Social Consideration:

Types of Accounts Current A/c: It is same as commercial banking where depositor do not get any interest or P/L. Saving A/c :In commercial banking depositor gets interest while in Islamic Banking the bank use the money for business or invest in projects and share the profit with depositor on pre determined ratio. Project Financing (Fixed Deposit): In commercial banking depositor deposits the money for fixed period like 3 -6-9 months and earns interest. In Islamic banking there are following types of a/c used for fixed deposits.: 1)Mudariba(P/L sharing): In this a/c a person keeps amount for fixed months like 3-6-9 months and Islamic bank instead of interest gives Profit share earned in pre determined ratio. In this case loss is borne by the bank. In another type a person comes to bank and asks for loan for e.g. RS 50,000 for fixed period like3-6-9 months without interest and in this case bank will not charge interest but after fixed months will take profit which the businessman has earned in pre determined ratio . 2 ) Musharika : In this type businessman pays part of the money and part payment is done by bank for fixed periods like 3-6-9 months and P/L is shared by pre determined ratio. Islamic bank will analyze the business and calculate the risk and profit and accordingly provide the loan for short and fixed period.

Ijara (Leasing or Hire Purchasing) In this type bank buys an item for a client and lessee it to client for an agreed period and after the end of the period lessee pays the balance on the price agreed and becomes the owner of the item. For e.g. bank buys a car for RS 3,00,000 and give it on a a rent say for 5 years. Islamic bank will calculate the profit after 5 years and will ask for certain amount in profit e.g. 1,00,000,.So the rent of a car will be 3,00,000+1,00,000/60(5years *12 months). Therefore rent per month will be RS 6500.If a person is not able to pay the rent due to some problem or calamities for a particular month no extra charges will be charged like done in commercial bank where if a person do not pay the EMI is charged. Sell and buy back where a client sells one of his properties to the bank for an agreed price payable now on condition that he will buy back the property after certain time for an agreed price.

Mudariba(Trade Financing): In commercial banking if a person wants to buy a goods or machinery from outside India he needs to open LC and deposit the money in the bank. In Islamic banking even if a person do not have money and wants to buy a machinery from outside India ; Islamic banks in this case will analyze what is the cost of machinery, what will be the charges to bring in India, what will be the rent of the warehouses, what is the demand in the market for that machinery and what will be the profit earned. After all calculations if an Islamic bank thinks that it is a profitable business , bank will buy the machinery on the persons behalf without a need for a person to open a LC or deposit any money. As bank is taking the risk share in the profit will be more. In another type a businessman may keep part of the payment as deposit with the bank and part payment is done by bank and P/L is shared on pre determined ratio.

Karz-E-Hasana (Beautiful Loan) : Karz-E-Hasana (Beautiful Loan) : Commercial banks give loan only in returns of interest or commission or charges. In this type of loan Islamic bank give loans to poor people for fixed period without asking for extra money in return in the form of interest ,charges or commision.Islamic banks only main is to help poor people .Loan is given on small scale to meet the basic nesscceties of life .Bank may keep collateral or may not. A person has to return the loan amount after fixed period of time without any charges .

Interest: Commercial bank charges interest on loan given to customers which varies from 8% to 18 % depending on type of loan. Interest depends upon Market rise and fall. Even if a bank has gone in huge profit they will charge the same rate of interest to the customers. Islamic bank do not charge interest but take service charge which depends on that banks P/L made during the year. If a bank has done huge profits then service charge will come down if bank make loss service charge will go up. Service charge do not rise or fall depending on market rise or fall.. A banks profit and loss depends on the number of depositors in the bank and , profitable investments etc.. If there are large number of people depositing money in Islamic bank then the service charge will be very low comparatively Commercial banks interest rates. For e.g. if there are 100 depositors in Islamic bank with amount of rs 1000,00 therefore total amount with bank is RS 100*10,000= 10,00,000. If a bank has 5 employee and draw salary RS 5,000 PM , and bank pays rent of the office and other misc charges up to rs 10,000 .Therefore banks p/l will be as follows: 10,00,000-25,000-10,000 = 9,65,000.Islamic bank invest this money in projects and say earns profit RS 2,00,000 in a month. This profit is for e.g. is divided in 25:75 ration therefore bank pays 50,000 to 10 people and keeps 150,000. Now banks actual profit is 150,000-35000(expenses)=1,15,000 in a month. If a person comes for a loan for RS 50,000 bank will charge service charges which is expense divided by number of customers which is 35,000 . But if there are 1,00,000 depositors and made the same number of profit so that expense will be divided between those numbers of people who has taken loan. Therefore service charge will come down drastically.

Conventional banking: Money Bank Client Interest

Islamic banking Goods and Services Client Bank Money

Share market In Islam investing and taking share of haram companies are strictly prohibited like Liquor companies, Music companies, Tobacco etc. In Islam Life Insurance, Bonds, Short Sellings, Derivatives and Fixed Income is Haram. Trading in Futures and Options are haram as it is considered as gambling i.e guessing or speculation. As per Islam we cannot sell a product which we do not own i.e short selling in share market is Haram. As per Islam Preference share is haram as fixed percent is decided on the amount invested in companies.

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