| Abstract: | Islamic banking has experienced rapid growth in recent years, making it an important part of the global financial system. This development is underpinned by stringent regulations and fresh financial innovations. Islamic banking is no longer just about adapting existing products to Saharia law, but also about introducing new approaches that promote fairness and equality. Today, with thousand of Islamic financial institutions around the world, the sector is no longer limited to religious clients in Muslim countries and has gained market share in other parts of the world. Customers find banking attractive because it is based on the principles of risk-sharing and social responsibility, which are part of Sharia law. As resukt, it hasproven to be more stable in difficukt economic times (such as fiancial crises). The key difference between Islamic and traditional banking lies in the basic principles of their operations. Tradicional banks are interest-based, whereas Islamic banks use models such as risk-sharing and profit-sharing, where risks and reward are shared equally between the bank and the customer, promoting fairness. However, Islamic banking faces some downsides, such as the lack standardisation and difficulties in making it more widely accessible, Countores are not harmonised, and the requlatory frameworks vary. Additionally, there are restrictions on access to certain financial instruments due to the constraints of Sharia law. In this thesis, we theoretically define Islamic banking. We present its history, ideology, operational mechanisms, financial contracts, instuments and current industry characteristics. Finally, we outline the basic differences between Islamic and tradicional banking. As the thesis aimed to assess how well Islamic banking performs compared to tradicional bankibg, a study was conducted to investigate the performance of the Islamic banking system in comaprison to tardicional banking. In the empirical part, we reviewed scientific articles and selected 28 for analysis, covering the period from 2000 to 2020. Using the data obtained we found that Islamic banks do not necessarily perform better than tardicional banks, but that Islamic business model often makes them more resilient during financial crises. The Saharua principles they are required to follow reduce risks and increase stability. Additionaly, they tend to be less riskyduring other periods as well. |
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