Is Islamic Banking an Ethical Alternative to Conventional Banking - Essay Example

Hala Al Misnad 9th April Is Islamic Banking an Ethical Alternative to Conventional Banking? Problem Description Invent of Islamic Banking was caused primarily by three major reasons. First, unlike conventional banking, Islamic banking eliminates the degree of interest based finance (riba). Secondly, the development of low risk products will provoke confidence in shareholders, regulators and depositors and third, equal sharing of risk and return is mandatory. Investors believe that Islamic banking is comprised of more ethics and values as compared to conventional banking and therefore they consider Shariah Compliant Financing as more reliable than conventional banking.

The evidences which verify that Islamic banking is more ethical than conventional banking include: Islamic Banking’s Functions and operation are based upon sharia while conventional banking system runs on man-made principles. Islamic banking aims to maximize profits without violating the boundaries predefined by Sharia whereas conventional banking system maximizes profits without any restrictions. The foremost reason which distinguishes Islamic Banking system from Conventional Banking system is that Islamic Banking promotes equal sharing of risk and return while Conventional Banking assures a pre-determined rate of interest to its investors.

Sales and purchase of money is prohibited in Islamic Banking System while Conventional Banking doesn’t work along with this issue. The above explanation verifies that Islamic banking is considered as more ethical than conventional banking system. In order to test this problem statement, personal opinion of professionals and experts working in both, Islamic Banks and Conventional Banks is gathered through questionnaires. Hypotheses H0: Islamic Baking is not an ethical alternative for conventional banking.

H1: Islamic banking is an ethical alternative to conventional banking. Works Cited Al-Jarhi, Mabid Ali and Iqbal, Munawar. Conventional VS Islamic Banking System. n.d. Print. 9 April 2012. Hanif, Muhammad. "Differences and Similarities in Islamic and Conventional Banking." International Journal of Business and Social Science, 2:2 (2011): 166-175. Print. Iqbal, Munawar. "ISLAMIC AND CONVENTIONAL BANKING IN THE NINETIES: A COMPARTITIVE STUDY." Islamic Economic Studies, 8:2 (2001): 1-28. Print. Sole, Juan.

Introducing Islamic Banks into Conventional Banking Systems. July 2007. Print. 9 April 2012. Tayyebi, Aziz. Islamic Finance: An Ethical Alternative to Conventional Finance? August 2008. Online. 9 April 2012.