Case Study on Islamic Banks v/s Convenetional Banks by Col. Raza Kamal
CASE STUDY“WHY PEOPLE OPEN AN INVESTING ACCOUNT IN ISLAMIC BANK RATHER THAN IN CONVENTIONAL BANK” Shujaat Hussain Qureshi (5137)
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 area) The absence of interest-based (riba) transactions.b) The introduction of an Islamic tax, zakatc) 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 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.
CONVENTIONAL BANKING 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.
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 BankTh e principles and fucnctions of The priciples and functions ofIslamic Banks are totally based on conventional banks are fully based onIslamic Shariah. the manmade principles.Risk share only the investor not the The investor is assured of aBank. predetermined rate of interest.In the modern Islamic banking system, It does not deal with ZakatIslamic banks became a ZakatCollection Centre and they also payout their Zakat.Participation in partnership business is Lending money from their customerthe fundamental function of the Islamic and getting bac with compoundingbanks. So they have to understand interest and it is also the fundamentaltheir customers business very well. function of the conventional banks.
COMPARIOSN BETWEEN ISLAMIC BANK AND CONVENTIONAL BANK Islamic Bank Conventional BankThe Islamic banks give greater The conventional banks give greateremphasis on the viability of the emphasis on credit-worthiness of theirprojects which the customer invest. customersThe status of Islamic bank in relation The status of a conventional bank, into its clients is that of partners, relation to its clients, is that of creditorinvestors and trader, buyer and seller. and debtors.Islamic bank can only guarantee A conventional bank has to guaranteedeposits for deposit account, thus the all its deposits.depositors are guaranteed repaymentof their funds, however if the accountis based on the mudarabah concept.
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? 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?