islamic banking versus conventional banking - final
TRANSCRIPT
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Presented By
- Zeenat Khatri
- Ahsan Ali Sultan
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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.
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Commercial Banking Islamic Banking
Client
Money +InterestBank
Money Client
MoneyBank
Goods
andServices
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There were no major effects on Islamic Banking.
However, the profitability did come down after Dubai
Crises.
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2oth century
Criticizing capitalist economy
Spreading of Islam
Need for interest free banking Islamic Financial Institutes
Islamic Development Bank
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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
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Individual Deposit Accounts
Term Certificates
Certificate of Islamic Investment
Monthly Mudarabah Certifcates Ijarah
Car Ijarah
Business Deposit Accounts
Karobari Munafa Business Plus
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Sharia Based Sharia Compliance
Musharka Murabaha
Mudarba Ijara
Diminishing Musharka
Bai Salam
Bai Muajjal
Istana
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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
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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
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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
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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
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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
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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
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ChallengesLegal Support
BenchmarkIslamic banking LawsLack of public awarenessLack of standard