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Conventional and Islamic banking on the socioeconomic sustainability and development of Bangladesh

   

Added on  2020-01-23

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Dissertation proposal(A comparative analysis of the benefits of conventional andIslamic banking on the socioeconomic sustainability anddevelopment of Bangladesh)1

Executive summaryThe main difference between conventional banking system (CBS) and Islamic BankingSystem (IBS) is the restrictions on Riba based on Shariah principle. It believe that charging aninterest on money is an unjust act because taking excess amount from the borrowers against theprinciple money lent out cannot be considered as justice. Henceforth, it must be eliminated from thebanking system for the justice functionality of the banking sector. In Bangladesh, the IslamicBanking has been adopted in the year 1983 and afterwards, it founded impressive growth in MuslimSouth Asian countries. Islami Bank Committee’s chairman of Bangladesh said that the future of IBSin Bangladesh looks very bright. However, in the country, the value of Euro, Pound, US dollar andothers are keep fluctuating rapidly which has a direct impact on country’s import and export andexporters always gain greater return from the same. In order to manage risk, country is required tomanage current fluctuation risk whilst Shariah based IBS restrict covering exchange fluctuation riskvia creating forward contracts. Thus, this is the main reason behind the decisions made toinvestigate the comparative benefits of the conventional and Islamic banking system in the socio-economic sustainability and economic development of Bangladesh. It will be performed followinginterpretivism paradigm, inductive approach, qualitative study, survey technique and thematicapproach for data analysis in order to investigate the selected topic. 2

Table of ContentsINTRODUCTION................................................................................................................................4Background of the study...................................................................................................................4Statement of the problem..................................................................................................................5Research aims and objectives...........................................................................................................5Research questions............................................................................................................................6LITERATURE REVIEW.....................................................................................................................6Conventional banking system and Islamic Banking system.............................................................6Similarities and differences in CBS and IBS....................................................................................6Benefits of conventional and Islamic banking system in socio-economic development.................7PROPOSED METHODOLOGY..........................................................................................................8Research philosophy.........................................................................................................................8Research approach............................................................................................................................8Research type....................................................................................................................................8Data collection..................................................................................................................................8Data analysis.....................................................................................................................................9Original contribution........................................................................................................................9Ethical issues....................................................................................................................................9Proposed time scale..........................................................................................................................9REFERENCES...................................................................................................................................103

INTRODUCTIONBackground of the studyBanking sector plays an inevitable role in the economic growth of every nation.Commercialized banks are one of the most critical components or financial intermediary in thesector which connects surplus & deficit economic agents. During the period of financial crisis,conventional banking sector suffered many challenges and issues in the banking industry, however,Islamic banking system greatly insulated from the same as it proven as a preventive way for thereoccurrence of global financial crisis, depression & economic downturn. The main differencebetween conventional banking system (CBS) and Islamic Banking System (IBS) is the restrictionson Riba based on Shariah principle (Abduh and Chowdhury, 2012). It believe that charging aninterest on money is an unjust act because taking excess amount from the borrowers against theprinciple money lent out cannot be considered as justice. Henceforth, it must be eliminated from thebanking system for the justice functionality of the banking sector. Lack of strict regulatory principles & legislations, lending excessive financing withoutcollateral debt obligations (CBO), less rate of interest in real estate, lack of transperancy etc. werethe main reason behind failure behind crisis in 2007/2008. However, in contrast, IBS reshaped theCBS by creating adequate lending standards, effective & strong regulatory framework, efficientmonetary system and permission to invest in toxic assets i.e. derivative proven as a successful stepwhich triggered the global financial crisis (Saini, Bick and Abdulla, 2011). Unlike CBS whichprovide a minimum return guarantee to the depositors, in IBS, PSIA (Profit Sharing InvestmentAccount Holder) accepts both the risk & return in the investment without any pre-guaranteed returnvia Musharakah & Mudharabah contracts (Abedifar, Molyneux and Tarazi, 2013). In addition,Sharaih principle also provide assistance to minimize the risk of interest rate by prohibitingaccepting any monetary return in the form of interest, riba or usuary as well. In the current times,the total assets of IBS has been reported to $920b which is expected to grow to 1.8 trillion till theend of year 2020 in Asian countries i.e. United Arab Emirates, Qatarm,, Kuwait, Saudi Arabia etc.In Bangladesh, the shariah based Islamic Banking gain enough popularity and growing at a steadyrate because of high Muslim community (Muhammad Awan, Shahzad Bukhar. and Iqbal, 2011).Although, both the CBS and IBS aims at rendering banking services to the populations, however,both these system work on different principles and regulations, therefore, the main target of thestudy is to examine the comparative analysis of the benefits of both the conventional and Islamicbanking on the socioeconomic sustainability and development of Bangladesh.4

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