Islamic Financial Engineering and the Conventional Interest-based System - Assignment Example

The present research has identified that there are various forms of financial institutions and banking corporations in the world. Merchant Banks, Private Banks, Offshore Banks, Anonymous Banks are some forms of banking institutions that are spread all over the world. Actually, the role that the banking sector plays in the economy comes as a direct result of the various kinds of activities and services that banks perform for their customers. However, the banking mechanism may differ according to the ideologies that govern its activities.

For example, the Islamic financial engineering has many bases that are found in the conventional interest-based banks, despite some of the ideological differences between Islamic engineering and conventional banks. To illustrate, both banking systems can invest the money of their clients in national projects that would serve the advancement of the society. However, conventional banks are engaged in some products and services that are essentially interest based. These banks, for instance, provide customers with credit cards and loans to increase their buying power, which limits chances of the recession in the society.

In addition, loans are very important forms of services that are offered by the banking corporations to their clients, helping them finance their projects and provide jobs for workers and other technicians. Essentially, in capitalist economies, savings and investments process is organized around financial intermediation that is performed by the banking sector. This is in addition to the fact that banks influence the level of money stocks through an ability to create deposit liabilities. In the case of Islamic financial engineering, it is essentially a system, developed from religious and moral principles that are universal.

This system has a boom in Asia and now in the West. It is a component of ethical finance: a finance which does not obey the only law of profit but meets criteria such as sustainable development, environment, and governance. From a sound legal analysis, Islamic financial engineering presents the main mechanisms and issues of Islamic finance on a theoretical as well as practice, not to mention the challenges it faces.