Jump to ContentJump to Main Navigation
The Politics of Islamic Finance$
Users without a subscription are not able to see the full content.

Clement Henry and Rodney Wilson

Print publication date: 2004

Print ISBN-13: 9780748618361

Published to Edinburgh Scholarship Online: March 2012

DOI: 10.3366/edinburgh/9780748618361.001.0001

Show Summary Details
Page of

PRINTED FROM EDINBURGH SCHOLARSHIP ONLINE (www.edinburgh.universitypressscholarship.com). (c) Copyright Edinburgh University Press, 2022. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in ESO for personal use.date: 20 May 2022

Financial Performances of Islamic versus Conventional Banks

Financial Performances of Islamic versus Conventional Banks

(p.104) 5 Financial Performances of Islamic versus Conventional Banks
The Politics of Islamic Finance

Clement M. Henry

Edinburgh University Press

This chapter aims to gain a better understanding of the competitive advantages and disadvantages of Islamic banks compared to conventional banks operating in Muslim countries. From the perspective of the murabaha syndrome, Islamic banks are labouring under a major disadvantage: long-term financing with mudaraba or musharaka which is riskier that the medium- and long-term lending of conventional banks. They also need to presuppose a high degree of trust between business partners, whereas conventional banks can maintain a hands-off relationship with their clients that is subject to minimal monitoring of their businesses. Without the trust, Islamic financiers would undergo far higher monitoring costs than conventional banks because their long-term lending takes the form of an equity-like investment in the business that would otherwise be borrowing funds from a conventional bank. In addition, an Islamic bank cannot afford to be a sleeping partner sharing in the profits of the enterprise because the latter may manipulate its profits and losses at the expense of the bank. Overall, conventional banks enjoy tremendous advantages over Islamic banks in their ability to place funds they raise from the public. However, Islamic banks enjoy one competitive advantage over conventional banks: the majority of Muslims believe that the fixed interest offered to depositors is a form of riba and hence illicit. Substantial numbers of them apparently prefer to put their savings into Islamic rather than conventional banks. The chapter discusses the financial performances of Islamic banks and conventional banks from a comparative perspective, and aims to determine how viable Islamic banking is in the various local Middle Eastern commercial banking markets. It also determines whether the special advantages in raising funds offset Islamic banking's disadvantages in placing them, and whether Islamic banks can keep up with conventional banking in competitive national markets.

Keywords:   Islamic banks, conventional banks, mudaraba, musharaka, riba, financial performances

Edinburgh Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs, and if you can't find the answer there, please contact us.