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Current Issues of Banking

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Current Issues of Banking

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Current issues in banking sector in Malaysia: Islamic banking system

Financial crisis in countries such as the United States and most Western countries in Europe actually cause suffering to millions of Americans and Europeans until today. People have lost confidence in the financial system and the existing institutions. At the midst of this crisis, many economic experts’ had giving attention to Islamic banking and financial system that is seen more stable and powerful at a time when many conventional financial institutions were struggle to remain in operation. Over the past few years the world community began to give serious attention to the Shariah based system that is free from usury and fraud elements that usually occurred in the conventional financial system.

Malaysia is the first country to introduce Islamic banking system in Southeast Asia. In line with the rapid development and encouraging, a variety of planning and efforts have been made by many institutions. Today, the financial system in Malaysia consists with two different types of banking systems which are the conventional banking system and the Islamic banking system. These two system can be co-exists together. However, in some countries such as Iran and Pakistan, they only practise the Islamic banking system; meanwhile there are also countries that only practise the conventional banking system.

Conventional banking is based on the principle that the more you have, the more you can get. In other words, if you have little or nothing, you get nothing. As a result, more than half the population of the world is depressed of the financial services of the conventional banks. Conventional banking is based on collateral. Conventional banks look at what has already been acquired by a person. Conventional banks will take action when a borrower is taking more time in repaying the loan than it was agreed upon. When a customer gets into difficulty, conventional banks get...