COMSATS UNIVERSITY ISLAMABAD,

LAHORE CAMPUS

Assignment No. 2

SUBMITTED TO

Dr. M Waheed Akhter

ASSISTANT PROFESSOR

DEPARTMENT OF MANAGEMENT SCIENCES

SUBMITTED BY

Muhammad Rehan Dhami

CIIT/FA16-BBA-151/LHR

NOVEMBER 09, 2019

Assignment No. 2
List the key differences that exist between Islamic and conventional banking. Compare and
contrast the balance sheets of a selected sample Islamic and conventional bank, highlight
the key differences and justify them, using suitable reasons. Words Limit: Font: 800-1000,
Times Roman, Font Size: 12"

ANSWER
Key differences that exist between Islamic and conventional banking
conventional banks Islamic banks
Conventional banks work on the bases of Islamic banks work on the bases of Shariah
conventional laws. principles of Islamic law.
Maximizing the profit on the bases of interest Maximizing the profit on the base of profit and
base system. loss sharing system.
Shifting risk on customer, when they involved Bearing risk with customer, when they
in any transection. involved in any transection.
Guarantee all its deposits, because risk is Guarantee all deposits of current account, but
shifting on customer. So Conventional banks saving account is based on shared risk of
don’t have any possibility of loss. That’s why investment so Islamic banks do not provide
they provide guarantee all its deposits. any guarantee on deposits of saving accounts.
Predetermine rate of retune is offered by the Rate of retune is not Predetermine, return is
bank. based on the performance of Mudarabah base
business in which banks invest the money of
depositor.
Provide lone in cash and charge fix interest Do not provide lone in cash.
rate from customer.
Borrowers take lone against their properties Bank and borrower co-invests in a property. A
and borrower is liable to pay a fixed interest borrower pays fixed rent and some portion of
charges for taking loan, if anything happens principal amount in instalments and slowly
with the property borrower bear the loss. buys ownership from bank, in case of any
crash, both borrower and bank bear the lose up
to the extent of their ownership.
Balance sheets of Islamic bank.
Balance sheets of conventional bank.

Key differences in balance sheet of Islamic banking and conventional banking:

After comparing the financial statements of Dubai Islamic banking and Allied banking, there are some
differences which are as follow.
Due from financial institutions
One and the difference is that the Islamic bank uses it because of financial institutions, which include
commodity marabahs, by-laws, practitioners and orbiters. In these terms the proportion of the sale
price and the contribution to profit and loss are already known. While traditional banks have used the
term lending to finance terms, it includes sales under repurchase and purchases under resale. Markup
or interest in both terms is not known and there is no clear. And even the duration of the contract is not
known in some terms. The interest rate is calculated according to the country's economic situation.
This will create difficulties for the parties and countries as well. Therefore, the Islamic system is better
in which the parties are aware and fix the price at the time of the sale agreement. This can't be changed.
And also do not create problems for countries and parties.
Islamic financing and related assets
The first difference is that Islamic banks used Islamic finance and their associated assets in their assets
section. These are products manufactured by the Bank and consist mainly of Marabha, Running
Advisory, Wakala, Wakila Isthmutra, and Istna Kim Wakala, Tashahara, Islamic Export Refinance
Scheme and Partnership. This is a general statement of the general and specific provisions. While
traditional banks have used the term development. Advancement includes loans / advances and net
investment in financing. This is basically an income that comes from leasing interest on commodities
and money. Islamic banking conditions are good because it does not charge interest like traditional
banks. And interest is forbidden and also disturbs the country's economic system.
Assets
In conventional banks the term assets means the things which they can use for the future economic
benefit. Borrowers take lone against their properties and borrower is liable to pay a fixed interest
charges for taking loan, if anything happens with the property borrower bear the loss. While in
the Islamic banks the assets have different meanings. Assets mean the things which we have the legal
right to hold or use for the specific purpose. Bank and borrower co-invests in a property. A borrower
pays fixed rent and some portion of principal amount in instalments and slowly buys ownership
from bank, in case of any crash, both borrower and bank bear the lose up to the extent of their
ownership.
Subordinate Sukuk
Sukuk subcontracted the money initially received. Profit accrued on a subordinate score is received in
the profit and loss account. While traditional banks have used the term sub division loan. This is the
amount that is guaranteed as security when a bank fails to make a loan or go bankrupt.
Deposits
In the conventional banking the deposits are current deposits, fixed deposits and saving deposits and
profit and loss account. While in Islamic banks there are only two modes of deposits. These are Qard
and Modaraba. Qard is the basically the current deposits and modaraba is the saving account/deposits.
The conventional banks give the interest to the depositors to the saving deposits while share the risk
i.e. profit and loss with only profit and loss accounts holders.