Difference Between Commercial Bank and Islamic Bank

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Product Differentiation between Islamic Banking and Conventional Banking

Submitted to:
Quazi Sagota Samina
Senior Lecturer,
Department of Business Administration.
East West University, Dhaka.

Submitted by:
NameID
Arafat Rauf2009-2-10-345

FIN 380
Section: 2
Group: 10
Fall: 2011

Date of Submission: 23rd October 2011

Table of Content
Executive Summary3
Objective of the Study3
Limitation of the Study3
Analysis4
Bibliography12

Executive Summary

Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law (Sharia’h) principles and guided by Islamic economics. In particular, Islamic law prohibits usury, the collection and payment of interest, also commonly called riba. Generally, Islamic law also prohibits trading in financial risk (which is seen as a form of gambling). In addition, Islamic law prohibits investing in businesses that are considered unlawful, or haraam. Islamic finance has been gaining momentum on a global scale for the last 30 years. Conventional banking is based on collateral. In conventional banks charging interest does not stop unless specific exception is made to a particular defaulted loan. Interest charged on a loan can be multiple of the principal, depending on the length of the loan period. More than half the population of the world is deprived of the financial services of the conventional banks.

Objective of the Study

Our objective of the study was to know the product differentiation of Islamic Bank and Conventional bank. In which way they differ from each other. In our case, we have use Shajalal Islamic Bank as an Islamic bank and Uttara Bank as a Conventional bank. We mainly focus on to know the difference of Islamic bank and conventional bank. Limitation of the Study

Although we have tried our best to make this term paper perfect but there were some limitations that obstructed us from doing so. We have faced some problems while preparing this report. Some of the limitations encountered while making this report are as follows: The topic has so much to cover, so initially we faced some problem to choose the appropriate field to talk about. We tried to collect information about Uttara Bank, but as not much information is available we faced some problem to make comparison with Shajalal Islamic Bank.

Analysis of the study

ISLAMIC BANKING

Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law (Sharia’h) principles and guided by Islamic economics. In particular, Islamic law prohibits usury, the collection and payment of interest, also commonly called riba. Generally, Islamic law also prohibits trading in financial risk (which is seen as a form of gambling). In addition, Islamic law prohibits investing in businesses that are considered unlawful, or haraam. Amongst the governing principles of an Islamic bank are:

* The absence of interest-based (riba) transactions;
* The avoidance of economic activities involving oppression (zulm) * The avoidance of economic activities involving speculation (gharar); * The introduction of an Islamic tax, zakat;
* The discouragement of the production of goods and services which contradict the Islamic value (haram) Islamic law considers a loan to be given or taken, free of charge, to meet any contingency. Thus in Islamic Banking, the creditor should not take advantage of the borrower. When money is lent out on the basis of interest, more often it leads to some kind of injustice. (Website of sooperarticles.com)

Conventional Banking
Conventional banking is based on the principle that the more you have, the more you can get. In other words, if you have little or nothing, you get nothing. As a result, more than half the population of the world is deprived of the financial services of the conventional banks. Conventional banking is based on collateral. Conventional banks look at what has already been acquired by a...
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