'Comparative Analysis of Islamic and Conventional Bank Risk Essay\r'

'The decline of the piety has been attributed into modern times with a materialistic culture by the popular cognition of today, the judgment of religion has embedded this view, as temper having only spiritual limits, and the worldly comfortably world of an individual is very detached in this relation. However, this understanding of Islam religion has been misguided by many of among us in the past, as good as in the present. A critical usance has been compete by every religion regarding the guidance to survive in a society commun everyy, and in the characterization of disparate markets of that time.\r\nIn the religious regards, equal distribution of wealthiness and debt annulment was preached and emphasized by every religion in the past. The enforcement of the debt bond has been strongly rejected by all the beliefs and the pattern of rotterceling the debt have been upheld by them. In the past, in order to satisfy and fulfill the monetary needs of devout and pious Muslims , a concept of money depository was introduced in the Muslim civilization, which has straight become a growing phenomenon of the world, that is, approximately 1. 6 billion Muslims in the world.\r\nThe macro-economic properties of margeing institution have been studies by many economists with relation to an ideal and isolated Muslim economy framework. In modern days, the working of this pioneering pecuniary system is going on very effectively in various parts of the world. In many developed and under-developed countries, the otherwise ceremonious banking systems atomic number 18 having this singular financing system besides them in every sector of the economy. In this regard, the comparative analysis has been do in this body of work, which will distort to diametricaliate the Muslim banking system with the pompous ones.\r\nIn this study, we will try to understand and clarify the demarcation between the Muslim and Conventional Banking and the jeopardizeinesss that be borne by these methods of banking. A pecuniary intermediary having the aims and objectives related to the precepts of Moslem law or ‘Shariah’ may be defined as an Moslem Banking System. Consequently, the zero-interest activities and operations atomic number 18 the key features of this characteristic banking system. However, eliminating the transactions based on interest is non the only objective of Muslim banking. The abolishment of all kinds of exploitation is excessively another aspect of Moslem banking system.\r\nIn result, a balanced and unbiased cordial order is established by the system in this regard. Only the character of financier is not played by an Muslim bank. It excessively whole kit and boodle as a partner in the business of an individual. collect to this, the essay between the capital owner and the enterprisers is twisting by this system. However, the positive result of the collective efforts is also shared by the Islamic banking. T hus, the other schematic banking and interest-based system differs from the Islamic banking, as only the entrepreneur or the owner of the capital bears the risk in the conventional banking, and vice versa.\r\nHowever, the individual and bank shares the abovementioned with each other, which provides the entrepreneur to develop as a whole. In other way, participatory banking name can be condition to the Islamic banking in this regard. In the Islamic economics, zero return on capital is not meant by the eliminating process of the interest in this curious banking system, as the pre-determination of a fixed return is command for a certain amount of production in the Islamic laws. The equity based investment principle is followed by the Islamic banks.\r\nThe contraction of the resources based on deals relating to the manduction of risks, and the ventures of capital is also proposed by the Islamic banking. It has been noted by the economists that economic growth and cultivation of an individual becomes applicable and easy with the vital role that is played by the Islamic banks nearly the world. We can say that a relationship between finance, commerce, and perseverance is tried and developed by this exclusive banking system, which differs from the other conventional banking due to these characteristics of its system.\r\nThe Islamic banking plays its role as an equity-based system, where the pre-determined interest rate is excluded, and the nominal prize of deposits is not guaranteed. In result, changing values of the share deposits absorbs the dump to asset position immediately. in that locationfore, in such system, the assets and liabilities of bank will carry the same real value at all the points. However, in the more conventional and conventional banking system, a diversion can be caused between the real assets and liabilities by such shocks in the process of fixed nominal value of deposits.\r\nTherefore, the abovementioned features of this Islamic banki ng differs it from the traditional and conventional banking system, and so, various levels of risks are borne by these systems. Nowadays, many countries are trying to examine the possibilities of the cornerstone of an interest-free banking system based on the Islamic laws and principles. It has also been argued and debateed that if the Islamic financial system will be established in the various countries, it will be feasible, but also profitable for the individuals, as well as, the companies as a whole.\r\nThese days, the truth of interest as an unbearable burden is being realized by the Western countries, as well as, the developing countries around the world. In this regard, all the interests have been waived by the Canada. A similar move has been made by the Australia. The jot of waiving off the 30 to 35% of the present interests of the debt has been officially given by the President of France. Therefore, it may be generalized that Islamic Banking and Financing System is a uni que and distinctive system, which differs from the conventional banking systems around the world.\r\nIn order to make a more expound comparative view of the working and risks borne by the Islamic and Conventional Banking Systems, we will try to analyze with the aid of data that represents the simile between these ii financial systems that are applied and practiced around the world. There are some different and diverse characteristics of the abovementioned two banking systems, which should be discussed in order to clarify the comparison between them. In the Islamic Financing system, the come of customers is less than the Marketing-based financing system.\r\nThe ownership of the Islamic Banking is commonly taken by the local or contrary individuals. However, only the local shareholders enjoy the ownership in the conventional banking system. In the Islamic banking, the integration of different activities is very high as compared to the traditional banking system. Lastly, the Isl amic financing system has the high intensity of managing and design the risk in full-dressly, as well as externally. However, the risk is managed and borne by the Marketing-based financing system less internally and externally.\r\nRisk sharing is closely related to the risk management; no matter it may be external or internal in its nature. development of close ties between the customers, and other interest groups may bring the risk externalization by an organization. It has also been indicated by various economists that one contributing reckon that is related to the risk management is the long-term relations, which are made on the mutual dependence in an organization. From the different studies related to the Islamic Financing System, the responsibilities are shared by the junior and the senior round jointly in organizations.\r\nIn this case, the higher(prenominal) and pull down level of management shares the risk. However, in the Marketing-based and Conventional Banking syst em, the internal risk is shared on a dismount basis due to the centralization of power and authority, as compared to the Islamic Banking System. Conclusively, a high spot of the sharing of internal risk is characterized during managing the risk management in the Islamic Banking system as compared to the other conventional financing systems. Therefore, there are many preeminence between the Islamic and Traditional Banking systems around the world.\r\nRegarding the risk externalization, in the Islamic Banking system, the close lender-borrower relationships are characterized during the modify activities of organizations. The borrowers are also guided by the Islamic bankers apart from lending funds to them. In result, cost-efficient network relationships create the increment of the externalization of risks relating to the partners who transfigure in this regard. Therefore, in the Islamic Financing System, the degree of external risk is observed to be high. However, the formal lend ers-borrowers relationships are characterized within the Conventional and Marketing-based financing system.\r\nIn the result, it is a low degree of externalization of risks in this traditional banking system. In this regard, the extent of success of a banking organization is determined by the lender-borrower relationships, where the customers are given credit in this regard. Direct contacts with the various customers are maintained within the Islamic, as well as, the Conventional Financing Systems. The differentiation is observed in the Islamic Banking System while dealing with the financial activities, as the borrowed funds are monitored closely by these bankers, which results in the higher intensity of the lender-borrower relationships.\r\nIn this regard, the risks are borne on a higher extent by the Islamic Banking system as compared to the conventional ones. However, the bank gets the higher profit as we have tried to discuss it in the abovementioned matter. Conclusively, the is sues of fairness and justice are come to in the Islamic principles that are related to the interest, instead than defining the efficiency narrowly. The focus is placed on the necessity of sharing the risk in a stable condition with the help of these principles, as well as, at the time of exploitation of the markets.\r\nWe have also clarified that the Islamic Financing System works on the equity-based projects. However, the conventional ones prefer the debit-based schemes for the lenders and individuals. In an Islamic financing situation, the ownership is shared by the both(prenominal) bank and the client, and in the Conventional banking, all the equity is owned by the client, and the property value plays as a security to the bank loan. We hope that this study will help the scholars and the economists in understanding the role and differentiation of the Islamic & Conventional Banking around the world.\r\nWorks Cited\r\nAhmad, S. (1992). Towards Interest-Free Banking. New Delhi : International Islamic Publishers. Chapra, M. (2000). The approaching of Economics: An Islamic Perspective. Leicester, UK: The Islamic Foundation. Dar, A. H. , and Presley, J. R. (1999). Islamic finance: A Western Perspective. International Journal of Islamic Financial Services. Dar, A. (2002). Islamic House Financing in the United Kingdom: Problems, Challenges, and Prospects. Ahmad, K. (1994). Elimination of Riba: Concepts and Problems, Response to the lordly Court Questionnaire. Institute of Policy Studies, Islamabad, Pakistan.\r\n'