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    Assignment No 2

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    Basit Khan
    The document compares Islamic and conventional banks. It discusses how Islamic banks do not charge interest but instead share in profits and losses. It also explains key differences in how mortgages, deposits, and investments are handled according to Islamic principles versus conventional banks. Specifically, Islamic banks engage in joint ownership, profit/loss-sharing, and ensuring investments are sharia-compliant. The balance sheet analysis shows how total assets plus liabilities equal capital for banks, and examines the composition of Islamic bank assets in Pakistan from 2003-2008.

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    Assignment No 2

    Uploaded by

    Basit Khan
    94 views4 pages
    The document compares Islamic and conventional banks. It discusses how Islamic banks do not charge interest but instead share in profits and losses. It also explains key differences in how mortgages, deposits, and investments are handled according to Islamic principles versus conventional banks. Specifically, Islamic banks engage in joint ownership, profit/loss-sharing, and ensuring investments are sharia-compliant. The balance sheet analysis shows how total assets plus liabilities equal capital for banks, and examines the composition of Islamic bank assets in Pakistan from 2003-2008.

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    The document compares Islamic and conventional banks. It discusses how Islamic banks do not charge interest but instead share in profits and losses. It also explains key differences in how mortgages, deposits, and investments are handled according to Islamic principles versus conventional banks. Specifically, Islamic banks engage in joint ownership, profit/loss-sharing, and ensuring investments are sharia-compliant. The balance sheet analysis shows how total assets plus liabilities equal capital for banks, and examines the composition of Islamic bank assets in Pakistan from 2003-2008.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    94 views4 pages

    Assignment No 2

    Uploaded by

    Basit Khan
    The document compares Islamic and conventional banks. It discusses how Islamic banks do not charge interest but instead share in profits and losses. It also explains key differences in how mortgages, deposits, and investments are handled according to Islamic principles versus conventional banks. Specifically, Islamic banks engage in joint ownership, profit/loss-sharing, and ensuring investments are sharia-compliant. The balance sheet analysis shows how total assets plus liabilities equal capital for banks, and examines the composition of Islamic bank assets in Pakistan from 2003-2008.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 4

    Assignment no 2

    Submitted to Waheed akhtar

    Submitted by Basit ijaz

    Registration number Fa16-bba-029


    Comparing the Islamic bank and conventional bank

    In conventional banking the money is commodity that’s why it can be sold out at higher rate then
    its face value but on the other hand the Islamic bank the money is not commodity that’s it will
    never sold out at higher rate. It takes interest on capital but Islamic bank takes interest on the profit
    which they earn. If in any case the org has loss the in loss the interest will charged in conventional
    bank but on the other hand the Islamic bank charged on profit or loss if any business man loss then
    the charged will be divided into finance used. While disbursing cash finance, running finance or
    working capital finance, no agreement for exchange of goods & services is made. The execution
    of agreements for the exchange of goods & services is a must, while disbursing funds under
    Murabaha, Salam & Istisna contracts. Under conventional mortgage, in order to purchase a
    property, the customer borrows money and repays it with an additional amount over a period of
    time. The additional amount is the amount of interest which is against the Shariah rulings of Islam.
    Under Islamic mortgage finance facility, Islamic bank shares with the customer in purchasing his
    desired property. Accordingly, the customer and the bank become the joint owners of the property
    in proportion to their share in purchasing the property. In order to own and use the entire property,
    the customer purchases the share of bank property over a period of time and also pays the rent for
    using the bank share of the property. Over a period of time, the customer manages to purchase the
    entire share of bank in the property. Ultimately, the customer becomes the sole owner. Further, in
    case of Islamic mortgage finance, the rent will be charged after the lessee has taken delivery of the
    property and it is in workable/usable condition. Rent cannot be charged from the day the price was
    paid to acquire the property/asset. If the supplier has delayed the delivery after receiving the full
    price, the lessee should not be liable for the rent of the period of delay. In case of conventional
    mortgage finance, normally the lease rentals start from the date the bank make payment for
    purchasing the property asset.

    Conventional Banks Trade Transactions Characteristics:

    1 Commission based Income 2. Income through guaranteeing payments 3. Income through Interest
    on loan payments 4. Additional interest income on delayed payments

    Islamic Banks Trade Transactions Characteristics:


    Commission based Income as per the guidelines of Shariah 2. Income through payment and
    documents facilitation services 3. Income through sale or lease of assets 4. Share Profit & bear
    Loss as the case may be 5. In case of late payment or default by the client, there will be no penal
    charges. However, to instill a payment discipline, Bank is authorized to recover an amount at a
    predetermined percentage as compulsory contribution to Charity Fund constituted by the bank
    approved Shariah Board. This contribution to Charity Fund shall not constitute income of the bank.
    6. The bank will deploy the Islamic Funds in only Shariah Compliant avenues.

    Conventional banks accept deposits on the basis of loan for all types of deposit accounts including
    Term Deposit, Savings and Currents accounts. Interest based returns are provided for the Savings
    accounts and Term Deposits, whereas Current Accounts may offer free banking facilities. In
    addition to this, conventional bank invests the deposits in non-shariah compliant avenues and
    subsequently earns non-shariah compliant returns.

    Islamic Banks offers deposit products based on the following structures: 1. Qard – Current
    accounts are offered under this contract where the risk of the funds lies with the bank and no added
    benefits are provided to the client solely based on this facility. However, clients may be allowed
    to avail those facilities which are offered across the board. 2. Mudarabah – a type of partnership
    where client funds are invested in various businesses and returns are shared between the bank and
    client as per the agreed profit-sharing ratio whereas, the loss is shared as per the investment ratio.
    Term Deposit and Savings Accounts are offered on the basis of Mudarabah.

    Balance sheets of a selected sample Islamic and conventional bank

    Balance sheet is a financial statement that contains all vital information regarding the business
    operation of any company. It is a vital document to analyze the performance of any company. It is
    more important for a banking company because it highlights the assets and liabilities of a bank .By
    analyzing the balance sheet of bank we can measure its strength and weakness Mishkin (1997:226)
    argues that “To understand how a bank operates, first we need to examine its balance sheet, a list
    of the bank’s assets and liabilities. As the name implies, this list has following characteristics:
    Total Assets+ total liabilities = Capital. Furthermore, a bank’s balance sheet lists sources of bank
    funds (liabilities) and uses to which they are put(assets). Banks obtain funds by borrowing and by
    issuing other liabilities such as deposits. They then use these funds to acquire assets such as
    securities and loans. Conventional banks earn income through interest while Islamic banks earn
    profit through equity-based financing and investment. Let us look at the assets of Islamic banks
    working in Pakistan. The composition of Islamic Banks’ different assets from 2003 to September
    2008.

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