The paper "Differences between Islamic Banking and Conventional Banking" is a good example of a finance and accounting research proposal. The global financial system has recorded drastic growth and played a major role in the world's economy by facilitating the global transaction. According to Chapra (2008), the growth of the global economy has been majorly attributed to the major developments taking place in the global financial system where Islamic banking and conventional banking are major contributors. Despite the challenges faced in the global financial market, the global banking industry has experienced growth and maturity in the provision of financial services.
According to Stiglitz (2003), the global financial system had experienced numerous financial crises in the past. These crises were experienced globally where it affected financial markets of several countries negatively. Therefore, the 2008 financial crises was not a new experience in the global financial market. The 2008 crises started in United States financial market and later spread to other countries. It was evident in the Europe financial market since there had been increased vulnerability of government debt in the foreign financial market (Eurobond market).
According to the International Monetary Fund report (2010), Greece's difficulty in raising sovereign debt was attributed to fiscal and growth challenges in the Eurobond market. According to Jickling (2010), the financial crisis was attributed to the lack of discipline and insufficient regulatory framework in the financial markets thus causing financial imprudence and excessive lending by banks. The major finding on the causes of financial crisis includes; lack of prudence in lending, inadequate information from rating agencies, market-to-market accounting, inadequate financial disclosure, deregulation of the financial market, housing bubble, shadow banking system, lack of financial balance globally, short-term incentives and excessive lending (Jickling 2010).
There is an argument between conventional banks and Islamic banks on the strategies that will help reduce or eliminate recurrence of the financial crisis. Islamic banks hold that the move by conventional banks to increase financial prudence and regulatory framework will not be an ultimate solution to stop the recurrence of a similar financial crisis (Chapra 2008). The move taken by conventional banks was an introduction of Basel III regulation that majorly touched on the regulatory framework and financial prudence in lending.
The Islamic banks argue out that the use of collateral in securing debt is not going to bring much impact or protect the banks since collateral is affected by the crises (Chapra 2008). The Islamic banks do not experience much financial impact in case of occurrence of crisis thus giving them a better position in arguing out their techniques of reducing financial crisis. They insist on the use of profit and loss sharing system and "too big to fail" concept in their operation to protect the defaults to the banks.
Though Islamic banking is an infant in the global financial system, it has grown at a higher rate. Its growth is estimated to be between 15 to 20 percent (http: //www. ifsb. org). Its growth has attracted conventional banks to use Islamic Windows, for example, Barclays Bank. Therefore, there is a wide area of study on the relationship between conventional banks and Islamic banks and their contribution to the financial crisis.
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