Conventional Banking Institutions Research Articles

Sharia Economics Students' Understanding Of The Prohibition Of Riba In Conventional Bank Institutions

The aim of this research is to determine the understanding of sharia economics students regarding the prohibition of usury in conventional banking institutions. Where in Islamic teachings, usury is strictly prohibited according to the guidelines of the Al-Qurana and Al-Hadith. This research uses qualitative research with in-depth interview methods. Data taken from respondents from sharia economics students in the first semester of STAI Kuningan. The results of the research show that sharia economics students really understand about usury because they have often heard what usury is before. Students also understand the practice of usury which is the same as the interest system used by conventional banking institutions. Usury is very detrimental to one of the parties to the transaction. It is not mutually beneficial for the parties carrying out the transaction.

Comparative Analysis of Financial Performance of Sharia Banks and Conventional Banks

This research objective is to determine the comparison of the economic performance of Sharia Banks and Conventional Banks. This study was conducted at sharia banking and conventional banking institutions indexed on the Indonesia Stock Exchange in 2018-2022. This type of studies is quantitative, the type of information used is secondary data, the statistical collection method used is documentation strategies and the information analysis method is quantitative descriptive methods. The population used is all banks in Indonesia. Meanwhile, figuring out the sample used the purposive sampling method. The records evaluation method was done using the descriptive evaluation testing degree and unbiased pattern t-test evaluation. The research results show that there may be no big distinction between the financial performance of Sharia Banks and Conventional Banks within the 2018-2022 duration.

NEXUS BETWEEN LIQUIDITY MANAGEMENT AND LOAN REPAYMENT AMONG MICROFINANCE BANKS IN EMERGING MARKETS: A PANEL ANALYSIS

Loan repayment remains the chief source of internally-generated liquidity reserves in the microfinance banks operating in the emerging markets in developing countries. Globally, reports indicate that of the loans disbursed in the United States of America, 45% of borrowers default on repayment, 60% of whom eventually end up as non-performing. A similar trend is reported in Nigeria with statistics indicating growth in overall default rate from USD1.612B in 2017 to USD 2.694B in 2021. Uganda recorded about USD.1.215B worth of non-performing loans in its MFI sector in 2018, from USD 324M in 2017. Microfinance banks (MFBs), as one of the institutions at the center of financial inclusion in Africa target to serve low-end borrowers who are prone to fall in default of honouring their arising loan repayment obligations. In Kenya, MFBs have recorded a steady rise in non-performing loans from Kshs.328M in 2018 to Kshs.1.9B in 2021. The loan repayment trend among MFBs reflects a trajectory that calls for urgent invention measures to secure steady operations to the extent of meeting their arising financial obligations. Previous studies on loan repayment have focused on conventional banking institutions, whose operational lending dynamics are significantly distinct from those of MFB. Existing literature is skewed in favour of investigating parameters associated to profitability. The main objective of this study was to establish the relationship between liquidity management and loan repayment among MFBs in Kenya. The anticipated incometheory underpinned the study objective. Secondary balanced panel data sourced from the annual reports of 12 regulated MFBs in Kenya were used. The study covered an eight-year period from 2015 to 2022, yielding 96 data points. Moderated multiple regression was applied to realize the study objective. Regression results showed that a unit change in liquidity management results in 2.01% significant change in loan repayment (β=0.020110, p=0.0085) with R2=82.7%. From the results, the nexus between liquidity management and loan repayment is positive and significant but weak. It is recommended that reliance on strict management of internally generated funds ought to be complemented with moderate external funding.

Islamic finance: Meeting Global Aspirations and Growth Potential — UK Model

This study’s objective is to provide a description of the Islamic financial industry and its products, with an emphasis on the development of Islamic finance in the UK market. Islamic finance is a relatively popular issue in the world of economics due to its patterns of worldwide expansion. In the western world, the UK is at the forefront of Islamic finance. This research used a positivist outlook, and a descriptive research design. The optimum way will thus be to acquire secondary data. Both content analysis and descriptive analysis were used to examine the data that had been gathered. The findings showed that the UK’s political environment and organizational structure support the expansion of Islamic banking there. The study also highlights the difficulties that UK-based Islamic financing faces. The results showed that financing real estate, as well as the provision of insurance services and the financing of transport firms without interest charges on loans, improve investment by Islamic banking and conventional banking institutions with an Islamic sector.

Understanding the implications of FinTech Peer-to-Peer (P2P) lending during the COVID-19 pandemic

ABSTRACT This study examines the impact of the COVID-19 pandemic on the determinants of FinTech Peer-to-Peer (P2P) lending. The issue is significant because P2P lending platforms have attracted borrowers with little to no access to the credit facilities offered by conventional banks during the pandemic. Although many banks and financial institutions have offered online loan application services during the COVID-19 pandemic, few have developed verification of loan applications submitted online. The results of this study show that the COVID-19 has brought a drastic change in the key determinants of P2P lending. The results imply that FinTech P2P lending has become the most viable alternative credit option available to borrowers. The findings are significant and likely to be of interest to borrowers, investors, practitioners, academics, and policymakers because they highlight the usefulness of P2P lending platforms and their potential to augment or replace lending provided by traditional or conventional banking institutions.

Do Credit Unions Serve the Underserved?

The tax exempt status enjoyed by credit unions is based in part upon such institutions providing financial services to individuals who are traditionally underserved by conventional banking institutions. Rather than relying upon an abstract measure of underserved status, we instead empirically estimate the probability that a household does not have an account with a traditional bank. We then use this information to determine whether individuals with reduced access to banking services are also more likely to belong to credit unions. We find that underserved households are less likely, rather than more likely, to use the services of credit unions.

The impact of economic cyclicality on financial risks: Evidence of Islamic Microfinance institutions.

Loan portfolio is the largest asset component and a source of risk that a microfinance institution needs to treat carefully. The quality of the loan portfolio is very crucial as the loans are typically not backed by any physical collateral. Having dual roles of achieving social and financial objectives, lenders require the microfinance institutions to have long-term financial sustainability. The study aims to gauge whether financial risks of Islamic and conventional microfinance institutions are pro-cyclical to economic conditions. The study utilises the dataset of 39 microfinance institutions for Afghanistan, Bangladesh and Pakistan from 2007 to 2013. Findings indicate that financial risks are pro-cyclical with economic conditions for both Islamic and conventional banking institutions. However, Islamic microfinance institutions are exposed to a higher financial risk during an economic downturn. This implies that Islamic microfinance institutions should improve the quality of their portfolio to preserve sustainability and resilience.

An Analytical Study to Determine Whether All of the Services of Conventional Banking Permissible or Forbidden in Islam

This Study shows the misconception of innocent Muslims on about “Are the service of conventional banking fully Haraam for the Muslim? This study is conducted the widespread misconception in innocent Muslim minds that everything associated with banking within the conventional system is prohibited in Islam. This probably stems from a lack of understanding and genuine desire of common Muslims to stay away from even remotely prohibitive income. Since this assumption of blanket prohibition is erroneous. In fact, there are clear guidelines in Islamic law and Islamic Sharia law [1]. This paper analyzes which services, functions and products have been Prohibited by Islamic law and Shariah and which services, functions and products have been allowed to be accepted subject to certain condition, There are many permissible (halal) functions that conventional banking institutions perform and make substantial profits from. In my view, Muslims may engage in such functions in the form of customers, employees, investors or advisers and if you have no direct involvement in any riba transaction, then it's fine to work there.

FAKTOR-FAKTOR YANG MEMPENGARUHI PERTUMBUHAN LABA BANK UMUM SYARIAH DI INDONESIA

This study aims to know the effect of the determinant variables on profit growth in Islamic commercial banks in Indonesia. During the period of financial crisis in 1997 Islamic banks were still able to show relatively better performance compared to conventional banking institutions. Due to the lower distribution of non-performing loans (non-performing loans) to the Islamic banks and no negative spreads in their operational activities, this condition as well as profit growth generated by Islamic banks. This study analyzes the effect of Net Operational Income (NOI), Third Party Funds (DPK), Capital Adequacy Ratio (CAR), Non Performing Financing (NPF), Financing to Deposit Ratio (FDR), and operational costs to operational income (BOPO) both partially or simultaneously on the Profit Growth of Islamic commercial banks in Indonesia in the 2016-2018 period. The type of research is associative, secondary data sources and data are analyzed quantitatively. The results of this study indicate that partially Net Operating Income (NOI) affects the profit growth of Islamic Commercial Banks in Indonesia. For simultaneous testing the overall determinant variable does not affect earnings growth at Islamic Commercial Banks in Indonesia.

Assessment of Financial Performance and Efficiency of Islamic and Traditional Banks in the Post-Crisis Period

Much of the research surrounding Islamic banking has focused on the 2008 financial crisis and the distinctions between conventional and Islamic institutional performance. Given the consensus that due to lower risk profiles and higher efficiency performance, Islamic banking outperformed its conventional counterparts during that tumultuous period, it is important to extend the academic focus beyond this narrow timeframe. The current investigation has applied a systematic methodology to review quantitative data from several emergent studies regarding post-crisis performance comparisons between Islamic and conventional banking institutions. At the risk of regional or institutional bias, these findings have demonstrated a higher degree of volatility in technical and scale efficiency amongst Islamic institutions since 2010, yet simultaneously, a higher overall efficiency rate of 0.886 when contrasted with the average total efficiency of 0.771 in conventional banks. The evidence highlights a positive correlation between the risk-adverse investments utilised by the Islamic banking system, but suggests that there is significant opportunity for growth through network consolidation and institutional expansion in order for these banks to take advantages of regionalised economies of scale.

ISLAMIC BANK VS CONVENTIONAL BANK: THE DIFFERENCES OF MANAGEMENT COMMUNICATION TO STAKEHOLDERS USING INTERNET FINANCIAL REPORTING

Purpose of the study: This study discusses the differences of Internet Financial Reporting Quality between Islamic Bank and Conventional Bank in Indonesia as a means of banking management communication with their stakeholders. The Internet Financial Reporting quality form assessed by four components based on Internet Financial Reporting Index, which are content, timeliness, technology and user support.
 Methodology: This study used a quantitative approach with independent sample T-test. The hypothesis testing tool is assisted by SPSS 22 data processing software. The data of this study were collected from the official website for each bank institution, and for the sample that chooses this study used a purposive sampling technique.
 Main Findings: : There is a significant difference at the 5% significance level between Internet Financial Reporting quality between the two, with the result that conventional bank has better quality than Islamic bank. On the contrary, in the technology and user support component, there are insignificant differences.
 Applications of this study: The results of this study are useful for several parties involved. First for the stakeholders of the banking industry in Indonesia. Second for banks in Indonesia. Third for regulators, it is expected to be able to provide more detailed regulations. Finally, it gave an opportunity to other researchers for making some further study.
 Novelty/Originality of this study: This research is the first study that comprehensively compares the quality of Internet Financial Reporting in Islamic and conventional banking institutions. This study also succeeded to find that in management communication to stakeholders using Internet Financial Reporting, Islamic Banks were able to compete with Conventional Banks.

Late Payment Treatment in Islamic Banking Institutions in Malaysia: A Maqasid Analysis

Contrary to the conventional banking institutions that impose compounding penalty, Islamic bank institutions in Malaysia will only impose compensation for actual loss suffered by the bank as a result of negligence of its customers. Yet charging more than the amount of principal debt is controversial in Islam because it is tantamount to the prohibited usury (riba). At the same time not charging anything at all for the failure of the customers to fulfill obligations will give rise to some problems such as bank losses and moral hazard. Hence, the legal position of the imposition of compensation (ta’wid) for the deferment or failure of the customer to fulfill obligation should be evaluated not only in terms of technicality in the contract, but also in terms of the objective of shariah (maqasid al-shariah). This paper aims to evaluate and analyze this issue based on the doctrine of maqasid al-shariah to get a comprehensive and fair view for both parties, customers and Islamic banking institutions. To achieve this goal a qualitative analysis based on the discipline of Islamic law (fiqh) and the doctrine of maqasid al-shariah will be carried out. The study confirmed that the imposition of ta'wid has its justification if it was done based on the actual losses incurred by the bank or at the nominal amount for the sake of avoiding morale hazard among customers. In the event banks need to impose a penalty which is not based on the actual losses, then the proceed should not be regarded as bank’s income, instead, it should be channeled to charity organizations. In any case, banks need to evaluate the real position of the customer whether a genuine incapable debtor or just a negligence defaulter.

Compatibility of Islamic Finance and Anti-Money Laundering Laws: A Myth or Reality?

Money Laundering (ML) remains a major threat to the financial flow, as well as affecting the economic stability of any nations. It is equally capable of undermining macroeconomic performance and therefore constitutes a very significant risk to both soundness and stability of any financial institution. Foreign direct investments are therefore adversely affected. Unlike that of the capitalist economy and other conventional banking institutions, the risks which ML poses to Islamic finance attracted little or no critical study. This could give the impression that Islamic finance is not in tune with Anti-Money Laundering Laws (AML) and the regulatory regime or that it is anti-AML. The resultant effect of this is unnecessary hostility to Islamic Financial products, which appears not to be in the interest of global economy. This article, therefore, focuses on the relevance of AML principles to Islamic banking. It is revealed that while no financial institution is immune to laundering, the risk-sharing nature of Islamic finances poses less systemic risk than conventional finance. It is recommended that FATF should facilitate studies of potential ML in Islamic finance to put the issue in the right perspective.

The Impact of Data Mining Techniques on the Indian Banking System

A definite transition away from the current post-industrial civilization towards the "Knowledge - based society" is being brought about by the influence of the "information Revolution" that is shaking the sphere. The banking and finance sector which consists of banks, financial firms, and other providers of financial services, is increasingly adopting new ICT developments (ICT). ICT adoption by banks has clearly benefited the banks in the form of improved customer service, reduced transaction expenses, a larger variety of delivery options and goods, etc. All banks are using fintech (Fin Tech) more and more. India particularly has experienced a period of demonetization (DeMo) as of November 8, 2016. Banks in India support contactless payments and digital banking in this contemporary DeMo age, and they are increasingly implementing fintech. There is intense competition in the financial system between individual banks and bank groups as a result of the digital take on elements place in the Indian economy as a whole and the banking industry in particular. The Next Generation of Private Banking Institutions (NGPSBs) is quickly eroding the market share held by Public Sector Banks (PSBs) (NGPBs). Using ICTbased solutions can help banks stay competitive in an environment where industry competition is on the rise. In the ongoing DeMo era in India, this study examines the implications of information mining technologies for improved competition, especially in conventional banking institutions.

Does financing structure affects bank liquidity risk?

This paper investigates whether FS affects bank liquidity risk. Using the Malaysian banking data sets, we compare the FS-liquidity risk relationships between the Islamic and conventional banking institutions. FSs are measured by real estate financing, financing concentration, short-term FS stability, and finally medium-term FS stability. Meanwhile, for liquidity risk measures, we adopt the BASEL III approach such as liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) in quantifying short- and long-term liquidity risk, respectively. The unbalanced static panel regressions of 27 conventional and 17 Islamic banks from 1994 to 2014 were analyzed to evaluate the relationships. Our results illustrate that increasing number of real estate financing and short-term FS stability of the Islamic banks may increase both their short- and long-term liquidity risks. On the other hand, even though real estate financing does not affect liquidity risks of the conventional banks, increasing short-term FS stability and financing specialization may increase their long-term liquidity risk. As the liquidity risk behavior, to some extent, differs between the two banking systems, we recommend the regulatory bodies and market players to develop a separate liquidity risk management framework for conventional and Islamic banking institutions.

Will Islamic Banking Make the World Less Risky? An Empirical Analysis of Capital Structure, Risk Shifting and Financial Stability

We use a classic Merton credit risk framework to argue that Islamic Banking Institutions (IBIs) face less incentive to take on risks than Conventional Banking Institutions (CBI). IBIs have less incentive for risk shifting both in and outside of distress situations. We test and confirm this prediction in an empirical analysis based on a dataset covering all CBIs, IBIs, and Islamic and conventional subsidiaries of mixed banking institutions in Pakistan. We find that full-fledged Islamic banks (IBs) are indeed more stable than conventional banking institutions (CBIs), and are better capitalized than their conventional counterparts. IBIs also have less volatile asset returns, less non-performing loans (NPLs) and lower loan loss provisioning. Similar results obtain for Islamic windows of mixed banks compared with conventional windows. The analysis suggests that the loss absorption capacity of Islamic banks leads to less risk taking and a more stable banking system.

An Exploratory Study on the Understanding of the Concept of Riba and Factors Determining Patronization of Conventional Banks among Muslims in Malaysia

Currently, there are 27 banking institutions consisting of 16 Islamic banks and 18 conventional banking institutions offering Islamic banking products and services under the Islamic Banking Scheme (IBS) in Malaysia. Hence it can be a valid question to ask that why Muslims in Malaysia are still patronizing the conventional banks when there are enough alternatives now. This study has been conducted to unearth the reasons for whyMuslims in Malaysia haveaccounts in conventional banks and to examine the level of knowledge and understandingabout riba among Malaysian Muslims. It is important to check the level of knowledge about riba because initially interest intruded in Muslim countries through disagreement among scholarsin the past, scholars have differed over the technical definition of riba. A total of 563 respondents were surveyed and their responses were analyzed using SPSS. The most important fact revealed by this study is that Muslims in Malaysia possess a good understanding of the concept of riba. The lack of knowledge about riba is not a reason fordealing with conventional banks. The result also shows that being familiar with the bank is the dominant reason for choosing one bank over another, among customers of conventional banks. When the relationship between demographic profile and various misconceptionsabout ribawas tested, academic qualification appears to be a significant factor. The findings of this study can help in designing effective promotional strategy for Islamicbanks.

Basel III: Comrade or Contender for Islamic Banking Intuitions - A Case of Pakistan

Financial crisis of 2007 greatly impacted the global banking system. In the main time the rise of Islamic banking system comes as a substitute to the conventional banking system at the global level. Basel III accord come in being in 2011 put forward many regularity and supervisory frame work to establish the viability and credibility of world banking systems. The Islamic banking system increasing its presence in at the global level with assets of US$1.7 Trillion with annual growth rate of 17.6% up till the end of 2013. Five Islamic banking institutions are working in Pakistan as torch bearer. These five are pure Islamic banking companies in Pakistan not any of them is a subsidiary of the convention banks working in Pakistan. Researcher will look into five years business of these Islamic banking companies that how they react to the Basel III regulatory requirement and the role of central bank in Pakistan i.e. State Bank of Pakistan (SBP) in implementation of regulatory and statutory framework of Islamic banking system in Pakistan.Results of this studies reviles that the IBIs working in Pakistan are in better position in implementation of Basel III requirement like quality of capital, leverage ratio and risk management issues. We can consider it as the requirement of IBIs to work in this way as required by the shariah not by the Basel III regulation. IBIs need some indigenous system of regulation that suits to its need. Basel III not a suitable regulatory framework for the IBIs as it was framed for the conventional banking institutions.

Factors influencing loan repayment performance among group borrowers in Bungoma West District, Bungoma County

Micro financing plays a key role in enabling small business organizations to expand their businesses and fund their operational costs. Micro finance is the supply of microloans, savings; micro insurance and other basic financial services to the poor- particularly those who have been left out by conventional banking institutions. Micro Financial Institutions lend small businesses both short term and long term loans. MFIs have embedded their operations in rural areas with the purpose of alleviating the poverty problem that affects many people. The lending philosophy of MFIs is based on the Grameen Bank model in which social groups form the collateral for receiving a loan. Without legal contractual obligations established to push members to adhere to a stipulated timeframe and interest rates many group members fail to pay back under the lenders' lending conditions. The purpose of this research is to investigate factors influencing loan payment ability of entrepreneurs accessing credit through groups. I. Introduction The success of Grameen Bank of Bangladesh to reach the poor and the marginalized few in the rural areas and raise their status through micro financing has proved that micro financing is a feasible tool for creating economic empowerment among the poor. This success has seen the emergence of financial institution in the financial sector to fill the gap where commercial banks do not venture. Different MFIs operating in various areas have come up with variety financial services tailored to suit in various economic environments. In general, the average loans are fairly low and the default rate is also very low. Strategies used in risk management include; acceptance of chattel mortgage as part of security requirements, conservative loans classification and ageing criteria. MFIs also strengthen credit departments by recruiting a sizeable number of Micro Credit Officers and seasoned credit managers. Risks are attributable to their loans and advances. They structure the level of credit they undertake by placing limits on amounts of risk accepted in relation to one borrower. Such risks are monitored on a regular basis and are subjected to monthly or more frequent reviews. Risk management strategies include; analysis of the ability of and potential to meet interest and principal and repayment obligations, obtaining collateral and corporate guarantee where considered necessary, these institutions have no significant concentration of credit risk, with exposure spread over a diversity of personal and commercial customers. There is also diversity in various sector exposures; there is a comprehensive loan appraisal system, which highly focuses on cash flows. Lending process is guided by branch, head Office, executive and board credit committees with graduated risk limits. Target beneficiaries of these financial institutions are women, small scale business enterprises and the youth who cannot provide adequate collateral to befit from mainstream banks. This is frequently attributed to the lack of property rights in land or to limited ownership of physical or financial assets. Lending programs by these financial institutions either make use of existing social structures or have formed peer groups through which individual members access credit. Groups ensure appropriate borrower selection and screening. Screening helps in determining the likelihood that a borrower will not default on the loan and provide incentives for the to repay and enforce repayment. However there are potential problems that lenders continue to face while dealing with group clients. These problems result directly from imperfect information on projects and the credit worthiness of the clients. This may be attributed to distorted information prevalent in rural areas because of market segmentation by village and kinship groups. The weak legal system and the lack of enforcement mechanisms lead to difficulties in monitoring and obtaining enforcing repayment of loans. Politicization of rural credit; lack of supervision; lack of knowledge about the borrowers affairs over the lifetime of the loan; lack of technical ability among credit lenders to analyze and evaluate the and erratic changes in relative prices which affect disposable incomes adversely affect returns on investments. Additionally relative rate of inflation associated with unstable economy would make small scale vulnerable. They fail to get maximum cash flows from their investments rendering them unable to service their debt credit.

Chinese Underground Banks and Their Connections With Crime

Chinese informal fund transfer systems (IFTS), widely known as underground banks, are one of the two prototypes of unregulated practices of fund transfer which could either use or bypass conventional banking institutions. This article focuses on the type of underground banking systems which primarily deals with foreign exchange and remittance transfer. The article proposes that underground banks are treated as illegal enterprises instead of a component of organized crime. This first qualitative study draws firsthand evidence from interviews made both in mainland China and in the United States. By depicting and analyzing the links of Chinese IFTS to human smuggling and money laundering, this article examines the extent to which the systems are involved in crime.