CHAPTER 3Islamic Banking versus Conventional Banking

INTRODUCTION TO ISLAMIC BANKING

Banks are institutions licensed by the central bank and allowed to take deposits from people. They also provide a host of other products and services including giving loans, collecting cheques, drafts, transferring money, providing guarantees, dealing in foreign exchange and assisting the client to invest. From the economic viewpoint, Islamic banks have a similar role to that of conventional banks. Banks use the funds collected as deposits to provide financing to other clients and invest their own and customer deposits.

The uniqueness of the Islamic bank comes from the fact that all transactions need to be in accordance with the Islamic Shariah principles. The ...

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