Islami vs Conventional Banking

Topics: Islamic banking, Investment, Bangladesh Pages: 50 (14610 words) Published: August 13, 2010
Chapter- 1.0


Banking plays an important role in the economy of any country. In Bangladesh Muslims constitute more than 80% of its population. These people possess strong faith on Allah and they want to lead their lives as per the constructions given in the holy Quran and the way shown by the prophet Hazrat Muhammad (Sm). Naturally, it remains a deep cru in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. But no Islamic banking system was developed here up to 1983. The Traditional banking is fully based on interest it is commonly meant as commercial banks. But interest is absolutely prohibited by Islam. As a result the people of Bangladesh have been experiencing such a non-Islamic and prohibited banking system against their normal values and faith.

The present world especially the third world is affected by unemployment socioeconomic injustice, inflation, inequitable distribution of income and wealth etc. The main aim of traditional banking is to earn profit by borrowing and lending money in exchange of interest. As a result there is an unfair competition among the bankers and among the customers.

Under conventional framework a bank borrows to lend and it mobilizes savings/deposits by borrowing from savers and lends those deposits to productive interest on deposits and advances respectively. The banks generally maintain a difference is known as interest-spread which is the main income of an interest-based bank. In the Islamic banking system the bank receives no interest. In this case IBBL receives its entire deposits from the investment of the clients on the basis of profit-sharing places it to the actual entrepreneurs on the basis of the profit sharing. So, it is clear that in case of the traditional banking systems, a fixed percentage of interest, irrespective of income earned is paid to the depositors. The depositors of IBBL are never deprived of excess income, which the bank may make at the end of year. Not only has this traditional bank given fixed interest rate even when they incur operational loss. The critics of Islamic banking system are of the opinion that both are found same in terms of deposits mobilization and advances investment.

Banking functions of IBBL is an important aspect in our economy as it has broken the line of interest based traditional banking system through the introduction Islamic Shariah based banking. Since its commencement in 1983, it has already gained a good reputation in customers as well as the masses of people of Bangladesh. Islamic Banking is especially important in the world countries, which are characterized by unemployment, inequitable distribution of income and wealth, etc. But there are so many constraints in our country in functioning of the Islamic banking activities.

1.1 Objective of the study

▪ To achieve extensive knowledge about bank and banking system. ▪ To understand the prevailing mechanism and modes of investment of Islami bank Bangladesh limited. ▪ To study the performance of modes of investment of Islami Bank Bangladesh Limited. ▪ To identify reasons behind tremendous growth of IBBL. ▪ To find out the basic differences among different aspects of conventional and Islamic banking. ▪ To have an overall idea about Islamic Banking system that is based on Al-Quran and Sunnah

1.2 Methodology

The study requires a systematic procedure from selection of the topic to final report preparation. To perform the study data sources are to be identified and collected, they are to be classified, analyzed, interpreted and presented in a systematic manner and key points are to be found out. This overall process of methodology is given in the following page in the form of flowchart that has been followed in the study.

a. Selection of the topic: after consulting with my honorable teacher I have decided this topic. Before assigning the job it was discussed with my...
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