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Pricing Linkage between Islamic Banking and Conventional Banking:The Case of Bangladesh

Sarwar Ahmed (), Md. Ashikur Rahman, Samiul Parvez Ahmed and G. M. Wali Ullah
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Md. Ashikur Rahman: Independent University, Bangladesh (IUB),Dhaka,Bangladesh
Samiul Parvez Ahmed: Independent University, Bangladesh (IUB),Dhaka,Bangladesh
G. M. Wali Ullah: Independent University, Bangladesh (IUB),Dhaka,Bangladesh

International Journal of Finance & Banking Studies, 2014, vol. 3, issue 4, 84-97

Abstract: Islamic banking is based on profit and loss mechanism where the use of interest is prohibited. Unlike conventional banks, these banks do not charge a specific rate of interest, rather provides financing in exchange for profit sharing. However, there are studies claiming that, in practice, Islamic banking is same as conventional banking with regard to the use of interest. It is also claimed that, Islamic deposits are not interest-free, but are closely attached to conventional deposits.On this background, the objective of this study is to examine the relationship between pricing in Islamic banks vis-à-vis conventional banks by taking the case of Bangladesh. We have used monthly data during the period of 2009-2013. The findings of the study showed that, there is no statistically significant difference between the monthly average lending rates of Islamic banks and conventional banks. However, there is significant difference between depositrates. The existence of causal relationship was inconclusive, and requires further analysis.

Keywords: Islamic banking; conventional banking; pricing; profit and loss sharing; Bangladesh (search for similar items in EconPapers)
Date: 2014
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