ISLAMIC BANKING;

THE SOLUTION FOR THE FAILING

Referans için: Issah, Abdulbasit Baba, “Islamic Banking; The Solution For The Failing Conventional Banking”, Analysis
İNSAMER, 27.03.2019.

Economy is one vital pillar on which every According to Investopedia, the European
civilization, state, and country depend upon. Sovereign Debt Crisis had led to a loss of
The Conventional banking system has been confidence in European businesses and
the banking model and transaction tool used economies. The website stated a number of
for decades; this system depends solely on factors that worsen the crisis in Europe. Greece’s
capitalism where the profits and benefits are massive debt and the Brexit movement in the
centered on certain groups. UK clearly threatened the European economy.
The capitalist economic system is deteriorating And the situation was only made worse by the
and has not been able to withstand the test of total breakdown of one of the biggest economy
time; the global financial system is unstable of Europe, Italy. This phenomenon triggered
and collapsing due to the capitalistic economic social unrest in most of the European countries,
ideology across the world. where unemployment alone has risen to 21%
particularly in Greece. The source also added
The world had witnessed how Europe was hit that the on-going economic and banking crisis
with a debt crisis since 2008 when many of would have a long-term effect on the European
European countries experienced the collapse overall economy.
of financial institutions, not to mention the
skyrocketed government debt which led to The African continent also had its share in
the collapse of Iceland’s banking systems and facing the global conventional banking crisis;
other problems faced by Portugal, Italy, Ireland, between the year 2015 and 2018 the continent
Greece, and Spain in 2009. experienced financial catastrophe. In Ghana

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for example, eight indigenous banks collapsed Mismanagement: Banking mismanagement is
(UT bank, Capital bank, Uni Bank Ghana also responsible in pulling down theconventional
limited etc.) this year; in Tanzania six banks banking systems. Mismanagement of resources
went down (Efatha Bank Ltd., Covenant bank and authorities has evidently led to the collapse
Women, Twiga Bancorp etc.); while Nigeria, of conventional banks, especially in the African
Uganda, Mozambique, Kenya, and other African continent. People are being employed in financial
countries went through similar crisis. institutions not because of their credentials in
the area of finance and economy but rather due
Causes of these crises to favoritism, nepotism, and tribal affiliations
and relations. Consequently, many banks in the
The causes of the conventional banking system
African continent are filled with unqualified
failure can be looked at from the following
employees and the result of this error is clearly
aspects:
shown. And then corruption is also rampant due
Capitalistic Economic Ideology: Capitalism as to abuse of the authorities in these institutions.
the ideology of conventional banking system
has from the beginning served as a vulnerable Islamic Banking’s Potentials
foundation, in which strong and reliable The ongoing banking crisis in the world
transactions cannot be built upon. A financial today would prove that the Islamic model
institution should aim to aiding the community of banking is the viable alternative that can
and nations at large but in reality the current rescue conventional banking from disaster.
financial institutions’ products and transaction Unlike the capitalistic model of banking, the
models pose as a threat to communities Islamic banking system focuses on the entire
and countries. This is because this model is stakeholders involved in monetary transactions,
established to profit and benefit the rich and the the individuals (customers and depositors),
elites. the communities and the financial institutions.
Bank loans have shifted their function from In order to improve the economy and public
helping people such as young entrepreneurs welfare, these elements should all benefit from
to have a strong business foundation. Today, their transactions.
financial institutions would not provide a The Islamic model of banking and transactions
loan without a valuable collateral, where in can help the economy from crisis and disaster in
most cases is an impossible prerequisite for the following areas:
loan seekers. And to make matters worse, the
collateral is theadded interest on the loans set Absence of Interest: the beauty and outstanding
by the financial institutions for certain period. aspect of the Islamic economic system is
These interests sometimes exceed the loan the absence of interest throughout its entire
acquired by a customer within a short period monetary transactions and products.From here
and the financial institutions would claim the alone we can see that the products in Islamic
collateral if the loans are not settled on time. finance focuses on the benefits of all stakeholders
involved and not only the financial institution as
Here it is clear that the benefits and profits are it is in conventional banks.From here it is safe
centered only on the banks and not the customers. to say that the Islamic banking system does pay
And again when it comes to investment it attention about public welfare.
is obvious that the banks benefit from these
investments far more than the customers and Any form of interest is prohibited in Islamic
investors. All these products in the conventional financial transactions to enable the poor to gain
banking system and other products and benefits, which in the long run would raise the
transactions constitute in the collapsing of the status of society economically and minimize
capitalist ideological banks across the globe. financial-related crimes. Anon-interest loan in

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Any form of Islamic economic system
enables the customers and
as we can see how London is now a leading hub
of Islamic banking in Europe. Islamic banking
interes t is the needy to benefit from has reached new levels of maturity in the past
the loans and repay it at fifty years.
prohibited the given time without any
According to Euronews, Islamic banking is
in Islamic fear of added interest. This
forecasted to be worth 3 trillion dollars by
form of loan could support
financial struggling entrepreneurs 2021 with Malaysia, Saudi Arabia and the UAE
currently leading the market.
transactions. and not the other way
round. The 2017 Islamic Finance Development Report
The concept of collateral is available in Islamic stated, “It is expected that on average the growth
financial transactions especially in loans but rates of Islamic Finance sector will be 9.5% per
what differs from the conventional system is that year, which significantly exceeds the growth
the Islamic financial institutions may extend the rate of the conventional banking institutions in
loan payment deadline without burdening the the key region of the world.”
costumer with interest or a raise of payment. This In 35 countries, Muslims constitute as the
system helps the customer to work harder with majority of the population, and in 28 countries
full concentration because there is no interest or Islam is the states’ religion, these countries
rise in payment of the loan. include Egypt, Saudi Arabia, Morocco, Kuwait,
Risk Sharing through Mudaraba: One of the Iran, Iraq, and Pakistan amongst others. The
weaknesses of the conventional banking system Islamic banking potential for Muslims alone is
is in the area of risk management and this already significant. Religious aspects clearly
happens as a result of the greed-driven centered could develop the system. Besides, the risks in
benefits of few. This greed has led to the collapse Islamic financial sector is lower compared to the
of many financial institutions across the globe. conventional model, and we can now witness
However, if there is a lost in a transaction or that the conventional banking is adopting several
investment it is the bank that has to retrieve products of the Islamic
finance system and not the
these monies to the owners and most of the time
not the other way round. The
financial institutions go down due to these types
of crises.
Conclusion
conventional
The Islamic banking system comes with a
The conventional banking
banking
product called Mudaraba (partnership) where
it involves an investor (customer) and business
system, which has been system, (...)
the model of financial
aspect (financial institute) to commit in it. In this
transactions for decades,is
is currently
contract both profit and loss are shared between
the two parties instead of being centered on one
currently in crisis and in crisis and
deteriorating alongside
party. This can serve as today’s best investing
its declining status in the deteriorating
model which can replace many products in
conventional banking and avoid unbearable
major regions of the world. alongside
Conventional banking
risks and collapse as the world is experiencing
today.
could not stand the test of its declining
time while, on the other
hand, Islamic finance
status.
Future of Islamic Banking
has been growing for the past fifty years and
The Islamic finance sector is booming, not only in innovational ways of banking and new products
the GCC region but also in Europe and the West, have been introduced throughout these years.

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Islamic banking is growing both in the GCC means to better the economy of major world
region and the Western countries. It has more regions. Islamic finance is capable of replacing
risk management tools than conventional the conventional banking model and it has
banking and it is considered by the IMF as a proven its viability and it is still growing.