (1.27) agreed that a religious
belief of potential customers is the main reason for adoption of Islamic banking system. This
can be the biggest marketing opportunity for Islamic banks. Most traditional Muslims view
the charging or receiving of interest as being against their religion. Their Islamic beliefs
prevent them from dealings that involve usury or interest (Riba). Islamic banking operates on
principles adhering to the Quranic norms, forbidding any transaction involving interest.
Hence, it provides people with the opportunity to engage in transactions that are in harmony
with their religious beliefs. The second variable where both the groups responded quite
closely (0.35 and 0.38) is “Comparatively higher profitability is main reason for adoption”.
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17. 8th International Conference on Islamic Economics and Finance
The low index values indicate that higher profitability is not a significant reason for adopting
Islamic banking system.
On the other hand, the Islamic bankers believe that ‘Islamic banking is more profitable than
conventional banking’ (0.84) which the conventional bankers disagree (-0.14). Islamic
system promotes profit/loss sharing mode and encourages risk sharing and active
participation of the providers of the funds in the businesses they invest. This might provide
the scope for receiving greater profits than a fixed amount of interest. The conventional
bankers believe that the Islamic banks only claim, but do not actually follow the true Shariah
based system of banking. According to them, the conventional system of banking is more
lucrative and it stands as an honest method of banking as opposed to Islamic banking which
they feel is only profitable as a Strategic Business Unit (SBU). The Islamic bankers endorse
the view of risk minimization by zero interest rate (0.58). Conventional banks do not
reinforce this claim (-0.05). They believe Islamic banks do not actually operate by the proper
principles and completely abolish interest rates. Hence, risk is not reduced. Also, it must be
kept in mind that Islamic banks in Bangladesh sometimes have a greater social and moral
motive to fulfill, even at the expense of reduced profit.
Table 7: Index Values of the Variables Common to both Islamic and Conventional Banks
SlVariableIslamic Conventional
NoBankingBanking
1 Islamic banking is more profitable than conventional0.84-0.14*
banking
2 Zero interest rate minimizes risk0.58-0.05*
3 Preferential treatment from BB is main reason for adoption-0.130.49*
4 Preferential Treatment from BB contributes to higher0.260.76*
profitability
5 Higher efficiency is main reason for adoption0.28-0.18*
6 Profit-Loss sharing method represents economic0.790.47*
advantages
7 Comparatively higher profitability is main reason for0.350.38**
adoption
8 Religious beliefs of potential customers is main reason for1.271.27**
adoption
* Different at 5% level of significance
** Not different at 5% level of significance
Although the preferential treatment from BB is also an opportunity for Islamic banks as the
policy helps them gain more liquidity than conventional banks, the index implies that Islamic
banks are almost indifferent to its attraction as a reason for adoption (-0.13). On the other
hand, conventional banks feel that the preferential treatment from BB is an attractive
opportunity for Islamic banks to grow and strengthen the sector (0.49). Islamic banks do not
quite agree that preferential treatment from Bangladesh Bank (in the form of lower reserve
ratio) further assist in gaining profitability (0.26). But respondents from conventional banks
perceive that the preferential treatment is giving them an edge to a great extent by increasing
the liquidity of the banks (0.76).
Islamic bankers to some extent believe that higher efficiency is a factor for adoption of the
system (0.28), which the conventional bankers quite disagree (-0.18). Finally the claim by
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18. Center for Islamic Economics and Finance, Qatar Faculty of Islamic Studies, Qatar Foundation
Islamic bankers that ‘Profit-Loss sharing (PLS)’ method represents economic advantages’
(0.79) is not quite endorsed by traditional banks (0.47). The PLS method represents flexibility
for the Islamic banks themselves and can mediate fluctuations in the economy as it is a
system void of interest rate. The interest system is perceived to be incapable of allocating
available liquid funds among firms and activities in the society according to the
considerations of efficiency, productivity and growth and is biased towards wealthy
individuals and large businesses. An Islamic system based on profit/loss sharing financial
methods would offer an efficient substitute in principal, according to them. Conventional
banks themselves do not have PLS method, but shows inclination of the banks towards
agreeing to the advantages of this system to some extent.
6.0 CONCLUSIONS AND RECOMMENDATIONS
The study of the prospects and problems of the Islamic banking sector of Bangladesh shows
that this sector is progressing steadily. The formation of Islamic banks and adoption of
parallel Islamic banking by several conventional banks over the years can be an indicator of
the high acceptability of this sector by the public. The main reason for the demand for Islamic
banking can be attributed to the desire of people to engage in financial transactions that
adhere to the rules of Shariah. The demand from this segment induces banks to either offer
Islamic finance exclusively or as a parallel service with other conventional offers.
The Islamic bankers believe that the PLS method represents financial advantages for the
banks and offers benefits for the economy by causing lower interest stimulated instability.
The banks are, however, believed to not implement the principals of Shariah entirely.
According to the conventional banks, these banks have not abolished interest from the
transactions. This has caused the PLS method to fail to have the impact it is intended to have
on risks, profitability and the society.
Conventional bankers believe that the preferential treatments that Islamic banks receive from
central bank contribute to their profitability and this factor plays a crucial role in motivating
some conventional banks to offer Islamic banking as a parallel service. Islamic finance, in
theory, is designed to work for the greater benefit of the society. Such conventional banks are
criticized for running Islamic banking branches not to serve this purpose but to act as profit
centers or strategic business units. Islamic units enable these banks to cater to a segment in
the market comprising people preferring the Shariah based system. At the same time, it
enables the banks to enjoy greater liquidity facilitated by the especial treatments offered by
the central bank.
Over the years, Islamic banking has emerged as an attractive venture due to the high income
generated by the sector and the rising number of fixed clients in most Islamic banks. The
fixed deposits and debt-financed assets in the sector however have been growing at a
significant rate. Despite the high profitability and liquidity offered by the sector, Islamic
banking is perceived to be less efficient than conventional banking.
The foremost factor making Islamic banking attractive to customers is adherence to the rules
of Shariah. Convenience of opening accounts or the quality of the services offered does not
have much impact on the consumer’s decision of choosing an Islamic banking system.
However, such a lack of such attributes does deter customers from choosing a particular
bank.
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19. 8th International Conference on Islamic Economics and Finance
The primary factor that hinders the growth of Islamic banking in Bangladesh is the lack of a
supportive legal framework. Banks believe that the introduction of an independent banking
act would enable this sector to thrive. Other two relevant variables, acting as impediments to
growth, are: lack of supportive and link institutions, and absence of an inter-bank money
market in the country. According to the respondents, these are some major obstacles that
must be addressed by the authorities for the prosperity of the sector.
The training and educational facilities available on Islamic banking are inadequate in
Bangladesh and this adversely affects the efficiency of the banks. However, banks believe
this has not been a significant factor in hindering the growth of the sector. The bad debts to
total debts ratio of the sector has been roughly stable over the past five years. Political
intervention has had some impact in contributing to the bad debts incurred. According to the
banks, there is a strong need for the sector to provide post financing services to retain
customers and to motivate them to stay loyal and honest.
All this suggests that Islamic banking is an attractive venture in Bangladesh. The high
demand for interest-free services contributes to the immense growth potential of the sector.
For competitive reasons, banks do not entirely abide by the rules of Shariah, and this prevents
the system from having the expected impact. Moreover, a number of conventional banks have
started Islamic Banking operations to enjoy greater profitability. The current legal framework
of the country needs to incorporate provisions for this sector. Furthermore, greater emphasis
should be placed on training and education available on this system, to assure competent
Human Resources and better post financing services.
NOTES
1 Shariah: The basic principle in the Shariah (Islamic Canon Law) is that exploitative
contracts based on interest or usury and speculation should be unenforceable. These laws
are derived from three sources: the Quran, the Hadith, and the Sunnah.
2 Mudaraba: The term refers to a form of business contract in which one party brings
capital and the other personal effort. The proportionate share in profit is determined by
mutual agreement. But the loss, if any, is borne only by the owner of the capital, in which
case the entrepreneur gets nothing for his labor.
3 Riba: Literally, an increase or addition. Technically it denotes in a loan transaction any
increase or advantage obtained by the lender as a condition of the loan. Synonymous to
rate of interest in the conventional banking mechanism.
4 Fiqh al-Muamalat: Basic Shariah Principles
5 Wadiah (safekeeping): A bank is deemed as a keeper and trustee of funds. A person
deposits funds in the bank and the bank guarantees refund of the entire amount of the
deposit, or any part of the outstanding amount, when the depositor demands it.
6 Musharaka: A partnership between two parties, both of whom provide capital towards the
financing of a project.
7 Murabaha: It is a contract of sale in which the seller declares his cost and the profit.
8 Ijarah: This is a contract involving hiring or leasing through which the services of a
person or a legal entity or organization is rented out or leased
9 Halaal: In Arabic-speaking countries, the term is used to describe anything permissible
under Islamic law
10 Haraam: That which is forbidden
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20. Center for Islamic Economics and Finance, Qatar Faculty of Islamic Studies, Qatar Foundation
11 Zakaat: It is often compared to the system of tithing and alms but unlike these older
systems, it serves principally as the welfare contribution to poor and deprived people in
the Muslim lands, although others may have a rightful share.
12 Gharar: Uncertainty, hazard, chance or risk. Technically, sale of a thing which is not
present at hand; or the sale of a thing whose consequence or outcome is not known; or a
sale involving risk or hazard in which one does not know whether it will come to be or
not.
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