7/30/2019 Islamic Banking Versus Conventional Banking - Final

1/19

Presented By

- Zeenat Khatri

- Ahsan Ali Sultan

7/30/2019 Islamic Banking Versus Conventional Banking - Final

2/19

7/30/2019 Islamic Banking Versus Conventional Banking - Final

3/19

7/30/2019 Islamic Banking Versus Conventional Banking - Final

4/19

1. Risk sharing - The customer and the bank share the risk of anyinvestment on agreed terms, and divide any profits or lossesbetween them

2.No Interest/ Riba

Cannot lend money to earn additionalamount on it.

3. Materiality - Real transaction must exist

4. No exploitation - no exploitation of the contractual parties

5. No financing for sinful activities activities forbidden byIslamic Law.

7/30/2019 Islamic Banking Versus Conventional Banking - Final

5/19

Commercial Banking Islamic Banking

Client

Money +InterestBank

Money Client

MoneyBank

Goods

andServices

7/30/2019 Islamic Banking Versus Conventional Banking - Final

6/19

7/30/2019 Islamic Banking Versus Conventional Banking - Final

7/19

7/30/2019 Islamic Banking Versus Conventional Banking - Final

8/19

There were no major effects on Islamic Banking.

However, the profitability did come down after Dubai

Crises.

7/30/2019 Islamic Banking Versus Conventional Banking - Final

9/19

2oth century

Criticizing capitalist economy

Spreading of Islam

Need for interest free banking Islamic Financial Institutes

Islamic Development Bank

7/30/2019 Islamic Banking Versus Conventional Banking - Final

10/19

From the late 70s onwards, Pakistan has a protractedhistory of Islamic banking.

As from July 1st, 1985 all commercial banking in PakRupees were made interest free.

The first Islamic bank license was awarded toMeezan Bank back in 2002

Some of the Islamic Banks of Pakistan

AlBaraka Islamic Bank BankIslami Pakistan Limited

Burj Bank

Emirates Global Islamic Bank

7/30/2019 Islamic Banking Versus Conventional Banking - Final

11/19

Individual Deposit Accounts

Term Certificates

Certificate of Islamic Investment

Monthly Mudarabah Certifcates Ijarah

Car Ijarah

Business Deposit Accounts

Karobari Munafa Business Plus

7/30/2019 Islamic Banking Versus Conventional Banking - Final

12/19

Sharia Based Sharia Compliance

Musharka Murabaha

Mudarba Ijara

Diminishing Musharka

Bai Salam

Bai Muajjal

Istana

7/30/2019 Islamic Banking Versus Conventional Banking - Final

13/19

MurabahaCost Plus sale contract

Profit usually linked with KIBORDisclosure of costSale must be instantDeferred Payment

IjarahRental ContractOwnership Risk borne by bank

Rent is linked with KIBOR

7/30/2019 Islamic Banking Versus Conventional Banking - Final

14/19

Bai SalamSale ContractDelivery of product at Future date

Bai MuajjalSimilar to MurabahaOnly difference is that the cost of product is not disclose

IstanaSale contractExistence of subject matter

7/30/2019 Islamic Banking Versus Conventional Banking - Final

15/19

MudarabaA form of partnership in which one partner provides the fund and other his

labor.Two types of MudarabahAl-Mudarabah-Al-MuqayyadaAl-Mudaravah-Al-Mutlaqah

MusharakaA joint enterprise in which all partners contribute in form of cash and assetsSleeping partner cannot get more than his percentage of investment.

Diminishing MusharakaType of partnership between IFI and client

7/30/2019 Islamic Banking Versus Conventional Banking - Final

16/19

Islamic Banking Commercial Banking

Concept of Money

Medium of Exchange Its a commodity

Interest vs. Profit Sharing

They share profit & loss They charge you interest

Risk Sharing

Both Investor & entrepreneur bear therisk

Only borrower bear it

ISLAMIC BANKING VS COMMERCIAL BANKING

7/30/2019 Islamic Banking Versus Conventional Banking - Final

17/19

Islamic Banking Commercial Banking

Deposit

Return varies

Risk is share with depositors

Fixed return

No sharing of risk with depositorFinancing

MurabahaParticipation Term CertificateBai MuajjalIstisnaMusharakaMudarabaIjaraBai SalamDiminishing Musharaka

Credit CardsOverdraftShort-term loanWorking Capital FinancingReceivable DiscountingFinancing for InventoryPersonal LoansMedium term LoanLong term Loan

LeasingAgricultural LoansHouse Financing etc

7/30/2019 Islamic Banking Versus Conventional Banking - Final

18/19

Islamic Banking Commercial Banking

Investment

Cannot invest in government,companies bonds etcNot free to Invest in EquityKMISkuks BondsCan Invest in Islamic Mutual Funds

Can invest in government,companies bonds, equity, mutualfunds etc

Punishment for Delay in Payment

Penalty Interest

Relationship with Clients

Investor & trader, buyer & seller Creditor & debtor

7/30/2019 Islamic Banking Versus Conventional Banking - Final

19/19

ChallengesLegal Support

BenchmarkIslamic banking LawsLack of public awarenessLack of standard