Performance of Islamic banks and conventional banks

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Book Chapter

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Ariff, M., Badar, M.K., M. S., & Hassan, T. (2011). Performance of Islamic banks and conventional banks. In M. Ariff & M. Iqbal (Eds.), The Foundations of Islamic Banking - Theory, Practice and Education (127-151). Cheltenham, United Kingdom: Edward Elgar Publishing Limited.

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2011 HERDC submission. FoR code: 150203

© Copyright Mohamed Ariff and Munawar Iqbal, 2011





In this chapter an attempt is made for the first time to assess the financial performance of Islamic banks and conventional banks by choosing a matched sample of banks to assess their financial performance across the world over a lengthy period. Islamic banking is based on replacing the prefixed-interest-based bank deposit-turn-lending activities with risk-sharing and profit-sharing principles advocated by Islam, which in turn appears to be consistent with the social norms of pre-modern societies prior to the rise of interest-based fractioning banking in the last 200 years, which refers tothe fractional-reserve banking from the close of the 18th century. Risk- and profit-share principles in financial transactions have been with humanity for a long time and they are still practiced silently in most rural non-bank lending activities across the world.

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This document has been peer reviewed.