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PRESENTATION TOPIC:
COMPARISON OF ISLAMIC AND CONVENTIONAL BANKING IN PAKISTAN
Conventional Banking is economic system -----------> collect the deposits from General Public at low rate of interest give loan--------------------> collected deposits to the public, Government institutions and business corporation and charge high rate of interest.
system of banking or banking activities-------> Islamic law & Economics Islamic law prohibits usury-----------> interest (Riba) Islamic law also prohibits ------------> Trading in Financial Risk
some basic difference in theory and practice which draws a line of separation. The basic function of the two institutions is same. the Following things are d/f with each others: 1. 2. 3. 4. 5. 6. Different mode of borrowing Different mode of financing Different modes of investment Different concept of money. Different concept of risk-sharing Having different objectives and goals
According to the SBP report, 2008, in Pakistan average weighted deposits rate between 2006 and 2007. conventional banking 11.2% and 11.56%( interest) Islamic banking 3.56% and 3.79% ( profits)
Musharikah Financing Mudarabah Financing Murabaha Financing Ijarh Financing Diminishing Musharakah Mussawama Financing SALAM Project Financing Working Financing
Islamic banks cannot invest in government treasury bills, bonds and Term Finance Certificates which carries fixed rate of interest
Islamic banks can only invest in non-interest bearing financial instruments like equity market, Islamic Sukuk, Mutual fund etc Since 2000, all Islamic banks have been started issuing Islamic Sukuk
5. DIFFERENT CONCEPT OF RISK-SHARING Islamic banking is perfectly a risk-sharing (PLS) system. (both borrower & lender)
the conventional banking is non-risk-sharing system as the investors or lenders have nothing to do with the loss of borrower.
the borrowers are fully responsible to take every kind of risk and bear loss.
6. HAVING DIFFERENT OBJECTIVES AND GOALS The objective of Islamic banking is to earn profit through fair distribution of financial resources with adopting sharia rules and regulations. The objective of conventional banks is to maximize the profit by concentrating the resources and charging high rate of interest.
2011 (June)
560
7.3
452
7.6
420
7.0
The following conclusions emerge from the above table: 1)IBIs represent 7.3% of banking industry. 2) IBIs share of deposit was 7.6% and
3) The share IBIs in net financing investment was 7.0% of banking industry.
Satisfaction of Customers
Facilities of Banks Islamic Banks Conventional Banks Fast and efficient counter Services 66% 82.9% Speed and efficiency of Transactions 61.3% 87.8% Interior comfort of Branches 56.8% 58.5% Experienced management team 75% 82.9% Availability of financial advice 77.3% 92.7% Faster document processing 63.6% 90.2% Knowledge on customer's Business 54.5% 80.4% Sufficient time for transaction 79.6% 90.2% Convenient branch location 50% 90.2% Awareness program on services 56.8% 68.3% Competitive Product Offerings 63.6% 80.4% Uniform services in all branches 56.9% 80.5% Confidence in Bank's Management 68% 82.7% Bank size in assets and capital 63.6% 43.9% Lower service charge 59.1% 26.8%
Rs.790,654 million
1.06
Rs.26.228 Billion
5.88
Provisions to NPLs
DEBT MANAGEMENT RATIOS Debt to Equity Deposit time capital
47.09
40.89
2.3 3.57
8 5.71
Debt to Assets
0.78
0.85
LIQUIDITY RATIOS Earning assets to total assets Advances to deposits yield on earning assets SOLVENCY RATIOS Equity to total assets Equity to deposits Earning assets to deposits