{"id":7111,"date":"2021-11-29T05:47:11","date_gmt":"2021-11-29T05:47:11","guid":{"rendered":"https:\/\/www.dibpak.com\/?page_id=7111"},"modified":"2025-11-19T14:27:31","modified_gmt":"2025-11-19T09:27:31","slug":"differences-between-islamic-banking-and-conventional-banking-products","status":"publish","type":"page","link":"https:\/\/www.dibpak.com\/index.php\/differences-between-islamic-banking-and-conventional-banking-products\/","title":{"rendered":"Differences between Islamic Banking and Conventional Banking Products"},"content":{"rendered":"

[vc_row][vc_column][vc_column_text css=””]<\/p>\n

Differences between Islamic Current Account and Conventional\u00a0 Current Account<\/h2>\n

 <\/p>\n\n\n\n\n\n\n\n\n
Liability Side Products\u00a0 <\/strong><\/p>\n

The Liability side<\/strong> – This side of a bank’s transactions refers to the deposit and investment facilities that the bank provides to its clients.<\/span><\/td>\n<\/tr>\n

Islamic banks<\/strong><\/td>\nConventional banks<\/strong><\/td>\n<\/tr>\n
Islamic Current account is based on \u2018Qard\u2019 loan and is payable to depositor when demanded.<\/td>\nNo specific mode is used for current account rather it is treated as savings of depositors.<\/td>\n<\/tr>\n
Since the deposits are based on Qard, it is legitimate for Islamic banks to utilize these funds.<\/td>\nIt is not ethically permissible for banks to use the deposits for their own good.<\/td>\n<\/tr>\n
Islamic Banks are refrained to use the funds in Shariah non-compliant activities.<\/td>\nConventional Banks use the amount deposited in current account regardless of Shariah prohibition.<\/td>\n<\/tr>\n
Free of cost services are offered across the board despite the fact whether the account is current or saving.<\/td>\nServices that are offered to customers are tantamount of Riba (interest).<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Differences between Islamic Saving Account and Conventional\u00a0 Saving Account<\/h2>\n

 <\/p>\n\n\n\n\n\n\n\n\n
Islamic banks<\/strong><\/td>\nConventional banks<\/strong><\/td>\n<\/tr>\n
Islamic Saving account is based on Mudarabah, a form of partnership where the primary purpose is to get return on investment made to the saving account by depositors.<\/td>\nNo specific mode is used for saving account.<\/td>\n<\/tr>\n
The relationship between bank and depositors are of Mudarib (working partner) and Rabb ul maal (investment partner).<\/td>\nThe relationship of bank and depositors are of lender and borrower.<\/td>\n<\/tr>\n
Islamic Banks are refrained to use the funds in Shariah non-compliant activities.<\/td>\nConventional Banks use the amount deposited in accounts regardless of Shariah prohibition.<\/td>\n<\/tr>\n
The communicated return to customers is not actual but expected.<\/td>\nBanks are bound to give their customers the pre-agreed return whatever the case may be.<\/td>\n<\/tr>\n
Depositors bear the loss if the intended negligence of bank does not come to on account.<\/td>\nDepositors do not bear any kind of loss incurred during a period of time.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Differences between Islamic Banking and Conventional Banking Products<\/h2>\n

 <\/p>\n\n\n\n\n\n
\n

The Asset side<\/strong>
\nThe Asset side-<\/strong>This side of a bank’s transactions refers to the financing facilities that the bank provide to their clients. Conventional bank provides financing to its clients by giving them interest based loans where as an Islamic bank provides financing to its client based on profit based financing such as Murabaha, Ijarah, Salam, Istisna etc.<\/p>\n<\/td>\n<\/tr>\n

Islamic banks<\/td>\nConventional banks<\/td>\n<\/tr>\n
An Islamic bank, on the other hand, provides financing facilities to their customers to fulfill their business requirements based on different underlying Shariah compliant principles depending on the requirements of its customers. The relationship between bank and customer ranges from agent\/principle, seller, buyer to lessor and lessee<\/p>\n\n\n\n
Islamic Banks Financing Transactions Features: <\/u><\/strong><\/p>\n

1<\/strong>. Sharing the profit based on sharing the resources. Where Islamic bank participate in risk and reward of the asset.<\/p>\n

2. Prohibition of Interest bearing lending. Income is earned through sale or leasing contracts.<\/p>\n

3. Share profit & accept Loss as the case may be on the assets r the business contracts.<\/p>\n

4. In case of late payment or default by the client, there will be no penal charges. However, to maintain a payment discipline, at the time of agreement the client would undertake that in case of late payment it will give some amount in charity which will be consumed by the bank in charity purposes only. This contribution to Charity Fund shall not constitute income of the bank.<\/p>\n

5. The bank would invest Funds in only Shariah Compliant forms of financing.<\/p>\n

Products of DIBPL<\/u><\/strong><\/p>\n

Following are some of the Dubai Islamic Bank Pakistan Limited (DIBPL) financing products along with their relevant financing structures:<\/p>\n

\u00a0<\/strong><\/p>\n

Home Finance<\/u><\/strong><\/p>\n

DIBPL offers Home Finance Facility based on Shirkat-ul-melk cum Ijarah to fulfill the Housing needs of Individuals. It is a combination of two contracts namely Musharakah and Ijarah. As per this product, the Bank and the customer form a Musharakah to purchase the asset. After this the bank leases its share to the customer for a pre-specified term through Ijara Agreement.<\/p>\n

Consumer Durable Finance<\/u><\/strong><\/p>\n

DIBPL as a symbol of innovative approach, had introduced Consumer Durable Finance (CDF) in 2013-14 to offer a Shariah complaint way for its consumers to purchase Home Appliances, Furniture, Bikes, Solar Panels, Cell-Phones, and Generators etc. on easy monthly installments. The Consumer Durable Finance product is based on the concept of Musawamah (a bargaining sale without disclosing or referring to what the cost price is).<\/p>\n

Personal Finance<\/u><\/strong><\/p>\n

DIBPL is the first Islamic bank in Pakistan to offer a Shari\u2019a compliant \u201cPersonal Finance\u201dfacility based on the Islamic Finance concept of \u201cMusawamah\u201d. The financing facility can be availed and utilized for financial needs such as education, marriage, medical expenses, credit card loans settlements, conventional loans settlements or meeting any other emergency needs in \u201cHALAL\/ISLAMIC\u201d way.<\/p>\n

Auto Financing <\/u><\/strong><\/p>\n

DIBPL is providing Auto Financing under the Shari\u2019a principle of Shirkat-ul-Melk cum Ijara. This kind of \u201cSharika\u201d may come into existence if two or more persons purchase an asset which will be owned jointly by them and the relationship between them with regard to that property is called \u201cMusharaka\u201d. Here this relationship has come into existence at their own option, as they themselves elected to purchase the equipment jointly. In this Auto Shirkat-ul-Melk cum Ijara product, DIBPL and the Customer form a Musharaka to purchase a vehicle and then DIBPL leases its share to the Customer for a pre-specified term through an \u201cIjara\/Lease Agreement\u201d.<\/p>\n

Once the Lease Agreement is signed between the partners, the active relationship between the two partners, will be that of a lessor-lessee relationship with all its implications and consequences.\u00a0 However, in case of total loss or non-reparable partial loss or default by the Customer, the Lease Agreement shall be terminated and the Musharaka rules will apply.<\/p>\n

Murabaha <\/u><\/strong><\/p>\n

Where transaction is done on a \u201ccost plus profit\u201d basis i.e. the seller discloses the cost to the buyer and adds a certain profit to it to arrive at the final selling price. Mainly used for Procurement of Raw Material; for meeting working capital needs of trade and industry<\/p>\n

Istisna cum Wakalah<\/u><\/strong><\/p>\n

Istisna\u2019 is a contract of sale of specified items to be manufactured or constructed and delivered by the manufacturer or builder (contractor) to the customer upon completion. Islamic banks after getting the delivery of the manufactured goods, sell the goods normally, through their agents in the market. Our corporate customers who are in manufacturing business utilize this product to meet various working capital needs.<\/p>\n

Tijarah<\/u><\/strong><\/p>\n

Tijarah is used for providing financing facility in transactions where final \/ transformed goods are available for sale. This facility enables our corporate customers to sell their finished goods, meet their working capital requirements and enjoy the benefits of cash sales. Tijarah facility can be availed by trading and manufacturing concerns and can also be used to facilitate customers to convert their interest based financing facilities to Islamic banking.<\/p>\n

Running Musharakah<\/u><\/strong><\/p>\n

This is a Shirkat-ul-aqd based financing facility offered to the customers where the Bank participates in the operating activities of the customer and shares profit and loss as per the actual performance of the business. This product is also used as a viable financing solution for Service Industry and Travel Agents whose financing needs are generally not addressed by other Asset backed products.<\/p>\n

Wakalah Istithmar \u2013 <\/u><\/strong><\/p>\n

Wakalah Istithmar is an Investment Agency whereby one party (principal \u2013 bank) appoints another party (customer) as its agent, to invest the capital in agent\u2019s working capital.<\/p>\n

Shirkat-ul-Melk cum Ijarah<\/u><\/strong><\/p>\n

It is a combination of two contracts namely Musharakah and Ijarah. As per this product, the Bank and the customer form a Musharakah to purchase the asset. After this the bank leases its share to the customer for a pre-specified term through Ijara Agreement. This Shariah Compliant long term facility is utilized by our customers to finance capital expenditure, plant expansion, BMR etc.<\/p>\n

Diminishing Musharakah<\/u><\/strong><\/p>\n

Diminishing Musharakah is a form of partnership, which ends with the complete ownership of a partner (customer) who purchases the share (in the form of Units) of another partner (Bank) in that project by a redeeming mechanism agreed between both of them. This product is most commonly used for the financing of fixed and movable assets, long term projects, etc.<\/p>\n

Working Capital<\/h4>\n

Salam Cum Wakalah <\/u><\/strong><\/p>\n

Bai Salam is the purchase of a commodity for deferred delivery in exchange for immediate payment. it is a type of sale in which the price is paid at the time of contracting while the delivery of the item to be sold is deferred. Islamic banks after getting the delivery of the manufactured goods, sell the goods normally, through their agents in the open market.
\nSalam is an exception to two Shariah conditions for a sale transaction to be valid i.e. subject matter of the transaction should exist and be under ownership\/possession of seller. our corporate customers either trader or manufacturing segment utilizes this product to fund their working overheads or even finance the whole cost of goods sold.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/td>\n

A conventional bank’s transactions on the asset side consist of financing based on interest where the bank charges interest on the loan extended to customer. Apparently the underline concept of all such financing is an interest based loan where the relationship between the Bank and client is that of lender and borrower respectively.<\/p>\n

Conventional Banking Loan Contracts Features: <\/u><\/strong><\/p>\n

1. No risk of underlying assets<\/p>\n

2. Revenue through Interest<\/p>\n

3. Late Payment charges on delayed payments and shall constitute bank\u2019s income.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

 <\/p>\n

Differences between Murabahah Financing and Conventional Working Capital Financing<\/h2>\n

 <\/p>\n\n\n\n\n\n\n\n\n
Murabahah Financing<\/strong><\/td>\nConventional Working Capital Financing<\/strong><\/td>\n<\/tr>\n
Murabahah is a \u201cSale\u201d contract, whereby, Islamic bank sells an asset to customer.<\/td>\nThe basis of Working Capital Finance is a \u201cloan (qard)\u201d contract, whereby bank lends money to customer.<\/td>\n<\/tr>\n
The relationship between parties is of buyer (customer) and the seller (Islamic bank).<\/td>\nThe relationship between parties is of borrower (customer) and lender (bank).<\/td>\n<\/tr>\n
Income on Murabahah is based on the profit received from the customer against the sale of asset.<\/td>\nIncome on loan is based on interest received from the customer.<\/td>\n<\/tr>\n
Risks related to ownership of asset are borne by the Islamic bank till the time the assets are sold to the customer.<\/td>\nBank does not bear the risks related to ownership of asset\/business.<\/td>\n<\/tr>\n
In case of delay in payments by customer, Islamic bank receives Charity from the customers which is distributed onwards to charitable institutions, on behalf of customers. Such Charity payment does not form part of income of the Islamic bank.<\/td>\nIn case of delay in payments by customer, the bank receives penalty on late payments. Such penalty is interest (riba) and forms part of income of the bank, which is Shariah non-compliant.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Differences Between Salam Financing and Conventional Working Capital Financing<\/h2>\n

 <\/p>\n\n\n\n\n\n\n\n\n\n
Salam Financing<\/strong><\/td>\nConventional Working Capital Financing<\/strong><\/td>\n<\/tr>\n
Salam Financing is one of the Sharia Complaint alternatives of Working Capital Financing. Salam is a \u2018Sale\u2019 contract whereby the Islamic bank buys commodities from customer. The price is paid in advance by the Islamic bank whereas the commodities are to be delivered by customer at a future date.<\/td>\nThe basis of Working Capital Finance is a \u201cloan (qard)\u201d contract, whereby bank lends money to customer.<\/td>\n<\/tr>\n
The relationship between parties is of seller (customer) and buyer (Islamic bank).<\/td>\nThe relationship between parties is of borrower (customer) and lender (bank).<\/td>\n<\/tr>\n
Salam can be effected only for those commodities which are homogeneous (quantity and quality exactly specified) in characteristic.<\/td>\nThere is no such requirement as the transaction is loan based.<\/td>\n<\/tr>\n
Upon receipt of the delivery\/ownership of the commodities, BankIslami appoints the client as agent to sell the goods to 3rd<\/sup> party buyers, and the risks related to ownership of commodities are borne by the Islamic bank until the commodities are sold onwards in the market.<\/td>\nConventional bank does not bear the risks related to ownership of asset\/business.<\/td>\n<\/tr>\n
Income on Salam financing is based on the profit received from the sale of commodities in the market.<\/td>\nIncome on loan is based on interest (Riba) received from the customer.<\/td>\n<\/tr>\n
Any loss arising out of the sale of goods shall be borne by the Islamic bank unless the loss is due to misconduct or negligence of the agent.<\/td>\nConventional bank does not deals in goods, hence does not bear any such loss.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Differences between Istisna financing and conventional Working Capital financing<\/h2>\n

 <\/p>\n\n\n\n\n\n\n\n\n\n
Istisna Financing<\/strong><\/td>\nConventional Working Capital Financing<\/strong><\/td>\n<\/tr>\n
Istisna Financing is one of the Sharia Complaint alternatives of Working Capital Financing. Istisna is a mode of \u2018Sale\u2019, at an agreed price, whereby the buyer (Islamic bank) places an order to manufacture, assemble or construct, or cause so to do anything to be delivered at a future date.<\/td>\nThe basis of Working Capital Finance is a \u201cloan (qard)\u201d contract, whereby bank lends money to customer.<\/td>\n<\/tr>\n
The relationship between parties is of buyer (Islamic bank) and seller (customer).<\/td>\nThe relationship between parties is of borrower (customer) and lender (conventional bank).<\/td>\n<\/tr>\n
Istisna can be effected only for contracts of production (manufacturing, construction and assembling) and value addition (processing).<\/td>\nThere is no such requirement as the transaction is loan based.<\/td>\n<\/tr>\n
Upon receipt of the delivery\/ownership of the goods, Islamic bank appoints the client as agent to sell the goods to 3rd<\/sup> party buyers; and the risks related to ownership of goods are borne by the Islamic bank until the goods are sold in the market.<\/td>\nConventional bank does not bear the risks related to ownership of asset\/business.<\/td>\n<\/tr>\n
Income on Istisna financing is based on the profit received from the sale of goods in the market.<\/td>\nIncome on loan is based on interest (Riba) received from the customer.<\/td>\n<\/tr>\n
Any loss arising out of the sale of goods is borne by the Islamic bank unless the loss is due to misconduct or negligence of the agent.<\/td>\nConventional bank does not deals in goods, hence does not bear any such loss.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Differences between Tijarah financing And conventional Working Capital financing<\/h2>\n

 <\/p>\n\n\n\n\n\n\n\n\n\n
Tijarah <\/strong>Financing<\/strong><\/td>\nConventional Working Capital Financing<\/strong><\/td>\n<\/tr>\n
Tijarah Financing is a Sharia Complaint alternative of conventional Working Capital Financing. In this transaction, bank purchases finished goods at a discount price, from Client against the disbursed funds and then appoints client its agent to sell the goods to 3rd<\/sup> party in the market at a higher price to earn its desired profit.<\/td>\nThere is no such concept in conventional banking since the contract is based on \u201cloan (qard)\u201d, whereby bank lends money, acting as \u2018lender\u2019 to customer, acting as borrower.<\/td>\n<\/tr>\n
The relationship between parties is of buyer (Islamic Bank) and seller (customer)<\/td>\nThe relationship between parties is of borrower (customer) and lender (bank).<\/td>\n<\/tr>\n
Financing is arranged by paying the price (discounted) of Tijarah goods preferably on spot basis. The funds received by seller (client) is used to cater his working capital needs.<\/td>\nFinancing is arranged by providing loan to customer to meet his financing needs.<\/td>\n<\/tr>\n
Upon receipt of the delivery\/ownership of the finished goods, Islamic bank point the client as agent to sell the goods to ultimate credible buyers (3rd party); and the risks releated to the ownership of goods aree borne by the Islamic bank until the goods are sold to ultimate credible buyers (3rd party).<\/td>\nConventional banks do not hold any liability or risk regarding the ownership of assets\/business.<\/td>\n<\/tr>\n
Income on Tijarah Financing is based on the profit generated through the sale of finished goods to the ultimate credible buyers.<\/td>\nIncome on loan is derived from the interest (Riba) received from the customer.<\/td>\n<\/tr>\n
Any loss arising in sale of finished goods to the ultimate credible buyers, is borne by the Islamic bank unless the loss is due to the misconduct or negligence of the agent<\/td>\nConventional Bank does not deals in goods, therefore does not bear any such loss.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Differences Between Diminishing Musharakah Financing and Conventional Long Term Financing<\/h2>\n

 <\/p>\n\n\n\n\n\n\n\n\n\n\n
Diminishing Musharakah (DM)<\/strong><\/td>\nConventional Long Term Financing<\/strong><\/td>\n<\/tr>\n
Diminishing Musharakah (DM) Financing is a Shariah Complaint alternative of conventional Long Term Financing.<\/td>\nThe basis of Long Term Finance is a \u201cloan (qard)\u201d contract, whereby bank lends money to customer.<\/td>\n<\/tr>\n
A jointly owned asset becomes the subject matter of DM, subsequently divided into units of ownership (referred as Musharakah Units).<\/td>\nThere is no such concept found since conventional banks treat Money\/Currency as commodity.<\/td>\n<\/tr>\n
The relationship between Islamic bank and customer is of partners (joint ownership of asset).<\/td>\nThe two parties involved in this activity act as borrower (customer) and lender (Conventional Bank).<\/td>\n<\/tr>\n
Bank along with customer own the subject matter (property\/machine etc.), therefore risk of asset is shared as per the ownership ratio in the asset.<\/td>\nAsset (property\/machine etc.), along with its associated risk is owned by the customer. Conventional\u00a0\u00a0 bank does not bear any kind of risk related to the ownership of the asset.<\/td>\n<\/tr>\n
Income is generated by renting out bank\u2019s owned share to customer.<\/td>\nIncome is generated by charging mark-up on loan.<\/td>\n<\/tr>\n
In case of Musharakah asset torn\/destroyed, rentals will be stopped and could not be charged due to the unavailability of utilization of asset.<\/td>\nSince the conventional Bank executes loan-based transaction, therefore customer would be liable till the settlement of the transaction.<\/td>\n<\/tr>\n
In case of late payments, customer is bound to pay an amount in terms of charity (as per undertaking signed by the customer at the time of Ijarah\/payment agreement) that does not become the part of bank\u2019s income.<\/td>\nIn case of delayed payment, a penalty is charged and taken to bank\u2019s income.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Differences Between Shirkat ul Milk cum Ijarah Financing and Conventional Long Term Financing<\/h2>\n

 <\/p>\n\n\n\n\n\n\n\n\n\n\n
Shirkat ul Milk cum Ijarah (SHTM)<\/strong><\/td>\nConventional Long Term Financing<\/strong><\/td>\n<\/tr>\n
Shirakt ul Milk cum Ijarah Financing is a Shariah Complaint alternative of conventional Long Term Financing.<\/td>\nThe basis of Long Term Finance is a \u201cloan (qard)\u201d contract, whereby bank lends money to customer.<\/td>\n<\/tr>\n
A jointly owned asset becomes the subject matter of Mushrakah<\/td>\nThere is no such concept found since conventional banks treat Money\/Currency as commodity.<\/td>\n<\/tr>\n
The relationship between Islamic bank and customer is of partners (joint ownership of asset).<\/td>\nThe two parties involved in this activity act as borrower (customer) and lender (Conventional Bank).<\/td>\n<\/tr>\n
Bank along with customer own the subject matter (property\/machine etc.), therefore risk of asset is shared as per the ownership ratio in the asset.<\/td>\nAsset (property\/machine etc.), along with its associated risk is owned by the customer. Conventional\u00a0\u00a0 bank does not bear any kind of risk related to the ownership of the asset.<\/td>\n<\/tr>\n
Income is generated by renting out bank\u2019s owned share to customer.<\/td>\nIncome is generated by charging mark-up on loan.<\/td>\n<\/tr>\n
In case of Musharakah asset torn\/destroyed, rentals will be stopped and could not be charged due to the unavailability of utilization of asset.<\/td>\nSince the conventional Bank executes loan-based transaction, therefore customer would be liable till the settlement of the transaction.<\/td>\n<\/tr>\n
In case of late payments, customer is bound to pay an amount in terms of charity (as per undertaking signed by the customer at the time of Ijarah\/payment agreement) that does not become the part of bank\u2019s income.<\/td>\nIn case of delayed payment, a penalty is charged and taken to bank\u2019s income.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Differences between Running Musharakah Conventional Running finance Facility<\/h2>\n

 <\/p>\n\n\n\n\n\n\n\n\n
Running Musharakah Financing<\/strong><\/td>\nRunning Financing<\/strong><\/td>\n<\/tr>\n
Running Musharakah is a Shari\u2019ah Complaint alternative of conventional running finance facility. In RM the Bank and the Client enter into a partnership agreement (Joint venture) wherein the Bank and the Client agree to<\/p>\n

(i)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Invest in the identified primary operating activities of the Client\u2019s business.<\/p>\n

Participate in the profit\/loss generated by the Musharakah<\/td>\n

In the Running Finance the client is sanctioned a certain limit to draw down cash as per his requirement\/needs on which he is liable to pay mark-up to the bank.<\/td>\n<\/tr>\n
The core business activities of client need to be lawful and Shari\u2019ah compliant.<\/td>\nClient\u2019s business must be lawful but not necessarily a Shari\u2019ah compliant business.<\/td>\n<\/tr>\n
The bank and client act as partners until the end of Musharakah Period.<\/td>\nThe relationship between both the parties is of borrower (customer) and lender (bank).<\/td>\n<\/tr>\n
The bank and the client will share the profit as per pre-agreed profit sharing ratio and bear the loss to the extent of investment.<\/td>\nIn running finance, the bank is concerned only with the amount it has allowed the customer and the interest it is going to receive.<\/td>\n<\/tr>\n
The bank make it to the equity in the client\u2019s company.<\/td>\nConventional bank does not hold any equity or ownership in the client\u2019s business.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Differences between Transaction Finance Conventional Running finance Facility<\/h2>\n

 <\/p>\n\n\n\n\n\n\n\n\n
Transaction Finance<\/strong><\/td>\nRunning Financing<\/strong><\/td>\n<\/tr>\n
Transaction Finance is a Musharakah-based partnership where the bank directly invests in a customer\u2019s business transaction, contract, or project. Profits are shared as agreed, while losses are borne in proportion to each party\u2019s investment<\/td>\nIn the Running Finance the client is sanctioned a certain limit to draw down cash as per his requirement\/needs on which he is liable to pay mark-up to the bank.<\/td>\n<\/tr>\n
The core business activities of client need to be lawful and Shari\u2019ah compliant.<\/td>\nClient\u2019s business must be lawful but not necessarily a Shari\u2019ah compliant business.<\/td>\n<\/tr>\n
The bank and client act as partners until the end of Musharakah Period.<\/td>\nThe relationship between both the parties is of borrower (customer) and lender (bank).<\/td>\n<\/tr>\n
The bank and the client will share the profit as per pre-agreed profit sharing ratio and bear the loss to the extent of investment.<\/td>\nIn running finance, the bank is concerned only with the amount it has allowed the customer and the interest it is going to receive.<\/td>\n<\/tr>\n
The bank make it to the equity in the client\u2019s company.<\/td>\nConventional bank does not hold any equity or ownership in the client\u2019s business.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/h2>\n

Difference Between Islamic Banking and Conventional Banking in Treasury Solutions<\/h2>\n

 <\/p>\n\n\n\n\n\n\n\n
Islamic Bank<\/strong><\/td>\nConventional Bank<\/strong><\/td>\n<\/tr>\n
Offers Shariah-compliant<\/strong> products that avoid interest and promote ethical, asset-backed financial practices.<\/td>\nProvides interest-based<\/strong> solutions focused on maximizing returns, often without ethical or asset-based considerations.<\/td>\n<\/tr>\n
Interbank placements are based on Wakalah and Musharakah arrangements. Musharakah is a partnership model where profits and losses are shared according to the agreed ratio, while under Wakalah, the bank acts as an agent and earns a fee, with all risks and rewards borne by the investor.<\/td>\nInvolves interest-based lending<\/strong> between banks, with fixed returns and no asset involvement.<\/td>\n<\/tr>\n
Employs promise-based (Wa\u2019ad)<\/strong> contracts to avoid speculation and interest, ensuring Shari\u2019ah compliance.<\/td>\nUses forward contracts<\/strong> that may involve speculative elements and interest-based pricing.<\/td>\n<\/tr>\n
Involves deferred payment sale<\/strong> of Sukuk, ensuring transactions are asset-backed and interest-free.<\/td>\nTypically involves interest-bearing bonds<\/strong>, where returns are predetermined and not linked to real assets.<\/p>\n

 <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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[vc_row][vc_column][vc_column_text css=””] Differences between Islamic Current Account and Conventional\u00a0 Current Account   Liability Side Products\u00a0 The Liability side – This side of a bank’s transactions refers to the deposit and investment facilities that the bank provides to its clients. Islamic banks Conventional banks Islamic Current account is based on \u2018Qard\u2019 loan and is payable to … <\/p>\n

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