ISLAMIC

BANKING
Topi
c Conventional & Islamic Banking

Presented By
BaBer Ali
BS-COM_7th
Roll No# 33
Presented to

Asst. Prof Syed Muhammad Abbas

Date: 24th Jan, 2019

Contents
 Definition Of Bank
 Types of Banking Systems
 Purpose of Conventional Banks
 Main Objective of Conventional Banks
 Classification of Banks
 Functions of Commercial Banks
 Kinds of Commercial Banks
 Why Islamic Banking?
 History of Islamic Banks
 History of IB in Pakistan
 The Performance of Islamic Banks
 IBI Network Expansion in Pakistan
 Modes of Financing
 Difference Between Islamic and Conventional Banking.
 What is a Bank?

 Definition of Bank:
“A bank is a financial institution whose main business is to
accept money on deposits from some people and to advance
loans on interest to some others.”
 Types of Banking Systems
⦿ Islamic
Banking
⦿ Conventional Banking

 The main difference between Conventional

and Islamic banking system is that
Conventional is totally based on Interest
while Islamic banking is assets based
financing.
Purpose of Conventional Banks

⦿ To provide services to the customers.

⦿ Keep their money safe.

⦿ Offer customers interest on their deposits.

⦿ Lend money to the Firms, Customers etc.

⦿ Offers financial advice and financial Services, Such as

insurance.
 Main Objective of Conventional
Banks

⦿ Maximization of their Profits.

⦿ For that they provide services like;

 Credits
 Foreign Currency Exchange,
 General banking

⦿ And charge fee and commissions on that.

Classification of Banks

Central Bank

Specialized Commercial
Banks Banks

Co-operative Investment
Banks Banks
Functions of Commercial Banks

Accepting
deposits

Primary
Functions

Discount
Bills of Advancing
Exchange Loans
Functions of Commercial Banks
Collection
of Cheques

Trade Collection
Information of Income

Dealer in
Secondary Payment of
Securities Functions: Expenses

Foreign Acts as an
Exchange Agent

Provides
Locker
Facility
Kinds of Commercial Banks
Scheduled Banks

Non-Scheduled Banks

Private Sector Banks

Public Sector Banks

Domestic Banks

Foreign Banks

Micro-Finance Banks

Co-operative Banks

Saving Banks

Investment Banks

Mortgage Banks

Exchange Banks

Agriculture Banks
 Why Islamic Banking?
⦿ The Primary Objectives of Islamic Economic System
are as Under:
⚫ Equal Distribution of Wealth

⚫ Social Justice

⦿ These Objectives can never be achieved in Interest\

Riba based Economic System.
 History of Islamic Banks
⦿ Very first proper Islamic banking model came into existence in
Egypt in 1963.

⦿ Ahmed al najjar was founder and real visionary of the bank.

⦿ In 1974, Islamic Development Bank was established due to

an efforts of OIC.

⦿ Which was officially registered Islamic bank.

⦿ In 1975, First Private held commercial Islamic bank

was established in Dubai.

⦿ In 1977, Faysal Islamic Bank was formed in Egypt.

 History of IB in Pakistan
⦿ The first attempt was made in 1979 to Islamize the
Banking System in Pakistan.

⦿ Changes were made in the Banking Companies Ordinance

1962.

⦿ The first Islamic Bank in Pakistan was Meezan Investment

Bank.

⦿ It was established in 2002.

⦿ It was given the license to offer complete range of Islamic

products and offered.
The Performance of Islamic Banks
⦿ Islamic Banking Saw increase in it’s growth in both Assets and
deposits during 2nd quarter of 2015.

⦿ Assets reached Rs 1,495 Billion during end of June 2015

compared to Rs 1,302 billion in previous quarter.

⦿ Similarly deposits were recorded at Rs 1,281 billion compared

to Rs 1,122 billion.

⦿ The market share of both Islamic banking assets and deposits

in overall banking industry also increased by reaching 11.3%
and 12.8% respectively.
 IBI Network Expansion in Pakistan
⦿ Branch network of IBI also witnessed increase during the second
quarter
of 2015.

⦿ Additional 105 branches were opened.

⦿ Total number of Islamic banks reached 1,702.

⦿ Established in all provinces of the country.

⦿ Islamic banking services expanded to six new districts.

⦿ That is Bhakkhar, Chiniot, Narowal and Rajanpur in Punjab.

⦿ Bhimber and Kotli districts in AJK.

 Modes of Financing
Islamic Banking Conventional Banking

Murabaha (Cost plus profit sale) Term Financing

Ijara (Leasing) Lease Financing

Mudarabah (Trustee profit Overdraft

sharing)

Qard Hassan (Advancing Loans) Revolving Credit

Bai Salam (Commodity sale) Clean\Unsecured Financing

Difference Between Islamic and Conventional Banking.
Conventional Banking
Money is Product beside medium of
exchange and store of value.
Time value is the basis for charging
interest on capital.
No loss sharing.
No assets based financing.
Due to last point expansion of
money takes place which creates
inflation.
Due to inflation the prices of
goods increases in markets.
Islamic Banking
Real asset is product, money is just
medium of exchange.
Profit on exchange of goods &
services is the basis for earning
profit.
Loss is also shared.
Assets based financing.
Expansion of money is backed by
real assets so the inflation is
minimized.
Due to control in inflation
little/negligible prices increase on
goods and services.
Difference Between Islamic and Conventional Banking.
Conventional Banking Islamic Banking

Real growth of wealth does not take place, Real growth in the wealth of the people
as the money remains in few hands. of the society takes place, due to
multiplier effect and real wealth goes
into the ownership of lot of hands.
Can Charge additional money incase of It doesn’t charge any extra money from
defaulters. the defaulters, but they are compelled
to pay fine in charity.
The status of a conventional bank, in The status of the Islamic bank in
relation to its clients is that of creditor relation to its clients is of a partner,
and debtor. investor and trade buyer and seller.

The functions and working modes of The functions and operating modes of
conventional banks are based fully Islamic banks are based on the rule
manmade principles. of Islamic Shari’ah.