ISLAMIC BANKS VS

.
CONVENTIONAL BANKS

Usman Ali
18550920-107.
 Islamic Banking
System
• Islamic Banking is an Ethical Banking System,
and its practices are based on Islamic
(Shariah) laws.
• Interest in completely prohibited in Islamic
banking.
• It is asset based financing, in which trade of
elements prohibited by Islam is not allowed.
• For example, you cannot take a loan for a
Wine Shop.
 Conventional Banking
System
• On the other hand,
Conventional Banking is an
Un-Ethical Banking system
based on Man-Made Laws. It
is profit-oriented and its
purpose is to make money
through interest.

.
Isla
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Ba n
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Con
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 1
Medium of Exchange Medium of Exchange

Money is a product besides medium Real Asset is a product. Money is just

of exchange and store of value a medium of exchange
 2
Profit on Exchange of Goods
Interest on Capital & Services

Time value is the basis for charging Profit on exchange of goods &
interest on capital services is the basis for earning profit
 3
Expanded Money in the
Money Market No Expansion of Money

The expanded money in the money

market without backing the real Balance budget is the outcome of no
assets, results deficit financing expansion of money

.
 4
No Loss Sharing Loss Sharing

Interest is charged even in case, the

organization suffers losses. Thus no Loss is shared when the organization
concept of sharing loss suffers loss
 5
No Exchange of Goods & Exchange of Goods &
Services under Contract Services under Contract

While disbursing cash finance, The execution of agreements for the

running finance or working capital exchange of goods & services is must,
finance, no agreement for exchange while disbursing funds under
of goods & services is made Murabaha, Salam & Istisna contracts
 6
Inflation No Inflation

Due to non existence of goods &

services behind the money while Due to existence of goods & services
disbursing funds, the expansion of no expansion of money takes place
money takes place, which creates and thus no inflation is created
inflation
 7
Increase of Prices Control in Prices

Due to inflation the entrepreneur

increases prices of his goods & Due to control over inflation, no extra
services, due to incorporating price is charged by the entrepreneur
inflationary effect into cost of product
 8
Inappropriate Surveillance Proper Surveillance:

Musharakah & Diminishing

Bridge financing and long term loans Musharakah agreements are made
lending is not made on the basis of after making sure the existence of
existence of capital goods capital good before disbursing funds
for a capital project

Academy for International Modern Studies (AIMS), UK. www. aims.education

 9
Easy to Obtain Loans without Monitoring Board
Monitoring Restrictions

Government very easily obtains loans Government can not obtain loans
from Central Bank through Money from the Monetary Agency without
Market Operations without initiating making sure the delivery of goods to
capital development expenditure National Investment fund
 10
Poverty Takes Place Real Growth of Wealth

Real growth in the wealth of the

Real growth of wealth does not take people of the society takes place, due
place, as the money remains in few to multiplier effect and real wealth
hands goes into the ownership of lot of
hands
 11
Changes for Better
Non Performing Loans Management

Due to failure of the project, the

Due to failure of the projects the loan management of the organization can
is written off as it becomes non be taken over to hand over to a better
performing loan management
 13
Bad Impact of Decrease in Good Impact of Increase in
Real GDP Real GDP
Due to decrease in the real GDP, the
net exports amount becomes Due to increase in the real GDP, the
negative. This invites further foreign net exports amount becomes positive,
debts and the local-currency becomes this reduces foreign debts burden and
weaker local-currency becomes stronger