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Topic
A comparative study between Islamic bank
and Conventional bank
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One must refrain from making a direct
comparison between Islamic banking andconventional banking.This is because they
are extremely different in many ways. The
key difference is that Islamic Banking isbased 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
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Islamic Banking
An Islamic bank is a deposit-taking
banking institution whose scope of
activities includes all currently known
banking activities, excluding borrowing
and lending on the basis of interest.
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Various modes of Islamic bank
Murabaha :means a sale on mutually
agreed profit. it involves a request by the
client to the bank to purchase certain
goods for him. The bank does that for a
definite profit over the cost, which is
stipulated in advance.
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Various modes of Islamic bank
Mudarabah :A form of partnership whereone party provides the funds while the
other provides expertise and management
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Various modes of Islamic bank
Musharakah:Musharakah means a
relationship established under a contract
by the mutual consent of the parties for
sharing of profits and losses in the joint
business
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Various modes of Islamic bank
Bai-Salam :Salam means a contract inwhich advance payment is made for goods
to be delivered later on.
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Various modes of Islamic bank
Bai-Istisna:It is a contractual agreement for
manufacturing goods and commodities,
allowing cash payment in advance and
future delivery or a future payment andfuture delivery
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55.52
34.43
1.38 0.81.951.38
Bai-murabaha
Bai-muajjal
BPN
korje hasana
Bai-salam
mudaraba
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Conventional Banking
Conventional banking is based on the
principle that the more you have, the more
you can get. In other words, if you have
little or nothing, you get nothing. As aresult, more than half the population of the
world is deprived of the financial services
of the conventional banks.
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The Main Difference between Islamic
and Conventional Banking
Islamic teaching says that money itself hasno intrinsic value, and for bids people from
profiting by lending it, without accepting a
level of risk in other words, interest
(known as "riba") cannot be charged. To
make money from money is prohibited
wealth can only be generated through
legitimate trade and investment. Any gainrelating to this trading is shared between
the person providing the capital and the
person providing the expertise
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The Major Difference between
Islamic and Conventional Banking
1. Conventional banking practices areconcerned with "elimination of risk" where
as Islamic banks" bear the risk" when
involve in any transaction.
2. When Conventional banks involve in
transaction they do not take the liability
only get the benefit from consumer in form
of interest whereas Islamic banks bear allthe liability when involve in transaction .
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The Major Difference between
Islamic and Conventional Banking
3. It is quite obvious that the main function of
conventional banks is financial intermediation.
However, there are those who would like to
think that there is no such thing in the Islamiceconomic system as financial intermediation
and that an Islamic bank can only be
sufficiently Islamic if it can operate like atrader, one who buys and sells goods and
commodities
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The Major Difference between
Islamic and Conventional Banking
4. A case in mind is Murabaha. There are those
who say if an Islamic bank does Murabaha
any other form but the traders way of doing
things it will not be permissible from Shari'ahpoint of view, and an Islamic bank would be in
their view a dubious conventional bank.
They say: since it is never the intention of thebank, to own there assets and hold on to
them then, such bank is not sufficiently
Islamic.
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The Major Difference between
Islamic and Conventional Banking
5. The way conventional banks render financial
intermediation is very simple. They borrow
money and lend money. Islamic banking
function in a rather elaborate (not perplexing)
way. They have to continuously innovate to
satisfy the needs of their clients. It is becauseof this we see Murabaha, Musharakah,
Mudarabah, Istisnaa, Salam to name just a
few Islamic modes of finance.
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The Major Difference between
Islamic and Conventional Banking
6. A conventional banker is a risk manger. He is
concerned with all kind of credit, market,
interest rate, legal and other risk factors. An
Islamic banker should be just as concerned.
7.Contrary to popular opinion, being concerned
about time value of money is a similarity not a
difference between Islamic and conventionalbanking.
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The Major Difference between
Islamic and Conventional Banking8. A major difference, however, remains in the
handling of delinquency and default. When a
borrower delays payment of debt, interest will
accrue on his delayed portion.This cant bedone in Islamic banking as this is considered
usurious.
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Deposit Tendency of Islamic Bank
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Investment Tendency of Islamic
Bank
113575
144921
180054
214619
263225
2006 2007 2008 2009 2010
Series 1
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Theoretical and Practical Difference
between Islamic and ConventionalBanking
1.Different Modes of Borrowing
2.Different Modes of Financing
3.Different Modes of Investment
4.Different Concept of Money
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Theoretical and Practical Difference
between Islamic and Conventional
Banking
5.Different Concept of Risk-Sharing
6.Different Approaches of Income
Distribution
7.Having Different Objectives and
Goals
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Finally we can say,
Islamic banks can provide efficient
banking services to the nation if
they are supported withappropriate banking laws, and
regulations.
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It would be better if Islamic bankshad the opportunity to work as a
sole system in an economy. That
would provide Islamic bankingsystem to fully utilize its
potentials.
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Thank you all forbeing with us.
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