diferenciation between the islamic and conventional bank

7/28/2019 diferenciation between the islamic and conventional bank

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Topic

A comparative study between Islamic bank

and Conventional bank


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One must refrain from making a direct

comparison between Islamic banking andconventional banking.This is because they

are extremely different in many ways. The

key difference is that Islamic Banking isbased 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


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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.


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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.


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Mudarabah :A form of partnership whereone party provides the funds while the

other provides expertise and management


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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


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Bai-Salam :Salam means a contract inwhich advance payment is made for goods

to be delivered later on.


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Bai-Istisna:It is a contractual agreement for

manufacturing goods and commodities,

allowing cash payment in advance and

future delivery or a future payment andfuture delivery


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Bai-murabaha

Bai-muajjal

BPN

korje hasana

Bai-salam

mudaraba


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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 aresult, more than half the population of the

world is deprived of the financial services

of the conventional banks.


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The Main Difference between Islamic

and Conventional Banking

Islamic teaching says that money itself hasno 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 gainrelating to this trading is shared between

the person providing the capital and the

person providing the expertise


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The Major Difference between

Islamic and Conventional Banking

1. Conventional banking practices areconcerned 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 allthe liability when involve in transaction .


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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 Islamiceconomic system as financial intermediation

and that an Islamic bank can only be

sufficiently Islamic if it can operate like atrader, one who buys and sells goods and

commodities


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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'ahpoint of view, and an Islamic bank would be in

their view a dubious conventional bank.

They say: since it is never the intention of thebank, to own there assets and hold on to

them then, such bank is not sufficiently

Islamic.


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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 becauseof this we see Murabaha, Musharakah,

Mudarabah, Istisnaa, Salam to name just a

few Islamic modes of finance.


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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 conventionalbanking.


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Islamic and Conventional Banking8. 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 bedone in Islamic banking as this is considered

usurious.


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Deposit Tendency of Islamic Bank


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Investment Tendency of Islamic

Bank

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180054

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2006 2007 2008 2009 2010

Series 1


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Theoretical and Practical Difference

between Islamic and ConventionalBanking

1.Different Modes of Borrowing

2.Different Modes of Financing

3.Different Modes of Investment

4.Different Concept of Money


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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


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Finally we can say,

Islamic banks can provide efficient

banking services to the nation if

they are supported withappropriate banking laws, and

regulations.


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It would be better if Islamic bankshad the opportunity to work as a

sole system in an economy. That

would provide Islamic bankingsystem to fully utilize its

potentials.


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Thank you all forbeing with us.


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