ASSIGNMENT

ESSENTIALS OF ISLAMIC
FAINANCE

COMPARISON BETWEEN ISLAMIC BANKING

AND CONVENTIONAL BANKING PRODUCTS

SUBMITTED BY

SHEIKH MEEZAN –E-HAQ

ID: 2252 BBA-6

SUBMITTED TO

MS. RAFIA YUB

KASBIT KARACHI
CAMPUS
 COMPARISON BETWEEN ISLAMIC AND
CONVENTIONAL BANKING
ISLAMIC BANKING PRODUCTS
MEEZAN BANK CAR IJARAH

Car Ijarah is Pakistan’s first Interest Free car financing based on the Islamic financing
mode of Ijarah (Islamic leasing). This product is ideal for individuals looking for car
financing while avoiding an interest-based transaction.

Meezan Bank’ Car Ijarah is a car rental agreement, under which the Bank purchases the
car and rents it out to the customer for a period of 3 to 5 years, agreed at the time of the
contract. Upon completion of the lease period the customer gets ownership of the car
against his initial security deposit.

Car Ijarah Used Vehicles!

In addition to leasing of new cars, Meezan Bank also provides the unique opportunity of
leasing second hand, both locally assembled and imported vehicles. This feature is
specifically designed as a highly economical option. The Used Car Ijarah facility is made
available at a minimum-security deposit as low as 20%. Financing of used cars are
subject to a selection criteria.

Key Features of Car Ijarah

• Low monthly rental

• Rental paid after delivery, not in advance
• Fastest processing and delivery
• Tracker option available
• Minimum security deposit as low as 10%*
• All new, used, local, imported and luxury vehicles can be financed

Car Ijarah, designed under the supervision of Meezan Banks Shariah Supervisory Board,
is unique to car leasing facilities provided by other banks.

Rights & liabilities of Owner v/s User

An Islamic Ijarah is an asset-based contract, i.e. the Lessor should have ownership of the
asset during the period of the contract. Under Islamic Shariah, all ownership related
rights and liabilities should lie with the owner while all usage-related rights and liabilities
should lie with the user. A conventional lease contract does not distinguish between the
nature of these liabilities and places all liabilities on the user of the asset, which is
contradictory to Islamic Shariah.
Under Ijarah, all ownership-related risks lie with the Bank while all usage related risks lie
with the user, thus making the Lessor the true owner of the asset and making the income
generated through the contract permissible (Halal) for the Bank.

Continuation of lease rentals in case of total loss or theft of vehicle

If the leased vehicle is stolen or completely destroyed, the conventional leasing company
continues charging the lease rent till the settlement of the Insurance claim. Under the
Islamic system, rent is consideration for usage of the leased asset, and if the asset has
been stolen or destroyed, the concept of rental becomes void. As such, in the above-
mentioned eventualities, Meezan bank does not charge the lease rental.

MEEZAN BANK TAKAFUL

Takaful instead of Insurance

Legally (in accordance to Pakistan’s Law and Regulations), it is required for all leasing
entities to insure the leased assets. As such, Meezan Bank insures its leased assets.
Meezan Bank insured its assets through Takaful only, which is the Islamic product for
insurance.

Permissibility for Penalty of Late Payment of Rent under Islamic Shariah

In most contemporary financial leases, an extra monetary amount is charged, in their

income, if the rent is not paid on time. This extra amount is the considered as Riba and is
Haram. Under Ijarah, the Lessee may be asked to undertake, that if he fails to pay rent on
its due date, he will pay certain amount to a charity, which will be administered through
the Islamic Bank. For this purpose the bank maintains a charity fund where such amounts
may be credited and disbursed for charitable purpose.

MEEZAN BANK HOUSE FINANCING

Easy Home is a Shariah-compliant Home Finance facility! One that is comprehensive, affordable,
and totally hassle-free. Meezan Bank is committed to meet our customers’ needs in a truly Shariah-
compliant manner coupled with dedicated service excellence. Why not have the best of both worlds?
Isn't that what you are working so hard for anyway?

Easy Home not only allows you to own your own home by paying easy instalments but also keeps
you safely away from interest based financing.

Easy Home works on a Diminishing Musharakah basis

With Easy Home you participate with Meezan Bank in joint ownership of your property, where the
Bank will provide a certain amount of financing. You agree to a monthly payment to the bank of
which one component is for use of the home, and another for your equity share. In fact, the total
monthly payment is reduced regularly as your share in the property grows. When you have made the
full investment, which had been agreed upon, you become the sole owner with a free and clear title
to the property.

Flexibility and Variety to meet you requirements

Flexible Financing Tailored to Support You

High financing amounts

Adequate financing against property value

Flexibility to make partial prepayments

Minimal processing charges

Affordable and competitive instalment amounts with a regular reducing monthly rental

Rate relaxation for select MNCs & LCGs

Quick Processing Time

Absolutely hassle-free. Quick turn-around-times, with no burdensome complexity or
excessive paper work. It is simple, halal, and easy! Click here for details

Even the eligibility is Easy!

We at Meezan Bank, as prescribed by Islamic Shariah, seek to guarantee equal access to
financing for all qualified applicants, while ensuring that the qualification process is bias-
free. Click here for details

Non Resident Pakistanis

Non Resident Pakistanis can apply with peace of mind for the fastest processing of their
case.

CONVENTIONAL BANKING
UBL Drive is a unique auto financing product which offers you features,
options and flexibility unmatched by any other bank, because at UBL, You
come first. Both Fixed and Floating rates are offered to our customers.
Floating rate is linked with the KIBOR.

New Car Financing

UBL Drive allows you to drive away in your own car by making a down
payment of minimum 20% and to top that with low monthly installments.
Pricing Plan (Fixed Rate)

Tenure 1 to 2 years 3 to 4 years 5

years
 Rate 19% - 20% 19.5% - 20.50% 20% -
21%

Pricing Plan (Floating Rate)

1 year Kibor + 4.5% to 5.5%

* Floating rate is revised annually.

Used Car Financing

With UBL Drive you can buy your favorite used car (up to 5 years old) at the
most affordable rates.

Pricing Plan (Fixed Rate)

Tenure 1 to 2 years 3 to 4 years 5

years
Rate 20% - 21% 20.5% - 21.50% 21% -
22%

Pricing Plan (Floating Rate)

1 year Kibor + 5.5% to 6.5%

* Floating rate is revised annually.

Car Replacement Plan

Drive’s Car Replacement Plan is the slogan name for a premier auto
financing product. Customers who intend to avail loan facility from UBL
Drive under this variant can readily have their existing cars replaced after a
year of financing.

Product Features

Free Tracking Device

Option will be provided to the customers on affordable
rates. this will be done in collaboration with the
insurance companies on our panel.
Zero Pre-Payment Penalty
No penalty will be charged from the customer if the loan
is been paid off after a year.
Payment Holidays
A unique concept whereby which payment breaks will
be given to the customers on occasions such as Eid etc.
 Payment Holidays will be given once a year to the
customers.
Payment Flexibility
Whereby which the customer will be provided the
flexibility to change the loan tenor, opt for partial
payment of the outstanding principal amount.

Insurance Options

UBL Drive offers you the following insurance options:

Comprehensive insurance
Insurance financing for the first year
Discounted rates with free tracking device

HBL HOUSE FINANCING

2.1.3.1House Finance
HBL provides the facility of house finance: Financing available for: 1.
Purchase of house 2.
Home improvement and renovation 3.

Self Construction
2.1.3.1Some characteristics of House Finance of HBL Are:
Lowest marl-Ups leading to affordable monthly installments
5 years fixed Rates/ one year Floating Rate available.
Lowest processing charges
Financing tenures ranging from 3 to 20years.
Financing limits of up to Rs. 7.5 million (Rs. 3.0 million for Home
Improvement/Renovation)
Quick Processing

STANDARD CHARTERED MORTGAGE FINANCING

MORTGAGES

Are you about to buy your first home or move to a new place? Maybe you're investing in
property or looking to switch to a better deal. Wherever you are on the property ladder,
we can help you choose the right mortgage for you.

By combining award-winning mortgages with our local and international experience,

Standard Chartered is in a strong position to help homebuyers and property investors
across the world. In fact, we've won awards as a leading Mortgage Bank in most of the
countries in which we do business.
Standard Chartered Home Loans gives you the unique feature of reducing your principal
balance through partial and full pre-payments. We will disburse your loan within 15 days,
provided that all the relevant documents are submitted on time.

Features

Loan to value up to 60% of the property value.

Repayment tenor of 1 to 20 years in monthly installments.

To avail higher loan amount Standard Chartered Home Loans offers you the option of
Clubbing the income of your spouse and blood relatives.

Financing of Up to PKR 30 Million

Markup rates for Mortgage Loan for Salaried is 1 year Kibor + up to 5% Margin

Eligibility

Minimum Net Income as low as PKR 30,000 per month

Minimum age of the primary borrower should be >=25 years. Incase of co-borrower the
secondary borrower should be either >=21 if income is being clubbed or >= 18 if income
is not being clubbed

CONCLUSION

One must refrain from making a direct comparison between Islamic banking
and conventional banking . This is because they are extremely different in
many ways. The key difference is that Islamic Banking is based on Shariah
foundation. Thus, all dealing, transaction, business approach, product feature,
investment focus, responsibility are derived from the Shariah law, which lead
to the significant difference in many part of the operations with as of the
conventional

On the other hand, conventional banking is essentially based on the debtor-

creditor relationship between the depositors and the bank on one hand, and
between the borrowers and the bank on the other. Interest is considered to be
the price of credit, reflecting the opportunity cost of money. Therefore these
are the difference between Islamic banking products and commercial banking
products.