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Title: Difference between Islamic banking and conventional banking
Description: Discover the differences between Islamic banking and conventional banking with our concise and insightful notes. Gain a clear understanding of the underlying principles and practical implications of both systems. Ideal for students, professionals, and anyone interested in Islamic finance.
Description: Discover the differences between Islamic banking and conventional banking with our concise and insightful notes. Gain a clear understanding of the underlying principles and practical implications of both systems. Ideal for students, professionals, and anyone interested in Islamic finance.
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2/26/2023
Difference between Islamic
and conventional banking
Islamic Banking & Finance
Imran Afzal
QUALIFIED FROM ABDUL WALI KHAN UNIVERSITY MARDAN
BBA HONS (FINANCE)
PAKISTAN
Institute of Business Studies & Leadership
Institute of Business Studies & Leadership
The key differences between Conventional banking and Islamic
banking
Conventional Banking:
1
...
Interest is charged on loans and paid on deposits
3
...
4
...
Operates on the basis of profit maximization
6
...
The bank can invest in any sector or industry
8
...
The bank may invest in speculative or unethical activities, such as gambling, alcohol,
and tobacco
10
...
Based on the principles of Shariah law
2
...
Instead of interest, the bank offers profit and loss sharing (PLS) arrangements
4
...
Does not offer credit cards or overdraft facilities
6
...
The depositor is not guaranteed a fixed return on their deposit and instead shares in
the profits or losses of the bank
8
...
Offers Takaful insurance, which is based on the principles of cooperation and mutual
assistance
10
...
The depositor's funds are protected as the bank is required to maintain a reserve fund
and a guarantee fund to cover potential losses
...
Interest-based loans: Conventional banks provide loans at a fixed rate of interest
...
2
...
The cardholder is required to pay back the amount spent on the card along with
interest charged on the outstanding balance
...
Overdraft facility: Conventional banks provide an overdraft facility to their customers,
which allows them to withdraw more money than is available in their account
...
4
...
Modes of Financing in Islamic Banking:
1
...
In Mudarabah, the bank provides
capital while the customer provides expertise, and the profits are shared between
them
...
2
...
The customer pays the bank in installments
...
Ijarah: Islamic banks offer Ijarah services, where the customer can lease a vehicle,
equipment, or property from the bank for a specified period of time and pay a fixed
amount of rent
...
Salam: This mode of financing is used to finance the production of goods
...
5
...
3|Page
Title: Difference between Islamic banking and conventional banking
Description: Discover the differences between Islamic banking and conventional banking with our concise and insightful notes. Gain a clear understanding of the underlying principles and practical implications of both systems. Ideal for students, professionals, and anyone interested in Islamic finance.
Description: Discover the differences between Islamic banking and conventional banking with our concise and insightful notes. Gain a clear understanding of the underlying principles and practical implications of both systems. Ideal for students, professionals, and anyone interested in Islamic finance.