1. Islamic Banking System vs. Conventional Banking System
Munib Faiz Khan

2. Munib Faiz Khan M.B.A (b) Mor. 2nd Semester Presented By

3. What is Conventional Banking?
More you have, the more you can get.
If you have little or nothing, you get nothing.
Conventional banking is based on collateral
Munib Faiz Khan

4. Principles of Conventional Banking
Manmade Principles
Debtor-creditor relationship
Interest
Munib Faiz Khan

5. Services and Products offered by Conventional Banks
Banks are in business to earn a profit
Protect customer’s money’s purchasing power
Banks are regulated
Loans
Savings Accounts
Munib Faiz Khan

6. Functions of Conventional Banks
Primary Functions
Accepting Deposits
Granting Loans
Secondary Functions
General Utility Services
Safe-keeping of valuables in safe deposit locker
Undertaking foreign exchange business
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7. Factors which may attract customers
Better products and services
Financial position of banks
Latest facilities
Interest on deposits
Strong global image
Reputation and economic benefits
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8. Different conventional Banks working in Pakistan
MCB
ABL
UBL
Bank Alfalah
Standard Chartered
NBP
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9. What is Islamic Banking?
System of banking or banking activity that is consistent with the principles of Islamic Law (Shariah)
Its practical application through the development of Islamic Economics
Munib Faiz Khan

10. Islamic Economic System
Primary Objectives of Islamic Economic System
Equal Distribution of Money
Social Justice
Munib Faiz Khan

11. History Of Islamic Banking
The first instance of Islamic banking came into the picture in Egypt in 1963
In 1970s several Islamic banks came into existence
Dubai Islamic Bank (first Islamic private commercial bank, 1975)
The Faisal Islamic bank of Sudan (1977)
The Bahrain Islamic bank (1979).
Becoming a powerful competitive force in the world today
Munib Faiz Khan

12. Principles Of Islamic Banking
Shariah laws and values that comprehensively guide individuals’ in (ritual and non-ritual) life.
Dealings with haram (unlawful) services and commodities, such as gambling, liquors, etc. are prohibited.
Contracts should be based upon profit and risk sharing; and in the forms of buyer
Seller (Murabaha),
Lessor – leasee (Ijarah),
Partnership (Musharakah),
Debtor – Creditor (qard hasan) relationship.
Munib Faiz Khan

13. Expectations From Islamic Banks
More ethical business and economy.
Better governance, due to participation of investors (debt holders) in risk sharing.
Less uncertainty and less transaction costs.
Less speculation.
Shariah businesses deal only on real sector (goods and services), so that it will add economic value.
Munib Faiz Khan

14. Different Islamic Banks Working In Pak
Meezan Bank
Bank Islami Pakistan Limited
Dubai Islamic Bank Limited Pakistan
Dawood Islamic Bank Limited
Emirates Global Islamic bank Limited
Munib Faiz Khan

15. Factors Which May Customers in Islamic Banking
Interest free loan
Financial position of bank
Islamic teaching and Shariah
Knowledge on Islam and religious environment in the city
Economic benefits and better facilities.
Munib Faiz Khan

16. Services & Products of I.B
Currently available Islamic Banking Products and services are
Partnership based modes of financing
Musharakah Finance, Mudarabah Finance,
Trade based modes of financing
Murabahah Finance, Salam finance
Rental based modes of financing
Ijarah Finance, Diminishing Musharaka Finance
Munib Faiz Khan

17. Partnership Based Musharakah Finance
Both the Bank and the customer contributes towards the capital of the enterprise
Under a “diminishing” musharakah, the customer buys out the bank's share over a period of time.
The customer and the bank share in the profits according to the agreed proportions, which may be different from the proportions of capital contributed. Any losses of the enterprise will be borne by the customer and the bank according to their capital contributions.
Munib Faiz Khan

18. The structure of a Musharakah Contract
ISLAMIC
BANK
PARTNER
(Customer)
MUSHARAKAH
60% Ownership
40% Ownership
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19. Partnership Based Mudarbah
The bank provides to the customer (mudarib) all the capital to fund a specified enterprise
The customer contributes only entrepreneurship.
The customer is responsible for the day to day management of the enterprise and is entitled to deduct its management fee(mudarib fee) from the enterprise's profits.
The mudarib fee could be a fixed fee (to cover management expenses) and a percentage of the profits or a combination of the two. A classical mudarib fee is based on a percentage of the profits only.
The balance of the profit of the enterprise is payable to the bank
If the enterprise makes a loss, the bank (as the fund provider or Rabbul Mal) has to bear all the losses unless the loss has resulted from negligence on the part of the mudarib.
Munib Faiz Khan

20. Trade Based Murabahah Finance The Bank Buys the asset from the Vendor
The customer then buys the asset from the bank at a mark-up price, which is payable on a deferred payment basis.
The period covering the deferred payment is effectively the period of financing.
The title to the asset is transferred to the customer at the time of purchase but usually the customer provides the same or other assets as collateral to the bank for the period of financing.
Munib Faiz Khan

21. Trade Based Salam Financing
A Salam (sometimes referred to as Salaf) is a short term agreement in which a financial institution makes full pre-payments for future delivery of a specified quantity of goods on a specified date.
A salam is primarily a deferred delivery sale contract usually used for commodity finance. It is similar to a forward contract where delivery is in the future in exchange for spot payment. To mitigate the asset risk a financier can enter into parallel Salam
Munib Faiz Khan

22. Rental Based Ijarah Finance The bank buys the asset from the vendor
The bank then leases the asset to the customer
Periodic rentals are collected by the bank
The title of the asset remains with the bank under as operating Ijarah
Title passes to the customer under a Lease ending with transfer of ownership, either gradually over the period of the contract, at the end.
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23. DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING
Islamic Banking
1) Functions and operations are based on Shariah principles
Conventional Banking
1)Functions and operations are based on fully man made principles
Munib Faiz Khan

24. DIFFERENCE BETWEEN ISLAMIC 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
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25. DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING
Islamic Banking
3) Aim at maximising profit but subject to Shariah restrictions
Conventional Banking
3) Aim at maximising profit without any restrictions
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26. DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING
Islamic Banking
4) Partners, investor and traders, buyer or seller relationship
Conventional Banking
4) Creditor-Debtor relationship
Munib Faiz Khan

27. DIFFERENCE BETWEEN ISLAMIC 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.
Munib Faiz Khan

28. DIFFERENCE BETWEEN ISLAMIC 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.
Munib Faiz Khan

29. DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING
Islamic Banking
7) one of the service-oriented functions of the Islamic banks to be a Zakat Collection Centre and they also pay out their Zakat.
Conventional Banking
7) It does not deal with Zakat.
Munib Faiz Khan

30. DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING
Islamic Banking
8) Islamic bank can only guarantee deposits for deposit account, which is based on the principle of al-wadiah, thus the depositors are guaranteed repayment of their funds, however if the account is based on the mudarabah concept, client have to share in a loss position..
Conventional Banking
8) A conventional bank has to guarantee all its deposits.
Munib Faiz Khan

31. Thank You…………!!!!!!
Munib Faiz Khan