Professional Documents
Culture Documents
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Ñ Translated into banking terms, the depositor, the bank and the
borrower should all share the risks and the rewards of financing
business ventures. This is unlike the interest-based commercial
banking system, where all the pressure is on the borrower: he
must pay back his loan, with the agreed interest, regardless of the
success or failure of his venture.
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h. The functions and operating modes of h. The functions and operating modes of Islamic anks are
conventional anks are ased on fully manmade ased on the principles of Islamic Shariah.
principles
2. The investor is assured of a predetermined 2. In contrast, it promotes risk sharing etween provider of
rate of interest capital Ginvestor) and the user of funds Gentrepreneur
3. It aims at maximizing profit without any 3. It also aims at maximizing profit ut suject to Shariah
restriction restrictions
4. It does not deal with Zakat 4. In the modern Islamic anking system, it has ecome one
of the service-oriented functions of the Islamic anks to e a
Zakat ollection entre and they also pay out their Zakat.
5. Lending money and getting it ack with 5. Participation in partnership usiness is the fundamental
compounding interest is the fundamental function of the Islamic anks. So we have to understand our
function of the conventional anks. customer's usiness very well.
6. It can charge additional money Gpenalty and 6. The Islamic anks have no provision to charge any extra
compounded interest) in case of defaulters. money from the defaulters. Only small amount of
compensation and these proceeds is given to charity. Reates
are give for early settlement at the Bank's discretion
7. Very often it results in the ank's own interest 7. It gives due importance to the pulic interest. Its ultimate
ecoming prominent. It makes no effort to aim is to ensure growth with equity.
ensure growth with equity
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*. For interest-ased commercial anks, orrowing *. For the Islamic anks, it must e ased on a Shariah
from the money market is relatively easier. approved underlying transaction
9. Since income from the advances is fixed, it gives 9. Since it shares profit and loss, the Islamic anks pay
little importance to developing expertise in project greater attention to developing project appraisal and
appraisal and evaluations evaluations.
h . The conventional anks give greater emphasis h . The Islamic anks, on the other hand, give greater
on credit-worthiness of the clients. emphasis on the viaility of the projects.
hh. The status of a conventional ank, in relation to hh. The status of Islamic ank in relation to its clients is
its clients, is that of creditor and detors. that of partners, investors and trader, uyer and seller.
h2. A conventional ank has to guarantee all its h2. Islamic ank can only guarantee deposits for deposit
deposits. account, which is ased on the principle of
thus
the depositors are guaranteed repayment of their funds,
however if the account is ased on the mudaraah
concept, client have to share in a loss position