comparative study on the performance of traditional Islamic banks and commercial banks of UAE.

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Finance and accounting 
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Abstract
This paper intends to present a comparative study on the performance of traditional Islamic
banks and commercial banks of UAE. Based on this discussion, it has been found that Islamic
banks of UAE have been able to reach to the maximum number of the customers. Furthermore,
the efficiency of the Islamic banks in UAE is more compared to that of the commercial banks. 
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Table of Contents
CW 1b. ............................................................................................................................................ 4
Introduction..................................................................................................................................... 4
Islamic Banks Vs Conventional Bank products in UAE ................................................................ 4
Banks and Products......................................................................................................................... 6
Conclusion .................................................................................................................................... 10
Reference List ............................................................................................................................... 11
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CW 1b.
Introduction
The financial institutions have been experiencing fast-paced competition across the borders in
recent years. One of the fast growing banks is the Islamic ones. It has been recorded that there
are about 160 Islamic institutions worldwide. Every bank in developed nations has begun to tap
the demand of Islamic banks products. The market share of Islamic banks all over the world has
increased by 15% in the last decade (Rizvi, 2013). One of the countries, where demand for the
Islamic bank products is huge, is UAE. However, there have been evidences that the market
share of Islamic banks in UAE is smaller relative to that in other countries. Though UAE is a
Muslim country, yet people there preferred conventional banks over Islamic ones. The Islamic
banks in UAE have performed well over the years and have established a respectable position
among all the national banks. The main difference that exists between the performance of
Islamic and conventional banks in UAE is that the latter follows interest based principle and the
former follows principle related to interest free and profit and loss sharing.
Due to the severe financial crisis, there has been high demand of the Islamic bank products in
UAE. The growth in demand of the Islamic banks in UAE forced three of the national banks to
convert into Islamic ones and they concentrated on providing Islamic products and services to
the people in UAE. The development of Islamic banks has been compared with performances of
the conventional banks in this research paper by elaborating different functions of the both. The
difference or similarities between the products offered by Islamic and conventional banks in
UAE are highlighted in order to evaluate efficiency of the both (Dubaibusiness, 2014).
Islamic Banks Vs Conventional Bank products in UAE
The conventional banking system of UAE comprises a number of banks with respect to the
Islamic banks. Islamic banking constitutes a small part (about 16%) of the UAE banking sector.
The Islamic banking system in UAE identifies the spirit of Islamic legal code i.e. Shari’a. The
banks are providing services and products to customers, which are in accordance with Shari’a
principle. It has been seen that the products of Islamic banks are affected by the agency problem,
which arises due to the difference in information between the borrower or investor and lender. It
is well-known that the Shari’a principle does not support charging of interest payment and the 
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products and services are permitted to carry price (Ghose, 2013). The principle rather relies on
profit and loss and risk sharing, which is levied on both asset and liability. It has been noticed
that the Islamic scholars have tried to develop products, which resembles those of conventional
banking and is devoid of interest payment as well as discounted with fees and payments for
contingency. The leasing products are also quite famous among the Islamic banks as they are
directly related with the real sector transactions (Dalakian, 2013). The equity style products add
up to the agency problem risks in Islamic bank structure. There is little difference between the
two banking system in terms of cost efficiency, orientation and stability. However, differences
can be portrayed with respect to both the banks. The Islamic banks in UAE are more cost
effective than the conventional ones.
There is no significant difference between the business orientations of both the banks. They are
measured with respect to the share fee based on the total income or the investment of share on
the non-deposit for the total funding. There is also no substantial difference b 


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