Conventional bank and Islamic banking as institutions: similarities and differences

Abstract

Purpose

The aim of this paper is to discuss the similarities and differences of both conventional and Islamic financial institutions from various institutional perspectives.

Design/methodology/approach

This conceptual paper describes the insights held by the financial institution theory which is discussed from the perspectives of the economics of the financial institution, legal environment, the political aspect of an institution, the philosophical underpinning, the components of institution and also the ethical role of institution. Then, this paper will proceed to justify the similarities and differences that have been observed between both institutions.

Findings

Discussions in this paper will reveal that specifically specific similarity is prevalent on the nature of the supervisory role. The differences between both institutions from the aspects of business organization, economic roles and law of origin have also been found.

Research limitations/implications

The similarities and differences that are established on both institutions will affect the structure of the financial contract and the design of financial systems.

Originality/value

The paper will contribute a new knowledge specifically on the design of the Islamic financial contract based on Shariah law at the initial phase.

Citation

Wan Ibrahim, W.H. and Ismail, A.G. (2015), "Conventional bank and Islamic banking as institutions: similarities and differences", Humanomics, Vol. 31 No. 3, pp. 272-298. https://doi.org/10.1108/H-09-2013-0056