...Chapter One Introduction 1.1 INTRODUCTION Foreign exchange refers to the financial transaction where currency value of one country is traded into another country’s currency. The whole process gets done by a network of various financial institutions like banks, investors and governments. The exchange rate varies according to the value of each country’s currency which is based on the health of that particular country’s economy. Any individual or company engaged in overseas business should be aware of the risks of currency fluctuations. Customers without commercial contracts expressed in domestic currency (or fixed by an agreed rate of exchange) are fully exposed to what is known as an exchange risk. Exchange risk may arise because of exchange rate movements in the period from the original commercial contract, to the time of settlement of the domestic equivalent of the foreign currency amount. Foreign exchange risk management is designed to preserve the value of currency inflows, investments and loans, while enabling international businesses to compete abroad. Although it is impossible to eliminate all risks, negative exchange outcomes can be anticipated and managed effectively by individuals and corporate entities. Businesses do so by becoming familiar with the typical foreign exchange risks, demanding hard currency, diversifying properly and employing hedging strategies. No countries of the world can produce all their necessary commodities and services. So it has to buy the commodities...
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...COMPARATIVE STUDY BETWEEN CONVENTIONAL AND ISLAMIC BANKS OF BANGLADESH Banks conventionally fulfill the supreme responsibility of being a financial intermediary between the deficit and surplus unit of the economy. Liquidity risk refers to the excessive transaction cost, excessive loss of value and excessive exertion of time that banks have to face at the time of allocating liquidity to the third party when stipulated. Because of the unique constitutional features and regulatory conformity with the Shariah principle Islamic banks have to exert much more to manage liquidity. The core objective of this very research is to assess the extent of liquidity risk associated with financial institutions especially banks and to evaluate the concurrent liquidity risk management (LRM) along with a comparative analysis between conventional and Islamic banks of Bangladesh. The researcher has tried to investigate the significance of firm's size, net working capital, return on equity, capital adequacy and return on assets on liquidity Risk Management in case of Conventional and Islamic banks of Bangladesh. Secondary data had been the major stimulus of the research covering five year 20062010. For Islamic banks, a model estimation to predict the liquidity risk level was proven to be successful but the module failed to generate the desired result in case of the conventional banks. Moreover, net working capital in case of Conventional banks and size of the business in case of Islamic...
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...Interest Rate and Loan Supply: Islamic Versus Conventional Banking System Liza Marwati Mohd Yusoff Aisyah Abdul Rahman Norazlan Alias ABSTRACT This paper attempts to explore the effect of interest rate 011 loan supply of Islamic banking alld Convemional banking system. The analysis segregated the Islamic and COllvellfional banking system imo commercial bank, finance company alld merchant bank. Overnight alld 3 month Klibor are llsed as interest proxy. Unit root test, Granger Causality test, Akaike Information Criterion and Regression analysist are IIsed in the study. The results of Granger Causality test indicate that the growth of overnight Klibor ca uses changes in the growth of Islamic and Conventional loan of Mercham Banks significantly and from the regression analysis, it is confirm that Islamic and Conventional loan growth of merchant bank are significantly positive related to overnight Klibor. INTRODUCTION The additional amo}Int a borrower pays a lender, over and above the borrowed sum (principal) is commonl y called interest. This interest depends on the size of the principal and the length of time the borrower takes to repay the principal and interest. For this reason, and for computational convenience, interest is usually expressed in terms of percentage per annum and is called the rate of interest. In banks there are three players. The players are the bank, the depositor and the borrower. The depositor places his fund with the bank and he demands and receives...
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...MP A R Munich Personal RePEc Archive Impact of Interest Rates on Islamic and Conventional Banks: The Case of Turkey Erge¸ Etem Hakan and Arslan Bengul Gulumser c ¨ ¨¨ January 2011 Online at http://mpra.ub.uni-muenchen.de/29848/ MPRA Paper No. 29848, posted 4. April 2011 06:17 UTC Impact of Interest Rates on Islamic and Conventional Banks: The Case of Turkey Etem Hakan Ergeça* and Bengül Gülümser Arslanb Abstract Identifying the impact of the interest rates upon Islamic banks is key to understand the contribution of such institutions to the financial stability, designing monetary policies and devising a proper risk management applicable to these institutions. This article analyzes and investigates the impact of interest rate shock upon the deposits and loans held by the conventional and Islamic banks with particular reference to the period between December 2005 and July 2009 based on Vector Error Correction (VEC) methodology. It is theoretically expected that the Islamic banks, relying on interest-free banking, shall not be affected by the interest rates; however, in concurrence with the previous studies, the article finds that the Islamic banks in Turkey are visibly influenced by interest rates. JEL classification: G21; E52 Keywords: Interest-free banking, monetary policy I. Introduction Islamic banks1 are defined as financial institutions that rely on the principle of Profit and Loss Sharing (PLS) with the entrepreneurial partners in their relevant banking...
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...------------------------------------------------- A Report On Comparative Performance Study of Conventional and Islamic Banking in Bangladesh Course Title: THEORY AND PRACTICES OF BANKING IN BANGLADESH Course Code: FBK 312 Submitted To: Md. Nur Nabi Assistant Professor Department of Finance and Banking Faculty of Business Administration and Management Patuakhali Science and Technology University Dumki, Patuakhali- 8602 Submitted by: Group: C (Level: 3, Semester: I) Session: 2012-2013 Faculty of Business Administration and Management Patuakhali Science and Technology University Dumki, Patuakhali- 8602 Date of Submission: 09th May 2015 ------------------------------------------------- Roll No | Registration No | Name of the Students | Signature | 1203051 | 03596 | Nusrat Jahan Rupa | | 1203053 | 03598 | Nusrat Yesmin | | 1203054 | 03599 | Nisath Salsabil Urmi | | 1203056 | 03601 | Mehedi Hasan | | 1203057 | 03602 | Hasan Shahria Nayeem | | 1203060 | 03605 | Khondokar Tanveer Ahsan | | 1203061 | 03606 | Sume Akter | | 1203062 | 03607 | Rased Amer Sohag | | 1203065 | 03610 | Nusrat Jahan Pinki | | 1203067 | 03612 | Rasel Miah | | ------------------------------------------------- Group Member Details ------------------------------------------------- ------------------------------------------------- ATTENDANCE REPORT 1) Level : 3 2) Semester : I 3) Course Code : FBK-312 4) Course Title : THEORY AND PRACTICES...
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...profitability, liquidity, credit risk and solvency through simple sectoral averages for both streams of banking. Table 1: Financial Performance of Islamic Vs Conventional Banking |PPERFORMANCE MEASURES |CONVENTIONAL BANKS | | | | | |ISLAMIC BANKS |COMMENTS | |Profitability | | | |Conventional Banking is dominating in | | |profitability | | | | | | | | |Conventional banking is dominating in liquidity | | |management...
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...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...
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...Developments of Islamic Banking in Pakistan & Malaysia: An Analytical Review Abstract This study compares Islamic banking operations currently practiced in Pakistan and Malaysia. Both countries started Islamic banking in early 1980’s but employed entirely different approaches. Pakistan attempted to convert the entire financial system in accordance with Islamic law at once at national level. Malaysia adopted the gradual application approach. It allowed Islamic and conventional banking systems to operate and to compete for deposits on parallel basis. This study examines the Pakistani and Malaysian approaches towards the implementation of Islamic banking in their respective countries. It recognizes lack of commitment and long term planning problems in case of Pakistan. Introduction Islamic banking system has emerged as a competitive and a viable substitute for the conventional banking system during the last three decades. It is especially true for Muslim world where presently Islamic banking strides at two separate fronts. At one side, efforts are also underway to covert the entire financial systems in accordance to Islamic laws (Shariah). At the other side, separate Islamic banks are allowed to operate in parallel to conventional interest based banks. Pakistan and Malaysia are the two good examples of above mentioned approaches. Both countries adopted different tracks for the same ultimate destination of developing full fledge viable Islamic financial system...
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...committed to Islamic way of life as enshrined in the Holy Qur'an and the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in accordance with the percepts of Islam. The establishment of Islami Bank Bangladesh Limited on March 13, 1983, as the first of its kind in Southeast Asia, was the true reflection of this inner urge of its people. It was both a hope and a challenge to the Islam loving people of the country in general and the pioneers of the Islamic banking movement to make it a success. In the beginning there was some doubt in the minds of many people about the viability as well as the sustainability of the Islamic banking system. But the history of two decades of Islamic banking operation in Bangladesh not only removed this doubt from the minds of the people but also showed how a new banking concept based on Islamic values could so rapidly establish itself as the most modern, dynamic, and popular bank of the country. Within this short span of time the workforce of Islamic banks in Bangladesh in general and Islami Bank Bangladesh Limited, in particular, by their strong commitment and tireless effort have been able to prove the superiority of Islamic banking over conventional banking in every department of banking operations and services. The success of Islamic banks not only gave them enough floors in the field of banking but also encouraged at least one conventional bank to convert fully all its operations on Islamic principles...
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...Issues And Problems of Islamic Banking An overview on the review of problems | | The Islamic banks face a number of challenges. First, they have not yet been successful in devising an interest-free mechanism to place their funds on a short-term basis. 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 most of the banks 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 have in fact only changed the nomenclature of their transactions Khan (1989). Third, the Islamic banks do not have the legal support of central banks of their respective countries (except in Pakistan and Iran), which exposes them to great risks. Fourth, the Islamic banks do not have the necessary expertise and trained manpower to appraise, monitor, evaluate and audit the projects they are required to finance. As a result, they cannot expand despite having financial liquidity.The future of Islamic banks hinges, by and large, on their ability to find a viable alternative to interest for financing all types of loans. They should recognize that their success in abolishing interest has been only partial and they have yet to go a long way in their search for a satisfactory alternative to interest. Simultaneously, Islamic banks need to improve their managerial capabilities by training...
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...and messenger. The following study is conducted due to the presence of one important economic instrument which has different system of management hence to show the similarities and differences between these instruments. Islamic and conventional banks are all banks but having different system of managements, aspects, history, products and even acceptance according to laws. The research will discuss these aspects and more to make people aware of these instruments so as to remove the confusion on them and make them choose the best with the best reasons. This study will be divided in to three chapters. Chapter one will be all about Islamic and Conventional banks, theirs nature, history, products offered and many more. Chapter two will discuss and show the similarities and differences of these banks. Chapter three as the final chapter will discuss the case study of Islamic banks in Tanzania. I pray to Allah to make this study be the sources of awareness about these banks especially in Tanzania where by people haven’t got exactly meaning and differences of these banks. 2) JUSTIFICATION OF THE RESEARCH: i. The research will define, show and explain the short history of Islamic and Conventional banks. ii. This research will show the comparison of Islamic and Conventional banks. iii. The research will show roles and activities of Islamic and Conventional banks in the community. iv. In this research products offered by these banks will be...
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...CHAPTER 1 1.0 INTRODUCTION This chapter traces the background of the study covering definition of AR-RAHNU system, its history and the benefits that make it accepted even among non Muslim society. And then, a comparative analysis is done between AR-RAHNU with conventional pawnshop. Since this study was done at AR-RAHNU Bank Rakyat, thus the background also will cover a little about Bank Rakyat and then goes through its AR-RAHNU system. In this chapter, problem statement, objective of the study, scope and significance of the study also be presented. 1.1 Background of Study People say diamonds are women’s best friend while gold jewelry is their true friend. In reality, this is at least true among Malaysian women. The reason is, other than to enhance women’s look, the jewellery also could be functioned as collateral whenever cash is needed by using pawn broking financing. As we can see, pawnshop has become a common activity to Malaysian especially among the Malays community and has an overwhelming responses among the poor and middle class in Malaysia to have financial sources quickly and easily. On that basis, many pawnshops and pawnbrokers exist to offer this service. Pawnbroking is a business of advancing loans to customers who have pledged their personal belongings as security. The pawnbroker's trade is one of the oldest known, having existed 2,000–3,000 years ago in China, as well as in ancient Greece and Rome. 1.1.1 CURRENT SCENARIO Among the current scenarios...
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...from all the members who contributed and who are contributing to this project, was vital for the success of the project. We are grateful for their constant support and help. ABSTRACT: This research is conducted just to explore that what are the issues and challenges as also what opportunities are there for the Islamic banks in Pakistan. As Pakistan is a Muslim country and the main population is of Muslims, there is a great importance of Islamic banking in this country and people are getting aware of this financial system. But the main challenge here that is faced by the Islamic banking is that Pakistan govt. is supporting conventional banking more. For this research interviews were taken from the employees and the customers of Islamic banks. These interviews are about the basics of the Islamic banking, about the awareness of Muslim society, the opportunities for the development and growth and the challenges that are faced by the Islamic banks in Pakistan. This research shows that as the Muslims in Pakistan want halal banking and are switching towards Islamic banks as they want to live their lives according to Islam, so there are opportunities for the Islamic financial system in Pakistan. In order to make this financial system successful the banking authorities should...
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...People Perception of Islamic Banking Muhammad Sohail Bhatti Student MS Islamic Banking & Finance University of Management & Technology Abstract: This research was conducted to gauge the perception of general public about Islamic Banking in Pakistan. Questionnaires were distributed to customers of Islamic Banking and conventional banking. The results revealed that most of the people do not have adequate knowledge of the concepts of Islamic Banking. Some of the participants did not even know that “Riba” is forbidden in Islam. Less awareness about the Islamic banking concepts can be the main cause of negative perception among general public. This study also revealed that many people think that Islamic banks have not played their proper role in creating the awareness and knowledge about the concepts and working of Islamic banking. The study might help the Islamic Banks to reconsider their marketing strategies so that the negative perceptions of the general public may be changed to a positive one. Key Words: Islamic Banking, Perception Introduction: Islamic Banking is relatively new concept as compared to conventional banking. The history of conventional banking dates back to about two hundred years. Whereas Islamic banking is only in its infancy stage and started only about 17 years ago. People are so used to the conventional side of the banking that it is a little hard for them to understand the Islamic Banking concepts and the working and services offered by them...
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...Journal of Islamic Banking and Finance Vol. 2, No. 1; March 2014 23 Islamic Banking Scenario of Bangladesh Salahuddin Yousuf1 Md. Ariful Islam2 Md. Rayhan Islam1 Abstract With an aim to explore the current Islamic banking scenario of Bangladesh, this study examines the key concepts of Islamic banking and its history in the world and in Bangladesh as well. This secondary data based research meets its objectives of reviewing relevant concepts, history and current performance of the Islamic banks of Bangladesh through both qualitative and quantitative approaches. From the establishment of first Islamic bank in 1983, this country has currently eight Islamic banks. Except one individual bank (ICBIBL), most of the Islamic banks show remarkable growth in their profitability in the last decade. One reason behind this consistent negative figure in profitability of this bank is the frequent change of ownership. But overall significant contribution of the Islamic banks in the banking industry is visible from the research. This paper provides up-to-date scenario of the Islamic banking in Bangladesh. Keywords: Islamic Banking, Riba, Performance, Banking Industry JEL-classification: E44 G10 G21 1. Introduction Islamic banking and finance is a creation of modern age. Capitalism argues, capital- one of the key factors of production, deserves fixed return whereas the entrepreneurs have to bear all the risks. The conflict of opinions with the Islamic values starts from this very...
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