Starting in the Name of Allah, The Most Beneficent, The Most Merciful بسم الله الرحمن الرحيم Starting in the Name of Allah, The Most Beneficent, The Most Merciful

Islamic Banking

Different Economic Systems Capitalism Competition is on free market the price, production and consumption of goods based on demand and supply, the trade privately owned and managed for profit. No regards to unemployment, social growth Communism All property and capitals are owned and managed by the state including economic activities, enterprise, labour, production and consumption. Employment is the state to provide, wages are set by the state according to the national output

Different Economic Systems Islamic System Market base economy, where goods and services are exchanged freely according to the demand and supply by barter or money with debit or credit value Entrepreneurs are encouraged to create wealth throw employment and social activities It is a balance between the two systems, it is emphasis both individual economic freedom and the need to serve the common good

Importance of Trade in Islam Islam has given an immense importance to trade The nobility of this profession is obvious from the fact that it was the chosen profession of prophet Muhammad (PBUH).

WHY ISLMIC BANKING Before explaining the concept “what is Islamic Banking” the elaboration of concept “why Islamic Banking” is very important. Islam is a complete code of life that provides guidance regarding each aspect of life.

The primary objectives of Islamic Economic System are as under. 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 systems.

WHAT IS ISLAMIC BANKING Now we come to our core question A banking system that is based on the principles of Islamic law (also known Shariah) and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest. Collecting interest is not permitted under Islamic law.

DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 1) Functions and operations are based on Sharia’h principles Conventional Banking 1)Functions and operations are based on fully man made principles

DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 2) Promote risk-sharing between provider of capital (investor) and user of funds (entrepreneurs) Conventional Banking 2) Investor is assured of pre-determined rate of interest

DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 3) Aim at maximising profit but subject to Sharia'h restrictions Conventional Banking 3) Aim at maximising profit without any restrictions

DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 4) Partners, investor and traders, buyer or seller relationship Conventional Banking 4) Creditor-Debtor relationship

DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 5) Encourage asset-based financing and based on commodity trading Conventional Banking 5) Based on money trading. Money is a medium of exchange and not a commodity, its sale and purchase is prohibited in Islam.

DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 6) No right of profit if there is no risk involved. The profit and loss sharing depositor may lose money in case of loss. Conventional Banking 6) It is almost risk free banking and depositor has no risk of losing its money because interest is guaranteed.