Assignment No.

SUBMITTED TO

Dr. M Waheed Akhter

ASSISTANT PROFESSOR

DEPARTMENT OF MANAGEMENT SCIENCES

SUBMITTED BY

Hafiz kaleem ullah bukhari

CIIT/FA16-BBA-085/LHR

NOVEMBER 09, 2019

Assignment No. 2
List the key differences that exist between Islamic and conventional banking. Compare
and contrast the balance sheets of a selected sample Islamic and conventional bank,
highlight the key differences and justify them, using suitable reasons?

Both’s banking system are different style of works like Islamic banking basically type of
business system which they have profit and loss system but as compare to the Islamic banking
conventional banks are only profit system which they are giving to interest in deposi ts
Below have a key differences of Islamic and conventional banking balance sheet
Islamic banking:-
1. Islamic banking is following Islamic shariah and Islamic law.
2. Islamic banking actually, profitable able organization their circulated the money for many
hands.
3. Islamic banking is a risk taker because may their depositors facing the losses.
4. Their returns like profit or loss is according to the performance of business where the bank
are invested and end of the time how much they get the profits.
5. They are not give to loan as a cash they give loans as assets if any company wants assets they
gives the assets
6. Islamic banks should not earn profit

Conventional banking:-
1. Conventional banking is the basis of interest system.
2. This system is only fot get profit.
3. They gives loan as a cash in interest system.
4. They change their interest rate according to the situation of economic conditions.
5. Guarantee all its deposits, because risk is shifting on customer. So Conventional banks don’t
have any possibility of loss.
Key variations in record of Islamic banking and traditional banking:
After comparison the monetary statements of city Islamic banking and Allied banking, there
area unit some variations that area unit as follow.
Due from monetary establishments
One and also the distinction is that the Islamic bank uses it owing to monetary establishments
that embrace artefact marabahs, by-laws, practitioners and orbiters. In these terms the proportion
of the sale value and also the contribution to profit and loss area unit already best-known.
Whereas ancient banks have used the term disposal to finance terms, it includes sales beneath
repurchase and purchases beneath merchandising. Markup or interest in each terms isn't best-
known and there's no clear. And even the period of the contract isn't best-known in some terms.
The rate of interest is calculated in step with the country's economic state of affairs. this can
produce difficulties for the parties and countries likewise. Therefore, the Islamic system is best
during which the parties area unit aware and fix the value at the time of the sale agreement. This
cannot be modified. And additionally don't produce issues for countries and parties.
Islamic funding and connected assets
The first distinction is that Islamic banks used Islamic finance and their associated assets in their
assets section. These area unit merchandise factory-made by the Bank and consist primarily of
Marabha, Running informatory, Wakala, Wakila Isthmutra, and Istna Kim Wakala, Tashahara,
Islamic Export finance theme and Partnership. This can be a general statement of the final and
specific provisions. Whereas ancient banks have used the term development. Advancement
includes loans / advances and web investment in funding. This can be essentially associate
degree financial gain that comes from leasing interest on commodities and cash. Islamic banking
conditions area unit smart as a result of it doesn't charge interest like ancient banks. And interest
is proscribed and additionally disturbs the country's financial system.
Assets
In typical banks the term assets suggests that the items that they will use for the longer term
economic profit. Borrowers take lone against their properties and receiver is vulnerable to pay a
hard and fast interest charges for taking loan, if something happens with the property receiver
bear the loss. whereas within the Islamic banks the assets have completely different meanings.
Assets mean the items that we've got the right to carry or use for the particular purpose. Bank
and receiver co-invests in an exceedingly property. A receiver pays mounted rent and a few
portion of principal quantity in instalments and slowly buys possession from bank, just in case
of any crash, each receiver and bank bear the lose up to the extent of their possession.
Subordinate Sukuk
Sukuk subcontracted the money ab initio received. Profit accumulated on a subordinate score is
received within the profit and loss account. whereas ancient banks have used the term sub
division loan. this can be the quantity that's secured as security once a bank fails to create a loan
or go bankrupt.
Deposits
In the typical banking the deposits area unit current deposits, mounted deposits and saving
deposits and profit and loss account. whereas in Islamic banks there area unit solely 2 modes of
deposits. These area unit Qard and Modaraba. Qard is that the essentially this deposits and
modaraba is that the saving account/deposits. the standard banks offer the interest to the
depositors to the saving deposits whereas share the danger i.e. profit and loss with solely profit
and loss accounts holders.