Conventional and Islamic Banking

Submitted By1. Syed Mohsin Hassan Naqvi2. Junaid Shahid 3. S. M Zafar Abbas 4. S.M.Ahsan

• We selected two banks first is Habib Bank Limited taken as the conventional banks

representative

and

• Second one is Al-Baraka as representative of Islamic banks,

Introduction to Banking•Bank

A bank is a person who carries on the business of banking. The legal definition of the business of banking is

• Conducting current accounts for customers • Paying to the customer's order (e.g. the customer's cheques

drawn on the bank), and • Collecting the cheques deposited to the customer's account, as

the customer's agent and crediting the proceeds to the customer's current account.

Type of Banking

•Islamic Banking•Conversional Banking

Mode of Banking in Islamic and Conversional Banking

•Islamic Banking

a) Murabahab)  Ijarac) Mudarabahd) Qard Hassan (Good Loan)e)  Bai Salam

Mode of Banking in Islamic and Conversional Banking (con’t)

•Conventional Banking

a. Term Financingb. Lease Financing:c. Overdraft (OD)d. Revolving Credite. Clean/unsecured financing:

WHY ISLAMIC BANKING

The primary objectives of Islamic Economic System are as under.Equal Distribution of wealthSocial justiceThese objectives can never be achieved in Interest/Riba based economic systems.

Differences between Islamic and Banking System

Conventional System Islamic System Money is a product besides medium of exchange and

store of value. Real Asset is a product. Money is just a medium of

exchange.

Time value is the basis for charging interest on capital. Profit on exchange of goods & services is the basis for earning profit.

Interest is charged even in case, the organization suffers losses. Thus no concept of sharing loss.

Loss is shared when the organization suffers loss.

While disbursing cash finance, running finance or working capital finance, no agreement for exchange of

goods & services is made.

The execution of agreements for the exchange of goods & services is must, while disbursing funds

under Murabaha, Salam & Istisna contracts.

Due to non existence of goods & services behind the money while disbursing funds, the expansion of

money takes place, which creates inflation.

Due to existence of goods & services no expansion of money takes place and thus no inflation is created.

Due to inflation the entrepreneur increases prices of his goods & services, due to incorporating inflationary

effect into cost of product.

Due to control over inflation, no extra price is charged by the entrepreneur.

Conventional Banking Islamic Banking

Does Not Deal With Zakat In Modern Islamic Banking, It Has

Become One Of The Service Oriented Function Of The Islamic Banks To Be A Zakat Collection Centre And They Also

Pay Out Their Zakat

It Can Charge Additional Money In Case Of Defaulters

Islamic Banks Have No Provision To Charge Any Extra Money From The

Defaulters

Conventional Bank Has To Guarantee All Its Deposits

Islamic Bank Can Only Guarantee Deposits For Deposit Account, Thus

Depositors Are Guaranteed Repayment Of Their Funds

The Status Of A Conventional Bank, In Relation To Its Clients Is That Of Creditor

And Debtors

The Status Of Islamic Bank In Relation To Its Clients Is That Of Partners,

Investors And Trader Buyer And Seller

Very Often It Results In The Bank’s Own Interest Becoming Prominent. It Makes No Effort To Ensure Growth With Equity

It Gives Due Importance To The Public Interest, Its Ultimate Aim Is To Ensure

Growth With Equity

CONCLUSION• Islamic banking and finance revolves around justice and

morality.• It is a very young concept in modern times yet it is

emerging as one of the fastest growing areas of international finance.

• Not to deal with Riba, thus avoiding Allah's anger and war.

• Let us all support Islamic banking venture, which is being provided by the establishment of Gulf African Bank.

• We pray and believe that the bank will strictly follow Shari'ah and uplift the living standards of all those who try to do so in a decent manner – Amin.