Islamic banking & Conventional banking: a comparative study

This paper on “Islamic Banking & Conventional Banking: A Comparative Study” looks into the ideology of Islamic Banks and their operational functioning. It presents the working of some of its operational instruments like Mudharabah (profit sharing in a loan lending agreement), Bai’ Bithaman Ajil (deferred payment sales) and Ijarah Thumma Bai’ (hire purchase agreement). The paper makes an attempt to analyze the differences between various ratios of two Islamic banks with those of two Non-Islamic Banks in Malaysia for the year 2007, 2008, 2009. The ratios that the paper considers for the ratio analysis for the purpose of comparison are ROE, ROA, Cost to Income ratio, Net Loan to Asset Ratio, Loan to Deposit Ratio, Lending Ratio, Cash & Portfolio Investments to Deposit Ratio and the Operating Efficiency; in order to understand how the two set of banks differ in terms of profitability, liquidity and operational efficiency. Further the paper proceeds to discuss and present the reasons for the differences in the ratios and concludes to present that the Islamic Banks are better in terms of profitability and liquidity. However, in terms of operational efficiency not much significant difference was found between the two categories of banks.