A comparative performance of islamic banks to European conventional banks

Abstract

The 2007 financial crisis ago highlighted the structural weaknesses that exist in global financial markets. Market participants largely sought alternative answers to a flawed banking system, which is when Islamic Banking and Finance, which had slowly been growing in size and reputation partly due to the sector’s attempt to reach out to its community all over the world, came to greater light. This study attempts to understand the fundamental nature of Islamic finance, with a special focus on Islamic banking. An attempt is made to highlight the main differences in the way Islamic banks work in comparison to conventional banks, whilst showing the benefits of implementing a banking system that is structurally sounder and fundamentally more ethical in nature. Furthermore, there is a need to clarify that the aim of helping to introduce Islamic finance to the West, specifically Europe, does not come from an ideological perspective but from a need to establish an economically secure framework, that is not volatile and susceptible to shocks in the economy. The final part of this study puts theory to practise by attempting to analyse whether Islamic banking performs better than conventional banks.