CASE STUDY

“WHY PEOPLE OPEN AN INVESTING ACCOUNT IN ISLAMIC BANK RATHER THAN IN CONVENTIONAL BANK”

Shujaat Hussain Qureshi (5137)

Business Ethicsby

Col. Raza Kamal

ISLAMIC BANKING

Islamic Banking is banking activity that is consistent with the principles of Shariah Law.

Sharia Law prohibit the interest or fees (riba or usury)

Investing in that business who are providing goods and service which is contrary on Islam is also Haram.

Islamic Banking is continously growing year by year.

Jordan Islamic Bank is the first Islamic Bank which is established in 1978 by Dr. Sami Hassan Homoud.

Islamic Banking is based on Islamic faith which says that stay within the limit of Islamic laws or Shariah law in all of it’s action and deeds.

PRICIPLES OF ISLAMIC BANKS:

The governing principles of an Islamic bank are

a) The absence of interest-based (riba) transactions.

b) The introduction of an Islamic tax, zakat

c) The discouragement of the production of goods and services which contradict the Islamic value (haram).

TRANSACTION IN ISLAMIC BANKS

Variety of Islamic transactions:

1. Mudarabah2. Musharakah3. Murabaha4. Istisna’a5. Ijarah6. Bai’a al-Salam7. Sukuk8. Bank Account

CONVENTIONAL BANKING

CONVENTIONAL BANK

A conventional bank is a type of financial institution and intermediary.

In this banking system, lends money and provides transcational, savings, and investing

They give return on the investing or saving in the form of interest.

In conventional bank, they give loans to their customer for the car financing or other use but bear the interest on their loans.

Lending money from their customer and getting bac with compounding interest and it is also the fundamental function of the conventional banks.

Conventional banks engage in the following activities:

a) Ending money by overdraft, installment loan, or other means.

b) Banks also resell loans to other parties to acquire more cash to lend. The borrower will payback to the new owner of the loan.

CONVENTIONAL BANKING

TRANSACTIONS IN CONVENTIONAL BANKS

Variety of Conventional transactions:

1. Lending money into a bank account2. Withdrawing money3. Adding interest on withdraw4. Direct debits (Online Transfer) 5. Deducting bank charges

COMAPRISON BETWEEN ISAMIC BANK AND CONVENTIONAL BANK

Islamic Bank Conventional Bank

Th e principles and fucnctions of Islamic Banks are totally based on Islamic Shariah.

The priciples and functions of conventional banks are fully based on the manmade principles.

Risk share only the investor not the Bank.

The investor is assured of a predetermined rate of interest.

In the modern Islamic banking system, Islamic banks became a Zakat Collection Centre and they also pay out their Zakat.

It does not deal with Zakat

Participation in partnership business is the fundamental function of the Islamic banks. So they have to understand their customer's business very well.

Lending money from their customer and getting bac with compounding interest and it is also the fundamental function of the conventional banks.

COMPARIOSN BETWEEN ISLAMIC BANK AND CONVENTIONAL BANK

Islamic Bank Conventional Bank

The Islamic banks give greater emphasis on the viability of the projects which the customer invest.

The conventional banks give greater emphasis on credit-worthiness of their customers

The status of Islamic bank in relation to its clients is that of partners, investors and trader, buyer and seller.

The status of a conventional bank, in relation to its clients, is that of creditor and debtors.

Islamic bank can only guarantee deposits for deposit account, thus the depositors are guaranteed repayment of their funds, however if the account is based on the mudarabah concept.

A conventional bank has to guarantee all its deposits.

CONCLUSION

Conventional banking practices are concerned with "elimination of risk" where as Islamic banks "bear the risk" when involve in any transaction.

In transaction, Conventional Banks take the liability form their customers but they do not get the benefits to their customer whereas Islamic banks bear all the liability when involve in transaction with consumer. Getting out any benefit without bearing its liability is declared Haram in Islam.

Because of these points people are start investing in Islamic Bank with open an investing account instead of commercial Banks.

QUESTIONS ?

QUESTIONS?

Customer know that there is no loss sharing concept in Islamic Banks so, Why did they open an investing account in Islamic Bank?

What do you think Isamic Banking Concept is right as compare to the Conventional Bank?

Where do you see Islamic Banks in next five years? Will the Islamic Bank beat the Convetional Banks?