The document compares conventional and Islamic financial systems. The conventional system is based on interest and leads to inequality, while the Islamic system is based on Quranic principles of mutual assistance and equity. It prohibits interest and uses profit/loss sharing models like mudarabah. Takaful is provided as an example of an Islamic alternative to insurance, operating based on cooperative risk sharing rather than commercial profit. While Islamic finance has grown, there remains vast potential to expand its reach and services to more of the global Muslim population given its principles align with Shariah law.

1. Islamic Financial System
The Way Forward

2. Conventional Financial System
let’s equate with

3. Dilemma of Conventional
Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
Conventional
Financial System

4. Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
ConventionalAccording to
Oxfam International
The 85 wealthiest
individuals in the world
have a combined wealth
equal to that of the
bottom 50% of the
world's population, or
about 3.5 billion people
The wealthiest
1% will own
more than half
of the global
wealth by 2016.
Dilemma of Conventional
Financial System

5. Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
Conventional
Dilemma of Conventional
Financial System
Possible Causes

6. ConventionalFinancial System
Poverty
Richness
Welfare
Unstructured Financial Practices
Wealth Sharing Brotherhood /
Mutual Help
Lack ofNo concept ofSelf-obsessed
Dilemma of Conventional
Financial System
%
Financial
Foundation
Interest based
is based on intellects
brainstorming of the economic
problems of men’s life

7. ConventionalFinancial System
Poverty
Richness
Self
Poor
Rich
Dilemma of Conventional
Financial System
Lead to
Economic
Inequality

8. Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
ConventionalLet’s compare it with
Islamic Financial
Mechanism

9. Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
Conventional
Both systems have been proved inefficient to
establish economic balance in the society!“
The conventional financial system is of two types:
Socialistic Financial System
and
Capitalistic Financial System

10. Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
Conventional
Difference
Between Conventional & Islamic Financial System
Basis of Difference Conventional Financial System Islamic Financial System
1. Religious Belief
Secular and separates Religion from other
Parts human life.
Belief in unity of God and relates this belief
to economic life of a man.
2. Freedom of Economic Activity
Socialism: Government enjoys economic
freedom
Capitalism: Individuals enjoys freedom
Restrictive freedom is allowed to
individuals and government in light of
Shariah principles.
3. Ownership of means
Socialism: State ownership
Capitalism: Individual ownership
Allah is the exclusive owner. Man is the
caretaker of the property.
4. Goals of financial system
Socialism: profit of the society
Capitalism: Individual’s profit
Welfare of both here and hereafter.
5. Competition
Socialism: No competition
Capitalism: Logical & unethical competition
Logical competition and financial co-
operation
6. Wealth distribution
Socialism: Equal
Capitalism: Unequal
Equitable
7. Basis of Economic system Riba / Mark-up / Interest
Interest free
Based on compensation, Zakat, Profit and
Loss sharing (PLS)

11. Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
Conventional
Difference
Between Conventional & Islamic Financial System
Basis of Difference Conventional Financial System Islamic Financial System
8. Sources of the System
Intellects brain storming of the economic
problems of men’s life.
Devine book “Al-Quran” and Prophet’s
(SAWW) Ahadiths and speeches.
9. Result
Capitalism: concentration of income and
economic power in few hands. Leads to
Inefficiency.
Maximum and equitable distribution of
economic opportunities and higher
production in the society.
10. Social & environmental welfare
Do not consider the social and
environmental welfare
Ensure social and environmental welfare
11. Owners exception in respect of
investment
Dividend or part of profit in case of equity
financing
Part of Profit or Loss
12. Lender of Bank’s expectation in terms
of financing
Mark-up / Interest Profit or Loss sharing
13. Modes of Investment Loan, Overdraft and Cash Credit Mudarabah, Musharaka, Murabaha, etc.
Content source: Islamic Financial System by Md. Nurul Islam – Deputy Managing Director, Islami Bank Bangladesh Limited

12. Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
ConventionalLet’s understand from the
example of
TAKAFUL“ ”

13. Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
Conventional
What is Takaful?
Basic definition
Takaful is a community-pooling
system, based on the Principles of
brotherhood and mutual help, wherein
participants contribute in a fund, to help those
who need it most in times of financial difficulties.
Example: The concept of Takaful exists in
cooperative societies and joint-family systems etc. *In practice, Takaful can serve as a risk-mitigation tool
and an alternative to conventional insurance.

14. Financial System
Poverty
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
Conventional
Difference
Between Insurance and Takaful
Basis of Difference Insurance Takaful
1. Org. Principle Profit for shareholders Mutual for participants
2. Basis of operations Risk transfer Co-operative risk sharing
3. Laws Secular / Regulations Shariah Principles in light of Quran and Sunnah
4. Ownership Shareholders Participants
5. Management Company Management Operator
6. Form of Contract
Contract of Sale / Contract of Compensation (Aqd
Mua’wza)
Co-operative, Wakala or Mudarbah with Tabar’ru (contribution)
7. Premium / Contribution
The premium paid by the insured belongs to the
insurance company
The contribution paid to the Waqf belongs to the Waqf; the
operator is not the owner of this amount
8. Investments Interest based Shariah Compliant, Riba free
9. Investments Profit
All investment profits belong to the Insurance
company
Since the owner of the Waqf pool is the Waqf itself, all
investment profits also return to the Pool and not to the operator
10. Surplus
Belongs to Company Shareholders. Company will
make profit if the claims are lesser than the
premium
No provision for underwriting profit for the Operator. Can be
given to the Participants only

15. ConventionalFinancial System
Poverty
Richness
Welfare Wealth Sharing Brotherhood /
Mutual Help
Lack ofNo concept ofInterest based
Takaful
Structured & Halal Financial Solution
%
Financial
Foundation
Interest based
Rejects all On the basis of
Brotherhood
Mutual
Solidarity
Community
pooling system
Riba / Interest
Free
Zakat

16. Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
Conventional
Intellects
Brainstorming
and
Economic
problems
from the Devine book
Derived
above all
The foundation of the
Islamic Financial System
is based on the
Not
Prophet’s (SAWW)
Al-Quran
and
Ahadiths and
speeches
element
a missing
In conventional Financial System
only

17. Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
Conventional
Takaful Outlook
Global presence | Potential
Despite the remarkable
growth rate recorded by
Islamic finance and Takaful
industry, penetration is still
far below the enormous
market potential offered by
the Muslim community
worldwide i.e. 25% of the
total world population
(approx.)
Muslim countries only
account for 5% of
the global insurance
market, although they
represent 25% of the
world population!
Content source: Milliman Research Report - Global Takaful Report 2017

18. Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
ConventionalLet’s connect the dots
together
Explore | Innovate | Share | Excel

19. Financial System
Poverty
Richness
differentiate
a person on
the basis of
Wealth
Either Or
Rich Poor
Current
Conventional
Designed & developed by | Muhammad Kashif | Vice President – Channel Strategy and Development
Pak Qatar General Takaful Limited
muhammad.kashif@pakqatar.com.pk
+92 333 3715953
Thank you!