COMMERCIAL AND ISLAMIC BANKING

Presenting by: The Spectaculars

What is Bank ?A Business that keeps and lends money and provides other financial services, Such as wealth.

"A Bank is a place where they lend an umbrella in fair weather and ask for it back when it begins to rain"

-Robert Frost

THROWBACK

As history follows it wasn`t name as bank in that time.

One view is that it is derived from an Italian word ‘banque’ which means a ‘bench’.

The other point of view is that it has originated from the German word ‘banc’ which means a ‘joint stock firm’.

WHAT IS COMMECIAL BANK?

Commercial bank accepts deposits from individuals, firms and companies at a lower rate of interest and gives it at higher rate of interest to those who need them.

Primary Functions

Accepting Deposits Accept various types of deposits from public

I. Current accountII. Saving accountIII. Fixed/term deposit account

Advancing of Loans Provide loans and advances of various forms

I. Cash CreditII. Demand LoansIII. Short-term Loans

Secondary Functions

Special financial servicesI. Currency exchangeII. Letters of creditIII. Money transfer

Agency functionsI. Collection of ChecksII. Collection of DividendsIII. Purchase or sale of SecuritiesIV. Acting as trustee or executors

ISLAMIC BANK

lets invest in our beliefs, enjoy a full range of Shariah Compliant solutions

ISLAMIC BANKING

Based on the principles of Islamic law Prohibition of the collection and

payment of interest by lenders and investors

FINANCIAL TERMS

Contract (Aqad)Contract on Loan (Bai' al 'inah)Profit Sharing (Mudharabah)Safekeeping (Wadiah) Joint Venture (Musharakah)Cost Plus (Murabahah) Leasing (Ijara)

Islam forbids lending out money at Interest, Islamic rules on transactions known as Fiqh al-Muamalat

Fiqh al-Muamalat

Aqad contracts business and marriage

partiesBai Inah

sale and buy-back at a lower priceMudharabah

One gives money to another for investing

Wadiah safekeeping, custody, deposit and trust

Musharakah profit/loss sharing

Murabahah a profit on the sale of goods

Ijarah providing services and goods

temporarily for a wage

Fiqh al-Muamalat

ISLAMIC VS COMMERCIAL BANKING

Islamic bank Commercial bank All the functions and

operating modes of are based on the principles of Islamic Shariah

It shares risk between the investor and the entrepreneur

Maximising profit but subject to Sharia'h restrictions

The functions and operating modes are based on fully manmade principles

The investor and lender is guaranteed of a predetermined rate of interest or returns

Maximising profit without any restrictions

Fundamental function is to participate in partnership business

It must be based on a Shariah approved underlying transaction

fundamental function is to lend money and get it back with compound interest

Interest-based commercial banks don’t care about the activities being performed with their financing

Islamic bank Commercial bank

ISLAMIC VS COMMERCIAL BANKING

Central Bank

A central bank is a monopolized and often nationalized institution given privileged control over the production and distribution of money and credit

CENTRAL BANK

Governed by the government and work for the economic development

Controls and regulates the entire banking system

Acts as a state owned institution.

Act as a banker to the Government.

Profit motive banks, held by government and private sectors as well

Operates under the direct control and supervision of the central bank

Acts as a state or private owned institution.

Acts as agents of the central bank.

Central bank Other bank

Central Vs Other Banks

Does not deal directly with the public. It issue guidelines to commercial banks

Deals directly with the Public. It serves the financial requirement of the public

Issues currency and control the supply of money in the Market

Does not Issue currency, but only adds to the approval of the central bank

Central bank Other bank

Central Vs Other Banks

Hope this picture explains a lot to you