Islamic Banking and Conventional Banking: A Comparative Study in Bangladesh


Authors : Mohammad Enayet Hossain; Khan Md Abdus Subhan

Volume/Issue : Volume 7 - 2022, Issue 7 - July

Google Scholar : https://bit.ly/3IIfn9N

Scribd : https://bit.ly/3BPdFDB

DOI : https://doi.org/10.5281/zenodo.6968984

Abstract : Islamic banking is a nascent branch of banking and finance that has grown in importance in many Muslim countries. One of the countries that has embraced a dual banking system is Bangladesh. Traditional banks borrow money at a low interest rate from depositors and lend it to borrowers at a higher rate. On the other hand, interest is prohibited, hence Islamic banks enter into profit-sharing agreements with both depositors and borrowers. The purpose of this research is to examine if different banking arrangements based on different ideologies result in different outcomes. This study largely relies on secondary data because banks' refusal to disclose green data makes it difficult to do thorough and accurate comparisons. However, two heads of sustainable banking departments from conventional banks and two from Islamic banks have been interviewed in order to assess the authenticity and trustworthiness of secondary data. According to the study, Islamic banks that do not charge interest outperform conventional banks that do in terms of production, efficiency, and commitment to the local economy and community. Nevertheless, in terms of promoting business, profitability, liquidity, and solvency, interest-free Islamic banks perform better than interestbased conventional banks. That is, when it comes to financial performance, Islamic banks beat traditional, interest-based banks.

Keywords : Islamic Banking, Conventional Bank, Financial Performance

Islamic banking is a nascent branch of banking and finance that has grown in importance in many Muslim countries. One of the countries that has embraced a dual banking system is Bangladesh. Traditional banks borrow money at a low interest rate from depositors and lend it to borrowers at a higher rate. On the other hand, interest is prohibited, hence Islamic banks enter into profit-sharing agreements with both depositors and borrowers. The purpose of this research is to examine if different banking arrangements based on different ideologies result in different outcomes. This study largely relies on secondary data because banks' refusal to disclose green data makes it difficult to do thorough and accurate comparisons. However, two heads of sustainable banking departments from conventional banks and two from Islamic banks have been interviewed in order to assess the authenticity and trustworthiness of secondary data. According to the study, Islamic banks that do not charge interest outperform conventional banks that do in terms of production, efficiency, and commitment to the local economy and community. Nevertheless, in terms of promoting business, profitability, liquidity, and solvency, interest-free Islamic banks perform better than interestbased conventional banks. That is, when it comes to financial performance, Islamic banks beat traditional, interest-based banks.

Keywords : Islamic Banking, Conventional Bank, Financial Performance

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