Banks are a one of critical establishment in the development of an economic system ( Jairus 2007 ) , since they are the cardinal drivers of the economic system in footings of guaranting that the fiscal system is running and there is money in circulation ( Ayub 2007 ) . From the crude set-up, that was Bankss in the yesteryear, to the present set up of the same, Bankss have continued to show their polar function in guaranting that concerns are conducted through the proviso of credits, nest eggs installations, safe retentions, intermediary in local and international minutess and even consultative functions ( Mahlknecht, 2009 ) .
Some of the best known Bankss in the universe like Barclays and HSBC have been in operations for many old ages ( Rahman 2010 ) and are therefore determining the manner in which concern is conducted, by shown the best patterns in the banking sector. Unlike the other sectors of the economic system, Bankss operate on two cardinal different regulations, foremost, Bankss hold money and pecuniary instruments and they trade on these as opposed to the other concerns which operate on other signifiers of goods and services against money, secondly, Bankss chiefly operate in liabilities and non assets and their strength is indirectly gauged by this ( Jairus 2007 ) , for case, Bankss take up sedimentations from investors and history holders ( this is a liability that the Bankss undertake to maintain other people ‘s money ) and utilizing this money, the Bankss lend to borrowers and other Bankss and charge involvement on the same therefore, they create a fiscal system that is developed on the footing of liabilities ( Akgunduz 2009 ) .
This manner of trading is what separates the Bankss from the other fiscal establishments and as such make the Bankss to be progressively relied upon by other stakeholders in the concern environment ( Rahman 2010 ) . The increased use of money as opposed to the old aged swap system has besides made the Bankss to be imported in all major activities of merchandising and purchasing of goods and services and in world, wealths and success are measured in footings of money ( Iqbal, Llewellyn 2002, Timur 2005 ) .
As stated earlier, the normal or conventional banking system is based on the premiss of involvement charges that the Bankss have to impose in order to stay in trade, and hence, different Bankss have in the recent yesteryear, made important attempt to ‘tailor ‘ their merchandises in such a manner that the involvements and other charges will be accumulated and lend to their net incomes ( Mahlknecht, 2009 ) . This is non to state that involvements entirely make their net incomes, since, harmonizing to Ayub ( 2007 ) , net incomes can besides in increased by placing the concern units that require ‘cuts ‘ and implementing these cuts.
Now, the conventional manner of trading as given above, is chiefly based on the Western universes theoretical account of banking which to some extent is hinged on Capitalism and has been called by ( Akgunduz 2009 ) as a simple manner to ‘rip other off ‘ . This does non truly fell good with certain ideological propensities and surely non with the Islamic political orientation, which chiefly advocates public assistance and support to the ‘have nots ‘ by the ‘haves ‘ , and on this premiss, the Bankss have a responsibility to supply to those who are missing ( Jaffer 2005 ) .
Harmonizing to Islamic instructions the ‘Riba and vigorish ‘ or involvement is non to be levied and is prohibited in certain footings hence it is ‘Haraam – unfair or prohibited ‘ ( Timur 2005 ) . However, this construct seem to hold started merely in the close yesteryear, since harmonizing to Lewis, Algaoud ( 2001 ) , a expression at the plants of Qureshi Annwar ( 1946 ) , Naiem Siddiqi ( 1948 ) and Mahmud Ahmad ( 1952 ) show a inclination to gain sharing and non involvement charges, so the company is expected non to bear down involvement as a manner of sharing its net incomes ( Schoon 2009 ) .
The first Islamic bank was later on formed in Egypt, but this was held secret for fright of being seen as an Islamic cardinal group and this was in 1975 ( Rahman 2010 ) . At present Islamic banking establishment are deserving about $ 400 billion and Saudi Arabia has universe known Bankss like the Al Rajhi, and the bank Mellat. Bing an Muslim state as most of the MENA part ( Middle East and North Africa ) , it could merely follow that it is a good thought to guarantee that this banking construct develops in this part to function those clients in a manner that responds to their spiritual demands ( Hassan, Lewis, 2007 ) .
This is non to state that Muslim Bankss can run in isolation, particularly in the aftermath of international concern and with the recent accession of KSA to the World Trade Organisation ( WTO ) , thereby doing concern between KSA and the universe to increase ( Rosly, 2006 ) , besides, KSA is the largest manufacturer of rough oil ( Timur 2005 ) , which is a merchandise in demand all over the universe and in this inter-national trade, Bankss must move as investment bankers or even agents to the purchasers and Sellerss ( Hassan, Lewis 2007 ) .
Besides, harmonizing to ( Jaffer 2005 ) , and as seen earlier, Islamic Bankss have been developed along the rules of conventional Bankss with a few but of import differences. From an investors point of position, the pick of puting in an Islamic bank or a conventional commercial bank in KSA is hence an issue that requires careful idea ( Timur 2005 ) , this is because, while an premise can be made that being an Islamic bank in an Islamic state, there are obvious advantages to the investor ( Pock 2007 ) , this premise may be disputed, since, in the same environment, the conventional commercial Bankss may guarantee that they counter the advantages of Islamic Bankss with seamster made merchandises that respond to the clients ‘ demands and hence, they may be more good to the clients ( Lewis, Algaoud 2001 ) .
It besides depends on what the investor is looking for, because, single investors like the corporate investors have varied investing aims, and while it can be said that in general, corporate investors may be patient and hence looking for long-run investing, single investors may necessitate speedy benefits ( Mahlknecht, 2009 ) . Again, suppose the investors are sing pecuniary benefits, which is frequently the instance for many ( Khan 2010 ) , what banking construct are they probably to put in and at what puting bound ( threshold or minimal investing ) must they perpetrate in order to accomplish their aims? ( Iqbal, Llewellyn 2002 ) .
These are of import inquiries that have driven the involvement in carry oning this survey. The research worker wishes to happen out what bank or banking construct is more likely to profit investors. In this context, investors will be viewed as single investors who have the power to salvage their money in the hope of accomplishing certain benefits in due clip.
Harmonizing to ( Akgunduz 2009 ) , and besides ( Rosly, 2006 ) , there is a demand to happen out what might actuate investors to see puting in Islamic Bankss, even though, the construct of involvement is out and hence they are improbable to gain any, or what might actuate them to put in conventional commercial Bankss although there are charges and minimal sums to be invested to gain some benefits.
It is hence of import to guarantee that a comparative analysis is conducted between Islamic and Conventional Commercial Bankss is undertaken with a position to to the full set up the major differences in assorted operational facets of these Bankss and besides to measure what banking construct of the two would be most good to the investors.
In this survey, the research is based on the premiss that conventional Bankss still provide the best option to investors compared with Islamic Bankss and that as clip goes by and competition in the banking sector additions, there appears to be more differences between the operations of these Bankss as each bank seeks to supply more diverse merchandises and services to their clients.
The research sought to measure the undermentioned research inquiries ;
Are there cardinal differences between Conventional commercial and Muslim Bankss? What are they?
What are the differences in operations of Islamic and Conventional commercial Bankss, in KSA?
What are the pecuniary benefits to the investors in the Islamic and Conventional Bankss in KSA?
What banking construct would you see for the investor in KSA in footings the general benefits?
The following aims have been evaluated:
Identifying the operational differences between Islamic and conventional Bankss in KSA. This involves an probe into the functional countries of these Bankss as they seek to acquire and maintain their clients including other maps that support concern both locally and internationally.
Discuss the public presentation between the Islamic and commercial Bankss in KSA: In this subdivision, the fiscal ratios will be evaluated including liquidness, pitching and profitableness ratios.
Measuring the pecuniary benefits to the investors in puting in either Conventional or Islamic Bankss in the KSA.
Measuring and urging the best banking construct to the investor in footings of the long term, and short term benefits: In this subdivision the research considered the issues of involvement, continuance, benefits of seamster made banking to the investors, other indirect benefits that say and account holder would be given, that non history holder would non hold.
This research will chiefly see investing benefits while comparing the banking sector in KSA with dealingss to the banking conventions in the KSA. The focal point will be on KSA, which has strong Islamic and Conventional banking sectors.