1.1.

Comparison of Islamic and Conventional Banking

Introduction:
A bank is a financial institution that is licensed to accept checking and
savings deposits and make loans. Banks also provide related services such as individual retirement
accounts, saving accounts, profitable accounts and non-profitable accounts, currency exchange, and safe
deposit boxes etc. In Pakistan there are main two types of banks which are:
1. Islamic Banks
2. Conventional Banks
Islamic banking is an interest free banking system and is governed by the
principles laid down by Islamic Sharia’h. Commonly Islamic modes used for saving deposits is
Mudharaba and Qarz for current deposits while Murabaha, Ijarah, Diminishing Musharakah and other
modes used for financing.
Conventional banking is based on interest and is against Islamic
principles and therefore is prohibited.Conventional banks are in the business of lending & borrowing
money based on interest. In this type of banking money is a commodity besides medium of exchange and
store of value.