Introduction to Islamic Banking: A Comparative Study of Dubai Islamic Bank and United Arab Bank

Running Head: INTRODUCTION TO ISLAMIC BANKING 1
INTRODUCTION TO ISLAMIC BANKING
Institutional Affiliation
Date

INTRODUCTION TO ISLAMIC BANKING 2
Contents
Introduction................................................................................................................................... 3
Literature review............................................................................................................................4
Methodology..................................................................................................................................6
The scope of the study................................................................................................................... 6
Sources of data...............................................................................................................................7
Methods and techniques.................................................................................................................7
Empirical analysis..........................................................................................................................8
Recommendations..........................................................................................................................9
Conclusion................................................................................................................................... 10

INTRODUCTION TO ISLAMIC BANKING 3
Introduction
There are various similarities and differences between the Islamic bank and conventional
banks. These similarities and differences range from the products and services offered by the
banks to the kind of policies the banks operate. Islamic banks are the banks that operate under
the Islamic Sharia law. Islamic banks are guided by the Islamic religion on lending and all its
activities comply with the Sharia law ( Balala, 2015). The modes of Islamic banking include
Mudarabah, Wadiah, Musharaka,and Murabaha. The conventional mode of banking uses the
modern principles of banking and finance and is poorly guided by the need to maximize profit
and meet the customer needs. Conventional banks are not guided by any religious beliefs or
practices. The conventional banks charge interest on loans while the Islamic banks do not charge
interest. The analyysis the study carried out on Dubai Islamic Bank and United Arab Bank. The
survey was carried out among the customers of both banks to establish the customers knowledge
and awareness on Islamic banking. Through literature review is also conducted with the aim of
establishing the products offered by the two banks, the types of customers and the financial
performance of the banks in recent years.
Literature review
United Arab Bank (UAB) was incorporated in January 1975asa joint venture between
various UAE investors and SocieteGenerale, a French company. The bank operates 14 branches
across the UAE. The bank is known to offer tailor-made financial services in both corporate and
retail banking. The bank has established itself as a leading innovator across the seven emirates.
In 2007, UAB entered into an alliance with The Commercial Bank (Q.S.C) and hence helping
both banks to grow across the region (Davids, 2013).

INTRODUCTION TO ISLAMIC BANKING 4
Dubai Islamic Bank was established in Dubai in the year 1975. Dubai Islamic Bank is
one of the premier Islamic banking institutions in the world. The bank introduced Islamic
banking concepts and it has continued to champion for morality, equality, and transparency. The
bank is founded on the principles of equality and is guided by Sharia Law. Currently, Islamic
banking is one of the world's fastest growing sectors of finance and it is valued at more than
US$1 trillion. DIB has remained customer centered since its establishment and it has continued
offering customers innovative products that help to fulfill the needs of the customers.
Islamic banking is based on the idea that all forms of interest are riba. Riba in Islamic simply
means addition, interest or excess. Islamic banking has emerged in the late 18 this century and it
has evolved over the years and adopted in many countries even where Muslims are the minority.
Its origin can be traced to the Ottoman Empire. The arrival of interest-free Islamic banks was
facilitated by activist Anwar Qureshi and Muhammad Hamidullah in the late 1940s. They had
the view that commercial banks were a necessary evil and thus they proposed a banking system
where shared profit on investment would replace interest. Various studies on Islamic banking
have been carried especially since the 1970s. There are also various conferences that have been
held to deliberate on Islamic issues affecting Islamic banking and how it can be improved. Some
of these conferences include the conference of the Finance Ministers of the Islamic Countries
held in 1970, the Egyptian study in 1972, the First International Conference on Islamic
Economics held in Mecca in 1976 (Golin, 2010).
Several economic concepts of conventional banking were applied in the early Islamic
banking. Some of these include; bills of exchange, partnership, limited partnership and capital
accumulation/ things such as promissory notes, cheques and trusts were also common in Islamic
banking before the 1920s. Islamic banks accept deposits from customers with the promise of