UAE Banking: A Comparative Analysis of Islamic and Conventional

This report provides a comparative analysis of Islamic and conventional banking, focusing on Dubai Islamic Bank and United Arab Bank as case studies. It explores the history, account types, customer profiles, and financial performance of both banks. The study incorporates a customer survey to gauge awareness and perception of Islamic banking in the UAE. Findings reveal a high level of familiarity with Islamic banking among respondents. The report also delves into the products offered by both types of banks, highlighting the differences in their operational principles, such as the absence of interest (riba) in Islamic banking. The research methodology includes both qualitative and quantitative methods, utilizing primary and secondary data sources to provide a comprehensive overview.

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

INTRODUCTION TO ISLAMIC BANKING 5
great gains and religious guarantee. In the year 1990, an accounting organization for Islamic
financial Institutions referred to as Accounting and Auditing Organization for Islamic Financial
Institutions (AAOIFI) was established in Algeria. In the 1990s, there were more than 100 Islamic
banks worldwide and about one-third of these were run by the government (International, 2011).
By the year 2008, Islamic banking was growing at the rate of 10-15% per year and the growth
has continued over the years. At the height of the global financial crisis of 2008, the Islamic
banks were not initially affected. According to the State of Global Islamic Economy report, by
the year 2015, more than $2.004 trillion worth of assets was being managed by banks operating
using Sharia laws ( Nafis& Rizvi, 2017).
Methodology
The purpose of this study is to establish the importance of Islamic banking. Islamic
banking has been a very divisive subject over the years. There are some people who believe it
has no value on the current economic world while others believe that has had a great impact on
the economy, especially in Islamic countries.
The research also aims at identifying the products offered by Islamic banks. This will help in
understanding the additional value it offers customers and the differences it has with other
conventional banks.
The study also aims at establishing the type of customers the Islamic bank's target. Different
banks have different customer segments that they target in their marketing initiatives ( Irfan,
2016).
In addition to this, the study aims at understanding the customer's perception of Islamic banking
and their understanding of Islamic banking

INTRODUCTION TO ISLAMIC BANKING 6
The scope of the study
The study focuses on Islamic banking in the United Arab Emirates. The products offered
by the Islamic banks are analyzed as well as the products offered by the conventional banks. The
study establishes the differences between these two banks analyze the perceptions of customers
towards Islamic banking (Nenova, Niang& Ahmad, 2009). The study does not venture into the
competition between these products. The study also does not analyze the performance of Islamic
banks compared to the industry in general.
Sources of data
The data used in this study is collected from both primary and secondary sources. The
secondary sources of data used in this study include; books, journals, thesis and dissertations,
newspaper and magazines. Internet sources of data are also widely used in this study. The
secondary sources are used to provide past literature needed to understand Islamic banking. The
sources are also used to provide the history of the two banks used as the case study for these
report.Primary sources of data are also used to collect data used in the study. Primary sources of
data are also used to collect data for this study. The data is collected using structured
questionnaires issued to customers. Interviews are also carried out with the bank managers to
help in answering questions that cannot be answered through secondary sources. The interview
with the bank manager helps to provide insights into the operations and policies of the bank as
well as the products offered by the organizations.

INTRODUCTION TO ISLAMIC BANKING 7
Methods and techniques
Both qualitative and quantitative methods are used in this study. The qualitative method
is mainly used because the data collected in the study is mainly descriptive and hence qualitative
methods of data analysis are used. Data analysis for the study is done using tables, graphs, and
charts.
Empirical analysis
According to data collected from the study, more than 89% of the respondents indicated
that they are familiar with Islamic banking. The question was asked on whether they have heard
about Islamic banks and whether or not they know the difference between the Islamic banks and
the conventional banks. This is an indication that most of the customers know the differences
between how the two organizations operate. More than 40% of the respondents indicated that
they knew the products offered by the Islamic banks. The analysis of the financial performance
of the two banks shows that Dubai Islamic bank offers personal accounts, business account, and
group account. The personal current account is offered to all customers above the age of 18
years. The current account is for common deposits and withdrawals. Customers can be able to
deposits and withdraw money at all times either over the counter or through the ATM. The
savings account for customers are open to customers for the purpose of saving money for a
period exceeding six months. Customers save money for a fixed period of time after which they
get interested in the amount saved.Some of the products that the Dubai Islamic bank offers
include; Islamic Banking accounts, Islamic profit Distribution, Islamic deposits, Salary advance
facility and Wakala collection and Acc Finance, sukuk, mudarabah,murabahah,andmusharuk
(Kettell, 2009). The bank enables customers of the Islamic religion to access products that adhere

INTRODUCTION TO ISLAMIC BANKING 8
to Sharia law. The products offered by other conventional banks such as the United Arab Bank
include; loans, personal banking, group banking, money transfer services, mortgages, bonds,
SME banking,andE-banking services. The United Arab bank also offers Islamic banking in order
to ensure that it serves customers in all the customer segments. The retail banking services
offered by the United Arab Bank include; new arrival services, Sadara privileged banking, and
bank overdraft (Lone, 2016). The banks` e-banking services enable customers to deposit money
online and using the phone. The services also enable customers to withdraw cash from their
accounts and check their bank balances. The corporate banking items offered by the United Arab
bank include correspondent banking, e-statement services, institutional banking as well as
institutional banking.
From the analysis of the data, it is seen that for conventional banks like the United Arab Bank,
money is a commodity besides being a medium of exchange and store of value (Ansari, 2013).
This means that money can be sold ar a higher price and it can be rented out at an interest.For
Islamic banking, money is not considered a commodity despite the fact that it is used as a
medium of exchange. It, therefore, means that it cannot be sold at a higher commodity than its
face.
For conventional banks, interest is charged even in cases where the organization suffers loss
(Abdul, 2010). It means that the banks operate purely on the profit and loss sharing. For Islamic
banks, they operate on the basis of sharing of profits. When the bank makes losses the loss is
shared based on the mode of mudarabah or Musharakah model.
Conventional banks offer mortgage loan which is repaid after a particular period of time at a
given interest. In Islamic mortgage finance, the bank shares the bank shares with the customer in
purchasing the desired property (Masood, 2015). The customer and the bank co-own the property

INTRODUCTION TO ISLAMIC BANKING 9
and they share in profits accrued from the property. At some point in future, the customer may
decide to buy the share owned by the bank and therefore own the property hundred percent.
Recommendations
The Islamic bank should increase its product portfolio. This will help to increase
consumer choice and hence increasing consumer satisfaction.
The bank should also target a wider customer segment. There are many non- muslims in the
UAE and hence it is important that the bank designs its strategy to reach out to these customers
and therefore increase customer base (Pacter, 2017).
The banks should become more innovative and offer customers digital products which will make
banking easier and improve efficiency.
Conclusion
The study aims at establishing the relationship between Islamic banking and conventional
banking. For the purpose of the study, the Dubai Islamic Bank and the United Arab Bank are
used as the case study for this research. The study begins with an analysis of the history of both
banks. Both the DIB and the UAB were formed in the 1970s and have grown over the years to
cover a wider market segment and serve more customers. The study establishes the knowledge
that customers have on Islamic banking and the perception that they have towards Islamic
banking. Both primary and secondary sources of data are used. The secondary sources used in
the report include books, journals as well as internet sources. Primary data is collected through
questionnaires Some of the products offered by the Dubai Islamic bank include; Islamic
mortgage finance, mudarabah, Musharakah, e-banking services as well as credit card services.

INTRODUCTION TO ISLAMIC BANKING 10
The business model of the bank is based on Islamic Sharia law and the bank does not charge
interest on loans lent out to customers. The report also compares and contrasts the Islamic banks
with the conventional banks. The similarities and the differences are well discussed in the report.
References
Abdul Ghafar, I. (2010). Money, Islamic Banks, and the Real Economy. Singapore: Cengage
Learning.
Ansari, F. (2013). Islamic banking and development. . Journal of Economic Cooperation &
Development, 30(2).
Balala, M.-H. (2015). Islamic finance and law: Theory and practice in a globalized world.
London: I.B. Tauris.
Davids, C. A. (2013). Religion, technology, and the great and little divergences: China and
Europe compared, c. 700-1800.
Golin, J. L. (2010). The bank credit analysis handbook: A guide for analysts, bankers,and
investors. Singapore: Wiley.
International, M. F. (2011). United Arab Emirates: 2011 Article IV Consultation-StaffReport;
Staff Supplement; Public Information Notice on the Executive Board Discussion.
International Monetary Fund.
In Nafis, A., & In Rizvi, S. A. R. (2017). Islamic banking: Growth, stability,and inclusion.
Kettell, B. (2009). Islamic capital markets. London: Brian Kettell.

INTRODUCTION TO ISLAMIC BANKING 11
Irfan, H. (2016). Heaven's bankers: Inside the hidden world of Islamic finance. Woodstock:
Overlook.
Kumar, R. (2014). Strategies of banks and other financial institutions: Theories and cases. San
Diego: Academic Press.
Lone, F. A. (2016). Islamic Banks and Financial Institutions: A Study of their Objectives and
Achievements. (Springer eBooks 2016 [recursoelectrónico].)
Masood, O. (2015). Rightful Way of Banking. Cambridge Scholars Publishing.
Nenova, T., Niang, C. T., & Ahmad, A. (2009). Bringing finance to Pakistan's poor: Access to
finance for small enterprises and the underserved. Washington, D.C: World Bank.
Pacter, P. (2017). Pocket guide to IFRS standards: The global financial reporting language.