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A comparative study between Islamic bank and Conventional bank

One must refrain from making a direct comparison between Islamic banking and conventional banking.This is because they are extremely different in many ways. The key difference is that Islamic Banking is based on Shariah foundation. Thus, all dealing, transaction, business approach, product feature, investment focus, responsibility are derived from the Shariah law, which lead to the significant difference in many part of the operations with as of the conventional

Islamic Banking
An Islamic bank is a deposit-taking banking institution whose scope of activities includes all currently known banking activities, excluding borrowing and lending on the basis of interest.

Various modes of Islamic bank


Murabaha :means a sale on mutually agreed profit. it involves a request by the client to the bank to purchase certain goods for him. The bank does that for a definite profit over the cost, which is stipulated in advance.

Various modes of Islamic bank

Mudarabah :A form of partnership where one party provides the funds while the other provides expertise and management

Various modes of Islamic bank


Musharakah:Musharakah means a relationship established under a contract by the mutual consent of the parties for sharing of profits and losses in the joint business

Various modes of Islamic bank

Bai-Salam :Salam means a contract in which advance payment is made for goods to be delivered later on.

Various modes of Islamic bank


Bai-Istisna:It is a contractual agreement for manufacturing goods and commodities, allowing cash payment in advance and future delivery or a future payment and future delivery

1.38 1.38 0.8 1.95

Bai-murabaha Bai-muajjal 34.43 55.52 BPN korje hasana Bai-salam mudaraba

Conventional Banking
Conventional banking is based on the principle that the more you have, the more you can get. In other words, if you have little or nothing, you get nothing. As a result, more than half the population of the world is deprived of the financial services of the conventional banks.

The Main Difference between Islamic and Conventional Banking


Islamic teaching says that money itself has no intrinsic value, and for bids people from profiting by lending it, without accepting a level of risk in other words, interest (known as "riba") cannot be charged. To make money from money is prohibited wealth can only be generated through legitimate trade and investment. Any gain relating to this trading is shared between the person providing the capital and the person providing the expertise

The Major Difference between Islamic and Conventional Banking


1. Conventional banking practices are concerned with "elimination of risk" where as Islamic banks" bear the risk" when involve in any transaction. 2. When Conventional banks involve in transaction they do not take the liability only get the benefit from consumer in form of interest whereas Islamic banks bear all the liability when involve in transaction .

The Major Difference between Islamic and Conventional Banking


3. It is quite obvious that the main function of conventional banks is financial intermediation. However, there are those who would like to think that there is no such thing in the Islamic economic system as financial intermediation and that an Islamic bank can only be sufficiently Islamic if it can operate like a trader, one who buys and sells goods and commodities

The Major Difference between Islamic and Conventional Banking


4. A case in mind is Murabaha. There are those who say if an Islamic bank does Murabaha any other form but the traders way of doing things it will not be permissible from Shari'ah point of view, and an Islamic bank would be in their view a dubious conventional bank. They say: since it is never the intention of the bank, to own there assets and hold on to them then, such bank is not sufficiently Islamic.

The Major Difference between Islamic and Conventional Banking


5. The way conventional banks render financial intermediation is very simple. They borrow money and lend money. Islamic banking function in a rather elaborate (not perplexing) way. They have to continuously innovate to satisfy the needs of their clients. It is because of this we see Murabaha, Musharakah, Mudarabah, Istisnaa, Salam to name just a few Islamic modes of finance.

The Major Difference between Islamic and Conventional Banking


6. A conventional banker is a risk manger. He is concerned with all kind of credit, market, interest rate, legal and other risk factors. An Islamic banker should be just as concerned. 7.Contrary to popular opinion, being concerned about time value of money is a similarity not a difference between Islamic and conventional banking.

The Major Difference between Islamic and Conventional Banking


8. A major difference, however, remains in the handling of delinquency and default. When a borrower delays payment of debt, interest will accrue on his delayed portion.This cant be done in Islamic banking as this is considered usurious.

Deposit Tendency of Islamic Bank

Investment Tendency of Islamic Bank


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Theoretical and Practical Difference between Islamic and Conventional Banking

1.Different Modes of Borrowing 2.Different Modes of Financing 3.Different Modes of Investment 4.Different Concept of Money

Theoretical and Practical Difference between Islamic and Conventional Banking 5.Different Concept of Risk-Sharing 6.Different Approaches of Income Distribution 7.Having Different Objectives and Goals

Finally we can say, Islamic banks can provide efficient banking services to the nation if they are supported with appropriate banking laws, and regulations.

It would be better if Islamic banks had the opportunity to work as a sole system in an economy. That would provide Islamic banking system to fully utilize its potentials.

Thank you all for being with us.

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