PRODUCTS OFFERED BY ISLAMIC BANKS

Products Offered By Islamic Banks as a Substitute For Those Offered By Conventional Banks

Products Offered By Islamic Banks as a Substitute For Those

Offered By Conventional Banks

Introduction

Islamic banking system has emerged as a competitive and a viable substitute for the conventional banking system during the last three decades. It is especially true for Muslim world where presently Islamic banking strides at two separate fronts. At one side, efforts are also underway to covert the entire financial systems in accordance to Islamic laws (Shariah). At the other side, separate Islamic banks are allowed to operate in parallel to conventional interest based banks. Pakistan and Malaysia are the two good examples of above mentioned approaches.

Both countries adopted different tracks for the same ultimate destination of developing full fledge viable Islamic financial system and produced quite interesting results.

The Government of Pakistan tried to covert the entire financial system to an interest free system through presidential orders at a national level. However, the overnight practice of islamization didn't achieve the required success. Most of the efforts have either been reversed or further developments have been stopped. Malaysia opted for the alternative gradual way of developing and implementing Islamic banking system. Starting with one Islamic bank it later allowed conventional financial institutions to offer and participate in Islamic banking products and services through their existing staff and branches. The country is now actively involved in designing new Islamic financial instruments for capital and money market transactions. This study provides the comparative analysis of implementing two opposite Islamic banking approaches, one in Pakistan and other in Malaysia along with their acquired results.

The Islamic banking system has gained momentum worldwide. There are now 180 Islamic banks and financial institutions operating in Asia, Africa, Europe and the USA with more than 8,000 branches with an estimated $170 billion. The popularity of the Islamic banking system is not limited to the Islamic banks only. Increasingly large international conventional banks are showing interest in the Islamic banking system as well. For instance, Citibank has established branches in countries like Bahrain and Sudan to operate in accordance with Islamic Sharia'h principles.

The consequence of this is that Islamic banks operating in Islamic countries are faced with strong competition not only from Islamic banks but also from non-Islamic rivals (Naser and Moutinho, 1997). Though the Islamic banking system is different from the conventional banking system, there are some similarities between the two. For instance, an Islamic bank conducts its activities in accordance with the Islamic Sharia'h principles that strictly prohibit any payment or receipt of interest. However, the Islamic bank can also offer products and services which are similar to those offered by a conventional bank.

When competition intensifies and when banks start to offer more or less similar products and services, it is the customer's satisfaction that can influence the performance of an Islamic bank and determines its competitiveness and success. Hence it is of paramount importance to assess the degree of customer satisfaction ...