Islamic Banks and Commercial Banks Performance Essay

Islamic Banks and Commercial Banks Performance - Essay Example This research will begin with the statement that conventional commercial banks have a better opportunity for increasing profitability and shareholders’ returns since they charge interest and fees on their customers. On the other hand, the Islamic banks have a lower opportunity cost for profit making and increasing the investors’ returns, because they operate on the principle of free-interest. Nevertheless, that is not to say that Islamic banks are not profitable. The low profitability and return on investment for the Islamic banks are largely accounted for by the fact that the Islamic banks operate on a more benevolent basis than the conventional banks. Additionally, the commercial banks have a better grip on the economy of countries than the Islamic bank, since they have a long history compared to the Islamic banking, which is a contemporary phenomenon. The concept of Islamic and commercial banking has attracted a lot scholarly of attention of late, with different fina ncial scholars trying to understand how the concept of Islamic banking works in relation to both Islamic banks profitability and Islamic banks customer behavior. The interest in studying this area has arisen out of the fact that the Islamic banks operate on the basis of the Islamic religious laws, which is a totally different concept from the conventional banking operations. Defining the profitability of the conventional banks is more straightforward because it is based on the banks charging interest rates and fees to their customers of different products and services that the banks offer to the customers.