ISLAMIC BANKING AND FINANCE

NAME: KIRAN ZULFIQAR HASNANI

REGISTRATION#: 50543
Q1) Difference between Islamic and conventional banking
ANSSWER)

ISLAMIC BANKING CONVENTIONAL BANKING

Islamic banking system is a system which Serve the economic development

objectives laws and other operating
DEFINATION
system are based on Islamic laws and
shariah. Offers its services that lead to
socio economic development of a
community
BUSINESS Islamic banking are not money lender but
they work as a trading investment house.
ORIENTATION
They have strong shariah board who
approves the transaction
without keeping social contribution and
base for individual growth rather to the
community development. Shariah or
Islamic norms are not there.
Conventional banks are in the business
of lending and borrowing money based
on interest
Conventional bank no such policy is
present.

IB is based on risk sharing, profit & loss Conventional bank treat money as
PRODUCT LEVEL sharing and trading activities. There are commodity and lend it against interest
products which either generate “Operating as its compensation ( cash based
IMPLEMENTATIO
Profit on assets” “Trading profit on banking ) where as relation of banker
N assets” or “ lease rental from assets” and and customer is debtor and creditors
service charges which are akin to
conventional banks.( asset based
banking). . Relation of customer is as
partners investors or supplier
 Islamic banks work under the socio-
SOCIO ECONOMIC economic guidelines that prohibit
charging and paying interest and ignore
OBJECTIVES
all impermissible transaction like short
selling and gambling
Meezan bank , Al Baraka bank
EXAMPLE
Q2) Difference between musharaka and mudaraba partnership
MUSHARAKA
It’s an agreement between two or
more partners where each partner
CONCEPT
provide funds/investment to be
used in business. 2 types SHIRKAT
UL MILK & SHIRKAT UL AQD
1) All partner invest the money
2) All partner will bear the loss
according to the investment
BASIC RULES 3) Capital is in the form of
cash should be specific
existent
4) Profit will be distributed
according to how much
profit is gained
5) Sleeping partner will get the
profit ratio according to his
investment
Conventional bank has no such
restriction. Interest is back bone of this
system., short selling transaction are
common.
Allied bank, askari bank
MUDARABA
This is the type of partnership in
which one partner gives money
(rabb ul maal ) and another
manage the operation of the
enterprise ( Mudarib )
2 types Restricted Mudaraba and
Unrestricted Mudaraba
1) Ratio of profit is agreed
in the beginning
2) Ratio cannot be specified
as a ratio of capital or
fixed amount it will
according the profit
earned by business
3) One is investor , one is
manager who manage the
business
4) Loss will be bear by
investor
5) Capital is in the form of
cash or maybe non cash
both
 6) Mudarib nor rab ul maal
can take fixed amount
from venture
7) If profit id fixed in any
way than mudaraba
becomes fasid ad the
entire amount will be of
rab ul maal .

 The customer approach the If a customer goes to bank

bank for buying the plot The deposit 200000Rs the bank use
BANKING
Bank enters into a that money for project bank act
APPLICATION Musharakah (Joint as mudarib and depositor acts as
Ownership) agreement with rab ul maal lets suppose profit is
the customer and 60:40 ratio bank earn 20000
both of them pay their profit 12000 goes to mudarib and
respective shares to buy the 8000 to raal ul maal or vice versa
plot, Customer pays rent for
the use of banks share in the
property. The customer will
buy all those unit which has
paid by the bank along with
the rent he uses the bank
property