...The German University in Cairo Faculty of Management Technology Research Methodology “The Comparison between Islamic loans and Conventional loans in relation to Market Power” Submitted By Ahmed el-Farnawany 16-2641 Tutorial Number: T13 Professor: Raghda El-Ebrashi Teaching Assistant: Hadeer Shawky January, 6th, 2011 Table of contents 1. Introduction 1 2. Literature Review 2 2.1 Conventional loans 2 2.1.1 Interest and loan pricing 2 2.1.2 Types of conventional loans 3 2.1.2.1 General loan types 3 2.1.2.2 Business loans 4 2.1.2.3 Consumer loans 4 2.2 Islamic loans 5 2.2.1 Interest prohibition. 5 2.2.1.1 Riba (Usury) 5 2.2.1.2 Why is riba prohibited 6 2.2.2 Types of loans in Islamic banking 6 2.2.2.1 Qard al-hasan 7 2.2.2.2 Ijara 7 2.2.2.3 Murabaha 8 2.2.2.4 Musharaka 8 2.3 Effect of Islamic loans objective and economic incentives on its market power in relation to conventional loans 9 2.3.1 The effect of Islamic Loan Objective on its Market Power 9 2.3.2 The effect of Islamic Economic Incentives on its Market Power. 10 2.4 Research gap 11 3. Methodology 12 4. References 17 1. Introduction Islamic economics and Islamic banks have grabbed the attention of millions of people around the world. That is because Islamic banks have assets that can be estimated as 300 billion USD around 75 countries in the world with 15 % annual...
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...thereby serves the greater community interests. One of the main tenets upon which Islamic banking law rests is the prohibition on interest or “riba”. The concept is meant to outlaw all forms of wrongdoing and give the financier an interest in the venture. Not only does the doctrine of “riba” prevent the exploitation of someone in a weak bargaining position, but it also forbids “all forms of gain or profit which were unearned in the sense that they resulted from speculative or risky transactions and could not be precisely calculated in advance by the contracting parties.” The prohibition of interest is meant to design an economy and society based on risk-sharing, fair dealing, and equity. In Islamic law, the justification that interest is the cost of using money or that a loan is an investment is rejected in favor of ethics. Islamic economic theory criticizes the conventional financial industry for speculation, consumerism, volatility, “unnecessary products,” large corporations, and usury. These traditional capitalistic means of profit-making are not compatible with Islamic values. Islamic law therefore creates a culture where people only spend what they have, a theory in direct opposition to consumer driven models. Investment regulations are implemented to avoid “sinful” activity. Currency hedging, futures contracts, day trading, and credit cards are all prohibited under Islamic law. In addition, companies with excessive debt, interest-bearing securities and accounts-receivables...
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...two decades in spite of mismatching of existing financial framework and business practices. By the end of 2008 volume of Islamic banking has reached to US $ 951 Billion with operation in more than 50 countries. Middle East is the centre of Islamic banking with contribution of approximately 80% while 20% share is contributed by rest of the world. In Pakistan Islamic banking is at infant stage although last 6 years growth is marvelous. Islamic banking has grown at an average annual rate of 76% in the last six and half years (12/03 - 06/10) in Pakistan. Although Islamic banking faces multi challenges however three of them are very vital for its existence. First is Sharia compliance in its operations in an environment which is dominated by interest based practices even in Muslim societies. Second is perception of financial industry practitioners about its performance whether the system is able to serve the total needs of trade and industry. Third is the perception of a large majority of Muslims whether existing practice of Islamic banking is Sharia compliant or mere copy of conventional practices under the banner of Sharia.This study is an attempt to address the perceptional issues by identifying the similarities and differences in Islamic and conventional banking. Evidences suggest Islamic banking is very much practiced like modern conventional banking with certain restrictions imposed by Sharia and...
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...This essay will provide a comparison between Islamic Finance and conventional Finance principles. In order to do this, firstly it is necessary to determine the scope and establish some of the fundemental concepts that define Islamic Finance, or "Sharia compliant banking" as it is often referred to. After this, it will be possible to discuss some of the advantages that Islamic Finance institutions have over the typical conventional banks. As of 2014, Islamic Financial institutions represented around 1% of the total assets throughout the world, with an estimated value of around $2 trillion. There exist in the region of around 300 institutions throughout the world that adopt a financial approach dictated by the principles of Islam. This number has been growing as a result of the financial crash in 2008 where many conventional banks faced liquidity issues; investors disillusioned with the performance and practices of conventional banks increasingly sought to invest their assets with Islamic Finance institutions. However, the fact that only 1% of institutions currently adopts the Islamic Finance approach shows that conventional banking methods are still more popular with investors and institutions alike. Most of the Islamic Finance institutions are based in the Middle East, but there has been a significant increase in Islamic Finance institutions in the main financial centres of this world (London, Shanghai and New York). The following table displays some of the similarities...
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...1.0 Abstract Islamic Finance is an abstract concept until the first half of the twentieth century. In Malaysia, it has been almost three decades when the first Islamic bank makes its debut. Islamic banks have to compete with its competitors which is a conventional banks which have longer history than Islamic banks. For this competition, Islamic Finance have to know the awareness, understanding and perceptions of Malaysians towards it. Islamic Finance not only available for Muslims, but it also available for non-Muslims as well. In Malaysia, 40% of the population is non-Muslims and hence non-Muslims market is equally important to Islamic Finance (Bashir & Mail, 2011; Latiff, 2007). The purpose of this research is to examine the level of awareness, understanding and perceptions of Muslims in Malaysia of Islamic Banking products and services. In additional, this study also aims to investigate if any demographic influence it’s means the structure of population of the awareness, understanding and perceptions of Islamic Finance products and services among Muslims in Malaysia. A total of 50 respondents from different course and carrier in Unikl are selected for the purpose of this study. For the analysis, we used the primary data and Secondary data was adopted to analyse the results. The results show that more than half of the respondents are aware of the Islamic Finance in Malaysia but they do not aware of most of the products and services offered by Islamic banks. Muslims understanding...
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...KULLIYYAH OF ECONOMICS AND MANAGEMENT SCIENCES ‘Comparison of Principles of Sale Contract between Conventional and Shari’ah Laws’ LAW 3512 COMMERCIAL LAWS (SECTION 3) Any form of cheating or attempt to cheat is a serious Offence which may lead to dismissal Introduction We are blessed as a human being on the earth as the only creature created by God who has the ability to think upon choosing between alternatives. Humans are associates with many labels and beliefs that they uphold throughout their life. Major differences of choosing between alternatives would be based on their framework of thinking mostly derive from their religions or beliefs. Speaking from Malaysia context, Islamic belief would be a stronger influence for Malaysian citizens before embarking into any decision. Although, Malaysia is known as the Islamic state but Malaysia still uphold conventional laws as the supreme laws for the state over Islamic Laws which ruled by the Federal Court. Islamic Laws would only covers family laws, inheritance and few specific issues among muslims[1]. We would further discuss on the framework of sale contract from Islamic and conventional point of view. Take a look around and it is apparent in our daily lives that transactions need to occur for us to carry on sustaining our needs and wants. As humans we ought to want things and we need to have goods that are essential for our daily lives in order to carry on living our lives...
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...ECONOMIC SYSTEM IN ISLAM Compared with Capitalism and Socialism By Abdul Husain Muhammad 2nd Edition 1975 Published By World Organization for Islamic Services, P. O. Box No.11365-1545, Tehran. (IRAN) IN THE NAME OF ALLAH, THE MOST COMPASSIONATE, THE MERCIFUL. Praise belongs to Allah, the Lord of all. beings; the Most Compassionate, the Merciful; the Master of the Day of Judgment; Thee only we serve, and to Thee alone we pray for succour; Guide us in the straight path; the path of those whom Thou hast blessed, who are immune from Thy wrath and have never gone astray. O'Allah! send your blessings to the head of your messengers and the last of your prophets, Muhammad and his pure and cleansed progeny. Also send your blessings to all your prophets and envoys. CONTENTS Foreword ... ... ... ... ... ... ... ... ... ... ... ... ... .. Introduction .................................... The Triple Nature of Possession ... ... ... ... ... Freedom of Private Enterprise and its Limits ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... Social Justice ... ... ... ... ... ... ... ... ... ... ... ... Economic Problems ... ... ... ... ... ... ... ... ... ... 3 7 18 21 34 38 Dear Reader This leaflet is one of several Islamic publications that we distribute, as a contribution, among the people throughout the world. You are requested to study the present publication with care and if you find it useful, please pass it on to your friend. You may re quisition...
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...Electronic Banking: Mobile banking, Internet Banking, Bill, Gold deposits, Investment deposit for Children’s Future prosperity, marriage portion, farmers and workers’ future prosperity etc (BSI, Annual Report , 2011). 3. BSI went international in 1961 by opening a branch in Hamburg and thereafter opened branches in major European cities and Gulf region. 4. Management at Saderat Bank believe in staff and boundless potentials of human capital. Their main objective is to use the personnel potentials in favour of exploring resources and fulfilling customer needs. Mr. Esmaeel Laleghani is current managing director & vice president of Saderat Bank Iran (BSI, Annual Report , 2011). 5. As the bank follows the Usury-free law (Hassani, 2010) introduced for banks in Iran, they neither charge interest from the borrowers nor do they pay it to the depositors. Law allows 13 Islamic contracts in Iran (BSI, Annual Report , 2011). As of 2014, the bank’s revenues stood at IRR106,120 billion, Net Profits at IRR 6927 billion, Investments at IRR 32,827 billion and Assets of IRR 842,764 billion (BSI, Annual Review, 2014). 6. The major reason for opening international branches is to support the growing Trade. Along with the trade finance services it offers to the clients, BSI also offers retail banking services. (BSI, Annual Review, 2014) 7. Mobarakeh Steel Company 1. Esfahan Mobarakeh Steel Company (MSC) is the largest steel producer in the MENA region with 24 times the production capacity of Israel’s...
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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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...1.0 INTRODUCTION In Malaysia, there are numerous financial instruments and concepts available for customers to choose, which one is suited to them. Financial instruments that available in Islamic Banks in Malaysia are divided into two main components which are known as deposit; and loans and advances. Bay’Bithaman Ajil (BBA) and Murabahah are 2 types of Islamic financing product offered by banks in Malaysia and were introduced in 1983. The Islamic financing product of Murabahah was introduced to meet the above Quranic verse interpretation. It should be noted that BBA is a Murabahah product but the product name of BBA was given by BBMB to differentiate between a short term (below 12 months) and long-term (above 12 months) tenor financing products. Murabahah is for short term meanwhile BBA is for a long term financing products. 2.0 BAI’ BITHAMAN AJIL (BBA) 2.1 DEFINITION The Majallah refers to BBA as the Bai’ al Muajjal. In Pakistan the term is called Bai’ al-Muajjal, in Bangladesh it called bay’al-Muazaal. BBA means a "deferred payment sale". It is a sale contract in which the payment of the price is deferred and payable at a certain particular time in the future. It is a mode of Islamic financing used for property, vehicle, as well as financing of other consumer goods. It can be implicated in any sale contract, including Musawamah and Murabahah but it is not applicable for a Salam contract, as the payment of Salam must be settled in full at the beginning of the contract...
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...Giotto and Giovanni Scrovegni Chapel The Chapel was commissioned by Enrico Scovegni; his family fortune was through the practice of usury, (which meant the charging of interest when loaning money; a sin so grave resulted in exclusion from the Christian sacraments). Enrico’s father, Reginald was an erroneous case; he appears in the “Dante’s Inferno as the pro-typical user). Scrovegni called for two of the most famous artists of that time period, Giotto and Giovanni Pisano. Their talents and skill were needed for Scrovegni to atone for his sins; as well to bring an understanding of his power and importance. The Chapel described as a simple barrel-vaulted room that provides broad walls, a boxlike space. A boxed space that becomes the showcase of Giotto’s paintings. When we study about the Gothic Churches the structure the strength of its walls, we tend to as well look upon it now as a book that opens as we walk within its halls. We sense the projectory of the architecture, the history and the paint that is often held within its walls. We think of the debate of the structure, the formation of the history of the church. The kings, the servicemen and to simple town folk that walked upon the great stone and within the story itself. As Architectural as the Gothic quarter foil framework, the dimension of the linear perspective as it presents a coverage of the human mind of the time period as well as it vanishes into a linear motion of stone. We lean upon understanding of the differentiation...
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...Muhammad is His slave 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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...Risk Management in Islamic and Conventional Banks: A Differential Analysis Salman Ahmed Shaikh* Dr. Amanat Ali Jalbani Abstract Islamic banking is interest-free banking which makes it necessary for Islamic banks to take active part in the operations of the business, i.e. share profits as well as losses. Banks including Islamic banks prefer to take minimum risk. On the surface, it may seem that Islamic banks face more risk and hence, will have more volatile or even negative returns on their assets. This paper analyzes the risk management procedures of Islamic banks by giving a differential analysis of risk management discussing only the unique characteristics of risk management in Islamic Banking. The usual credit assessment procedures and BASEL are not discussed. This paper looks at the comparative performance of Islamic banks and conventional banks by using ROE as the benchmark. Keywords: Risk management, commercial banking, Islamic banking, price risk 1. Introduction 1.1. Background of the Study Islamic Banking was first introduced in 1959 in Egypt. Since then, Islamic Banking is growing rapidly throughout the world and has been introduced in more than 60 countries of the world so far. Global financial players like Citibank, ABN AMRO, American Express Bank, HSBC, etc. are also participating in Islamic Banking and Financial Industry. However, skepticism still surrounds Islamic Banking keeping into view the earlier demise of BCCI. Profit and loss sharing...
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...A COMPARISON BETWEEN ISLAMIC AND TRADITIONAL BANKS: PRE AND POST THE 2008 FINANCIAL CRISIS Mohamed Hashem Rashwan1 The British University in Egypt ABSTRACT This study tests the efficiency and profitability of banks that belongs to two different sectors: a) Islamic Banks (IBs) and b) Traditional Banks (TBs). The study concentrates on the pre and post 2008 financial crisis with an aim to test if there are any significant differences in performance between the two sectors. The study applies the MANOVA techniques to analyze the financial secondary data for only publicly traded banks in the same region. The findings of the study show that there is a significant difference between the two sectors in 2007 and 2009 and there are no significant differences in 2008, which indicates the effect of the crisis on both sectors. IBs outperform TBs in 2007 and TBs outperform IBs in 2009. This result indicates the spread of the crisis to the real economy where IBs usually operate. INTRODUCTION Forty years ago Islamic Finance was virtually an unknown system; interestingly it has expanded to become a distinctive and fast growing segment of the International Financials markets. With a growth rate that ranges from 15% to 20% (EL- Qoroshy 2005). Islamic Finance in general and Islamic banking in specific become main players in the financial world. According to the IMF survey (2010) the total capital managed under Islamic Finance systems was estimated to be $820 billion at the end of 2008. More than...
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...The Medici Family and Medici Bank in 14th century The Medici had an inestimable impact and effect upon Florence and the surrounding Italian peoples however this effect was not always positive or beneficial.[] The Medici, through carefully planned moves and states craft and at other times direct violence, worked tirelessly to remove Florence from its republican framework and replace it with a principality of their own. Indeed, by 1537 Florence was no longer a republic and named a duke to lead it now that it had become a principality, that duke was Duke Cosimo De’ Medici I. The move away from republicanism and towards this principality began with three generations of Medici; Cosimo, Piero, and Lorenzo De’ Medici. Their changes undermined a carefully laid constitution that was intended to keep one or more factions from gaining too much control over the city or for a single person to gain the sole leadership of the republic. However the Medici were able to slowly chisel away those devises of freedom and turn them into instruments of power. In order to fully understand the extent of the Medicean efforts it is important to observe the highlights of the complex system of government that the framers used. The Florentines in the thirteenth century developed a constitution that determined how the republic should be operated. The Florentine constitution was not a single document but rather a series of laws passed as the Ordinances of Justice in 1293 C.E. By this constitution...
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