Difference Between Islamic and Conventional Banking a case study of pakistani banks

 FINAL PROJECT

Comparison between Islamic and conventional banks: A case study of HBL and Meezan Bank

A REPORT

SUBMITTED TO THE DEPARTMENT OF MANAGEMENT SCIENCES,

VIRTUAL UNIVERSITY OF PAKISTAN

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE 

DEGREE OF MASTER IN BUSINESS ADMINISTRATION

Submitted By

              

                Acknowledgement 

   

All gestures of recognition to ALLAH, the Almighty, the most kind, and sympathetic, who favored me with the information, gave me the valor, and enabled me to achieve the errand. He has dependably helped me in all issues of life. I attempted, yet He granted me more than attempted.

I offer my humble salaam to our Holy Prophet Hazrat MUHAMMAD PBUH (peace and Blessing of ALLAH Be upon HIM) WHO is a beacon to show the right path to the whole humanity.

I express my profound gratitude to my dear Instructor Mr. Muhamamd Nadeem Khalil whose motivation and guidance is the main reason for the accomplishment of thesis.

I am relay indebted to my loving parents, grateful to my everything instructors, my class Colleagues and well wishing companions whom gladness and direction is a benefit for me.

                                    Name:

                                    Abstract 

Islamic and conventional banks both have different system of management, history, product and even acceptance according to their laws. The study is conducted to show the similarities and differences between two important economic institutions. Moreover, the research will cover different aspects of banking to make people aware of these institutions and remove confusions about them so that people will choose best of them with the best reasons. The major purpose to systemize the Islamic banking is the Muslim societies to organize their evolution of business and also all changes must be liberated from interest (Riba) according to Islamic laws. The investment in which division of profit (reward) and loss (risk) according to Islamic laws. Islamic banking industry is prominent due to unbiased distribution of wealth and free from interest (Riba).Islamic banking is a system which approach into continuation on the basis of Islamic laws and beliefs. Conventional banking works as financial institution but on the other hand Islamic banking is acknowledged as trade oriented business. Conventional banking earns income in the form of fix interest while Islamic banking earns in form of profit. The main purpose of emerging Islamic banking is to eliminate the interest (Riba) from all business deals. According to Islamic laws (Shariah) all financial organizations are free from the interest (Riba). Riba (interest) has also forbidden in the Holy Quran. That’s why it is banned in the surfacing Islamic banking. Sharing risk and reward are two fundamental things in Islamic banking structure. 

Financial ratios are used to determine the banking efficiency and governance aspects are unobserved in the literature. In premature studies of Islamic banking sector, Sarkar, (1999) conducted a study to explore the operational efficiency and performance of Islamic banks. He found that Islamic banks carry on their operations within framework of conventional banking in Bangladesh. Western scholar (Volker Niehanus; 2006) argued that the Islamic banking worldwide improve way of thinking and value structure which attributes slight value to individual responsibility and performance. The information drawn in study is collected from journals, reports, internet and other research projects. The population that is selected for study includes two financial institutions i.e. Conventional Banks and Islamic Banks. The total banks for population are 24 in number including 19 conventional banks and 5 Islamic banks. The sample for study contains 2 banks, 1 conventional bank and 1 Islamic bank.

Table of content
Sr. No	Description	Page. No.
	Acknowledgement	2
	Abstract	3
01	Introduction	6
1.1	Background	7
1.2	Objective	8
1.3	Significance	8
2	Literature Review	9
3	Research Methodology	11
3.1	Data Collection Source	11
3.2	Subject / participants	11
3.3	Data processing and Analysis	11
5.1	Conclusion	25
5.2	Recommendations	26
5.3	Limitations	27
	Reference	28

   

Chapter NO.1Introduction

Islamic and conventional banks both have different system of management, history, product and even acceptance according to their laws. The study is conducted to show the similarities and differences between two important economic institutions.

Moreover, the research will cover different aspects of banking to make people aware of these institutions and remove confusions about them so that people will choose best of them with the best reasons.

The banks play an imperative function in developing economies as economic institutions and also considered extraordinary essential for economies functions. The economic growth also impacts on financial institution efficiency. The profitability of banking sector contributes in economic growth and makes economies to tolerate depressing and external financial crisis and also contributes in stability of financial system (Athanasoglou et al. 2005). For that motivation, it is important to understanding about performance and ownership structure of banking sector. 

Islamic banking is a system which approach into continuation on the basis of Islamic laws and beliefs. Conventional banking works as financial institution but on the other hand Islamic banking is acknowledged as trade oriented business. Conventional banking earns income in the form of fix interest while Islamic banking earns in form of profit. The main purpose of emerging Islamic banking is to eliminate the interest (Riba) from all business deals. According to Islamic laws (Shariah) all financial organizations are free from the interest (Riba). Riba (interest) has also forbidden in the Holy Quran. That’s why it is banned in the surfacing Islamic banking. Sharing risk and reward are two fundamental things in Islamic banking structure. 

The major purpose to systemize the Islamic banking is the Muslim societies to organize their evolution of business and also all changes must be liberated from interest (Riba) according to Islamic laws. The investment in which division of profit (reward) and loss (risk) according to Islamic laws. Islamic banking industry is prominent due to unbiased distribution of wealth and free from interest (Riba).

1.1 Background:

Long before 12th AD all early civilizations were practicing banking in their dealings, according to economists that banking was an Italian by birth, the word bank is derived from an Italian word “Banco” mean the “able or bench” Bench refers to the Italian money changers, they used to display their money, record and conduct their transactions. They claim that the first bank name they established in Venice, Florence, Genoa.

In order to complete the purpose of the research paper, researcher will divide banking in two groups as under:

1. Islamic Banking

2. Conventional Banking

The studies that conducted to explore the financial performance of Islamic banks are partial literature as compared to conventional banks literature on this subject. Financial ratios are used to determine the banking efficiency and governance aspects are unobserved in the literature. In premature studies of Islamic banking sector, Sarkar, (1999) conducted a study to explore the operational efficiency and performance of Islamic banks. He found that Islamic banks carry on their operations within framework of conventional banking in Bangladesh. Western scholar (Volker Niehanus; 2006) argued that the Islamic banking worldwide improve way of thinking and value structure which attributes slight value to individual responsibility and performance.

In 2001, Bashir conducted a study to examine the fundamentals determinants of Islamic banks performance in the Middle East. He concluded that the Islamic banks profits are frequently generated from non-interest earning assets, short term customer funding and overheads by using regression equation method. Soon after in 2003, Bashiralso focuses on four elements of Islamic banks performance (return on equity, return on asset, profit margin and the net non-interest margin) among 1993 to 1998 diagonally Eight Middle Eastern countries. The result depicts that loan to asset and high capital to asset direct Islamic banks to have elevated profitability. He also found that foreign owned banks are most profitable.

1.2Objectives:

Following are some objectives of the research:

• To find and investigate the products of conventional bank

• To find and investigate the products of Islamic bank

• To compare the products and services of both systems.

1.3Significance:

The research is about the different aspects of banking to make people aware of two different institutions, so that people will choose any of the system according to their on will. The research will provide a new direction to future researcher.

         The study will improve, modify and broaden the facts related to the present banking system.

Chapter 02. LITERATURE REVIEW

The studies that conducted to explore the financial performance of Islamic banks are partial literature as compare to conventional banks journalism on this subject. Financial ratios are used to determine the banking efficiency and governance aspects are unobserved in the literature. In premature studies of Islamic banking sector, Sarkar, (1999) conducted a study to explore the operational efficiency and performance of Islamic banks. He found that Islamic banks carry on their operations within framework of conventional banking in Bangladesh. Western scholar (Volker Niehanus; 2006) argued that the Islamic banking worldwide improve way of thinking and value structure which attributes slight value to individual responsibility and performance.

In 2001, Bashir conducted a study to examine the services of Islamic Banks in the middle East. The study conclude that Islamic Banks are generating profits from non-interest earning assets, short term customer funding and overheads by using regression equation method. Soon after in 2003, Bashiralso focuses on four elements of Islamic banks performance (return on equity, return on asset, profit margin and the net non-interest margin) among 1993 to 1998 diagonally Eight Middle Eastern countries. The result depicts that loan to asset and high capital to asset direct Islamic banks to have elevated profitability. He also found that foreign owned banks are most profitable

Raqeeb (2009) in his study titled ‘Interest-free banking ideal for India’ concluded that the implementation of Islamic finance in India would attract funds from Gulf countries (Gulf Cooperation Council) for developmental projects. It will also help the minorities and the marginalized to participate in the economy with micro-finance based on equity. Wahidin, N. (2010), in his study titled ‘Future of Islamic banking: Things can only get better’ suggested that Islamic banking acts as a recession proof in the era of subprime crises, and it also highlights the problem of scarcity of experts in Islamic laws and system, which hinders the global growth. M Ravindran (2008) in his study ‘Islamic Banking: Scope and Spread’ discussed three feasible structures of governance namely fullfledged Islamic banks, banking through windows of conventional banks and Islamic banking subsidiaries of conventional banks. He suggested that Country like India with sizeable Muslim population offers enormous opportunities for growth in this segment.

CHAPTER NO.03 Methodology:

The nature of study is descriptive and analytical. The information drawn in study is collected from journals, reports, internet and other research projects.

Populace of the examination incorporates money related organization which is banks listed at banking company ordinance 1962. The number of inhabitants in the investigation incorporates both regular banks and Islamic banks. Banks are utilized in light of the fact that the examination is identified with make a correlation between regular banks and Islamic banks. Absolute populace contains 24 banks; out of them 19 ordinary banks and 5 Islamic banks. The example size of the present investigation contains 2 banks; out of them 1 traditional bank which are booked bank and; 1 Islamic bank.

3.1 Data Collection Sources:

    The data is collected form journals, reports, internet and other research paper  

3.2 Subjects/Participants:

        The research discussed the difference services and products offered by Islamic and conventional banks. For this purpose researcher choose MEEZAN BANKas Islamic and HBL bank as conventional bank.       

3.3 Data Processing & Analysis:

 Descriptive analyses have been performed for detailed investigation of the data collection. Descriptive analysis tells about the representation of data, moreover, it facilitates the identification of the data structure and behavior of data over time. The sample is divided in two equal groups, including conventional banks and Islamic banks groups respectively.

• Introduction of HBL Bank

Initially settled in 1941, HBL moved its tasks to Pakistan in 1947 in line with Muhammad Ali Jinnah, subsequently turning into the principal business bank to establish its framework in the nation. Setting out on a dynamic excursion, HBL kept on developing and grow in the progressive years. The Bank's first global branch opened in Colombo, Sri Lanka in 1951, while the development of the notable Habib Bank Plaza was finished in 1972, the year that likewise denoted the celebration of HBL's 25th commemoration.

With a sizeable local offer, HBL was nationalized in 1974. The Bank turned into a pioneer in the financial business, gaining the lion's offer in internal remote settlements and a significant piece of the overall industry in credits to little ventures, dealers and ranchers.

In February 2004, the Bank was privatized and the executives control was given over to AKFED. By April 2015, the Government of Pakistan stripped its whole shareholding of 41.5% through the Privatization Commission of Pakistan, making HBL Pakistan's biggest private Bank.

HBL has not recently been a pioneer in the financial business, however has likewise been a stage that has empowered dreams for many individuals. It has on numerous occasions, demonstrated to be an impetus for change by activities that have raised Pakistan's picture and notoriety. From bringing back worldwide cricket to Pakistan through HBLPSL, to reinforcing the economy of the nation through memorable activities, for example, the Ehsaas Emergency Cash Program, HBL keeps on advancing lives.

• Introduction of Meezan Islamic Bank:

The initiation of Pakistan as the main Islamic Republic made for the sake of Islam. Methodology embraced by banks in 1985 was pronounced un-Islamic by the Federal Shariat Court (FSC). The Government and a few banks/DFIs made interests to the Shariat Appellate Bench (SAB) of the Supreme Court of Pakistan. Al-Meezan Bank is start up with a command to seek after Islamic Banking. Mr. Irfan Siddiqui named as first and establishing Chief Executive Officer. The Shariat Appellate Bench of the Supreme Court of Pakistan rejects the interests and guides all laws on enthusiasm keeping money to stop. The administration sets up an abnormal state commission, teams and boards of trustees to initiate and advance Islamic putting money on parallel premise with traditional framework. The Shariah Supervisory Board is set up at Al-Meezan investment Bank driven by Justice (R) Muhammad TaqiUsmani as executive. State Bank of Pakistan sets criteria for foundation of Islamic business banks in private segment and auxiliaries and remains solitary branches by existing business banks to direct Islamic keeping money in the country. Al-Meezan investment Bank secures the Pakistan activities of SocietyGeneral and simultaneously Al Meezan investment Bank changes over itself into an undeniable Islamic business bank. The main Islamic bankinglicense is issued to the Bank and it is renamed Meezan Bank. President General Pervez Musharraf introduces the new Islamic Commercial Bank at a formal service in Karachi. Al-Meezan Bank sets up itself as the pioneer of Islamic Banking in Pakistan and rapidly establishes branches in every city of the Pakistan. A wide scope of items are created and propelled combining the Bank's situation as the head Islamic Bank of the Pakistan Al Meezan Investment Management Limited (AMIM), the advantage the executives arm of MeezanBank, presents Meezan Islamic Fund (MIF), the nation's first open-end Islamic Mutual Fund.The State Bank sets up a devoted Islamic Banking Department (IBD) by consolidating the Islamic Economics Division of the Research Department with the Islamic Banking Division of the Banking Policy Department. A Shariah Board has been selected to direct and support rules for the developing Islamic Banking industry. The Government of Pakistan grants the order for introduction of worldwide Sukuk (Bond) offering for 550$ million. The offering is a triumph and builds up a benchmark for Pakistan. Al-Meezan Bank goes about as the Shariah Structuring Advisor for this noteworthy transaction. Al-Meezan Bank turns into the principal client of Islamic Insurance (Takaful) by marking the main MOU with Pak-Kuwait Takaful Company Limited (PKTCL). The marking of this Memorandum of understanding has introduced into another period of Islamic Insurance (Takaful).A number of new devoted Islamic Banks, specifically Bank Islami and Dubai Islamic Bank, initiate activities in Pakistan.Meezan proceeds with its administration position in the business by dramatically increasing its branch system to a sum of 70 branches in 24 urban communities, plainly setting up itself as the biggest Islamic Bank of the nation. Al-Meezan Bank, turns into the primary Islamic bank to acquaint 8 am with 8 pm keeping money at chose branches in Karachi. Al-Meezan Bank's office arrange achieved the achievement number of 600 plus branches in 159 cities across the Pakistan. Vehicle Ijarah portfolio achieved Rs. 5.2 billion and the Easy Home portfolio remained at Rs. 4.1 billion. The Bank presented Istisna' financing to take into account the working capital needs of clients. Al-Meezan Bank was granted 'Best Islamic Bank in Pakistan' by Islamic Finance News of REDmoneyGroup, Malaysia.Deposit base of the Bank developed to over Rs. 56 billion and the Bank earned benefit after duty of Rs. 974 million. Exchange Finance business achieved Rs. 76 billion. Al-Meezan Bank acquainted Tijarahfinancing with enable clients to raise assets for financing of loads of completed products. Al-Meezan Bank was granted 'Best Islamic Bank in Pakistan' by Islamic Finance News of REDmoneyGroup, Malaysia and 'Best Islamic Financial Institution in Pakistan' by Global Finance Magazine, New York.

• Products and services offered by the HBL Bank

Deposit

In deposit category HBL provide three types of deposit products to their customer 

Current account, saving account, term deposit, following are some type of products that HBL offer to their customer 

• Current account

• HBL Freedom Account

• HBL Conventional current account

• HBL Basic Banking account

• HBL AAsan Account

• HBL Forgein Currency current account

• HBL Hum Watan- Local customer

• HBL Pensioner Account

• Saving account

• HBL Value account

• HBL PLS Saving account

• HBL Daily Progressive account

• HBL Daily Munafa Account

• HBL Money Club

• HBL Rutba

• HBL Foreign currency Saving Account

• Term deposits account

• HBL Advantage Account

• HBL Advantage Plus

• HBL High Yield Foreign Fixed Deposit

• HBL Notice Deposit

• HBL Investment Plus Deposit

Loan Products offer by HBL

• HBL Car Loan

• HBL Home Loan

• HBL Personal Loan

• HBL Personal Loan

• HBL Salary Plus

Online services offered by HBL

• Call Center

• ATM

• Mobile banking

• Online banking

• Bill Payments

Cards offered by HBL

• HBL Platinum Credit Card

• HBL Gold& Green Credit Card

• HBL FuelSaver Credit Card

• HBL World Debit Card

• HBL Gold Debit Card

• HBL Debit Card

• HBL Paypak Debit Card

Virtual banking offered by HBL

    HBL offer virtual banking facility to their customer to access fund online at home office or any where they can check account balance, fund transfer, pay utility bill or mobile load etc.

• Payment of utility bills

• Detail account summary

• Mini- account statement

• Fund transfer

• Balance enquiry

• Bulk salary transfer for cooperate clients

• Cheque book request

• Products and services offered by Meezan Islamic Bank

Loan Products offered by Meezan bank

• Islamic Agricultural Financing:

Al-Meezan Bank is considered as a trend setter in Islamic Banking in Pakistan mainly on account of offering wide range of Shariah-Compliant banking solutions to cater different needs of its customers. Following its track record, Meezan Bank is now offering Islamic Agricultural Financing Products to farmers.

• PMYBL SCHEME:

Under this scheme, financing will be available to the youth of Pakistan under the four major categories,along with the eligibility criteria:

• Small Entrepreneur:

Unemployed youth, especially educated ones who are looking for establishing or extending Shariahcompliant business in their personal capacity through establishment of enterprise.

• Micro Enterprise:

Individuals who have successfully completed 3-4 cycles with Akhuwat and want to graduate from theircurrent business size.

• Agriculture (Tractor Ijarah):

Young farmers who require Tractor financing.

• Car Ijarah:

Meezan bank also offer car laon facility to their customer.

Type of Accounts:

Meezan Bank offers the biggest scope of without riba Deposit Accounts for Personal Banking

Local Currency Accounts:

• Rupee Current Account 

• Rupee Savings Account 

• MeezanBachat Account 

• Labbaik Saving Aasaan

• Business Plus Account 

• Meezan Kids Club Account 

• Meezan Teens Account 

• MeezanAsaan Current Account 

• MeezanAsaan Savings Account 

2. Foreign Currency Accounts:

• Dollar Current Account

• Dollar Saving Account

• Euro Current Account

• Euro Saving Account

• Pound Current Account

• Pound Saving Account

Difference in products and services of selected conventional and Islamic bank

Nature of difference	Conventional banking	Islamic banking
Deposit	Conventional bank received deposit from people on the basis of laon and for all type of deposit account, term deposit, and some return is paid on them and on current account some free banking services are provide to customer on return of their deposit in current account, They invest in non sharih business and earns return on non sharih activities	Islamic bank accept deposit based on the following. Qard: under this cetagory current account are offered where all risk bear by bank and no added services are provided to customer but only those which are provided across network of the bank  Mudarabah:this is type of partnership in which fund are invested in business on the profit sharing between bank and customer as per agreed ratio and loss is share on the base of investment ratio
Loan	Conventional bank offer loan facility to customer for fulfill cash requirement of customer. Bank charge interest on that and make late payment plenty if payment is late after due date this will increase income of bank and there is no risk on assets	On the base of following Islamic bank offer loan facility to their customer  Risk of assets take by bank, income is earn through sale or rent of assets, loses and profit sharing ratio between customer and bank, if the payment is late by customer there is no plenty  charges imposed on customer but bank are allowed to collect predetermine amount of charges for charity fund and bank not include that amount in the income of bank
Trade Finance	Conventional bank offer trade finance operation under the category of lending, service, and guarantee, and bank earn income through guarantee payments, interest on loan, commission, additional charges on late payments	Islamic bank also offer its service for trade finance under the category of lending services and guarantee  Following are some characteristic’s of trade finance of Islamic bank Charge commission under the guidelines of sharish Income on documentation and payments, Share profit and loss Income on the sale of asset or rent In case of late payment bank are authorized to charge extra amount for charity fund and that income not include in the profit of bank

Policies and procedures of selected conventional bank

The conventional banks are work under the regulation define by the state bank, and make their policy and procedure under the define guidelines and regulation of state bank. And state bank work as regulator for both conventional and Islamic banks. The conventional banking system work on manmade principle. And it is based on percentage of interest which they offer to their depositor and received from borrower and the relationship between bank and customer are creditor and debtor, lending money and getting back with interest or vice versa. Delay in payments maybe plenty as fixed charges and add as additional income of the bank. Conventional banks will invest customer money to give other to get more interest. Conventional bank does not deal with Zakat, conventional banks has guarantee on all its deposit,the conventional banks are work under the regulation define by the state bank, and make their policy and procedure under the define guidelines and regulation of state bank, 

Policies and procedures of selected Islamic bank

Islamic bank also work under the regulation of state bank and Shariah board and make policy and procedure under the define guidelines and regulation of state bank and Islamic Shariah board and state bank work as regulator for Islamic bank, the principle of Islamic banks works on Islamic Shariah Quran and Ahdis, and Islamic banking based on risk sharing investments. The relationship of Islamic bank and customer named as investor, traders, partner, seller and buyer, based on profit and loss sharing, delay in payments charges some plenty fees and used for charity not for bank income. Islamic bank will invest customer money in trading property, stock investment; Allah has permitted trade and forbidden interest(Riba) 

Difference in polices and procedures of selected conventional and Islamic banks

Banks are major institution in any country as they expressively contribute to the growth of any economy through acceleration of business. Banks also facilitate the development of saving plans and are instruments of the government’s monetary strategy among others.Islamic banking system has been explained as banking in harmony among components with the value and philosophy structure of Islam, as well the rules of management and law of risk is set by Islamic Sharia. One thing which differentiates Islamic bank and conventional bank is interest (Riba). Islamic banking system is against the interest base system because it is banned in the Sharia of Islam. The system of Islamic banking is also avoiding the immoral practices to achieve the aims of an economy. Islamic Sharia does not make illegal capital gains. Banking system of Islam is based on sharing of risk, and to observe management asset to generate the profit Islamic financing system is established under the concept of “interest free” and equal distribution of wealth. So the system of conventional finance (charging interest) is not suitable for Muslims because interest is prohibited in Islamic.

.  “O those who believe do not eat up riba doubled and redoubled” (Surah Al-i-Imran 3:130)

Major Key point of different between Islamic and conventional bank 

HBL Bank	Al-Meezan Islamic bank
The policy and procedure of HBL bank are manmade	The policy and procedure of Meezan Islamic bank based on Islamic shariah
Investor are assured about the investment in the bank	Meezan bank working on the base of profit and loss sharing ratio
Its objective to make maximum profit with out any limitation	Its objective to make maximum profit under the restriction of Islamic sharriah
It deal did not deal with Zakat	It deal with Zakat and in modern Islamic bank it offer its services for collection of Zakat
It main business to collect money on low interest rate and give to other for high interest rate and make income from difference of that	Take part in partnership business is the main aim of the Islamic bank
It charge extra fee or interest in case of late payment or defaulters	It did not charge any extra fee on late payment, only few charges may impose and deposit in charity fund and did not include in bank income
Bank own interest becoming prominent. It does not make any effort for growth of equity.	It takes importance of people benefits. And its aims to ensure growth with equity
It income from project is fixed and it give some importance for developing project evolutions.	Islamic banks pay greater attention for development of project as it share profit and loss equally
It give greater emphasis on created worthiness of the clients	On the other hand Islamic bank greater emphasis on project availability
Its relationship between bank and customer is creditor , debtor, lender and borrower,	Its relationship between bank and customer is investor, traders, partner, seller and buyers,
Its guarantee on all its deposits	Islamic bank only guarantee deposit which is based on principle of Al-wadiah, but if account is based on Mudarabah concept customer have to share profit and loss
Investor is assured about the predetermine rate of return	Investment is made on the base of profit and loss sharing

Chapter No.5 CONCLUSION, RECOMMENDATIONS & LIMITAIONS

5.1) Conclusion 

Is Islamic banking have difference between Islamic bank and conventional banking, Is the real difference between two or same thing with the two different label. What is you say, if you say Islamic banking and conventional banking are same, your are not alone, in fact 1400 year ago, a similar statement is made quoting the Holy Quran “ that is because they say trade is but like riba (USURY)

However, the verse goes on to clarify this misconception by stating that 

“But Allah has permitted trading and forbidden Riba”

Trading is the most significant different between Islamic and conventional banking,

While the central roll of Islamic banking to operate borrow and lender and the role of Islamic bank is to operate trades. Therefor income of Islamic bank resulting from the trading activites unlike conventional bankis, such trading activities include, sale of commodities, leasing of assets, providing services, and investing into business through vary relationship.  The relationship found with customer bring out an other key area where are difference is seen in Islamic and conventional banks. Conventional banks only revolve in single type of structure and relationship is lender and borrower, however Islamic banking revolve multitude of trading structure and relationship some of which are followings:

• In sale based structure which called Murabaha and the relationship between bank and customer is buyer and sellers where earning of any comes on profit on sale.

• In rental based structure which is called Ijrah, the relationship between bank and customer is lessor and lessee, where earning if any come in form of rent.

• In participation based structure which are called MusharakanadMudaraba they relationship as partnership, where earning if any come is called profit sharing.

• In an agency based structure called Wakala, the relationship is as principle and agent, where if earing any come form fees.

According keys points to remember is that to understand the true accents of Islamic banking products and services and how it is differ form conventional banking it is essential to understand the structure and relation on which the products and services is based when structure are involved recognized and identified the different between Islamic banking and conventional banking become clear and evident.

Now lets summarized don’t make the mistake made by people make 1400 year ago

1. Trading is different form interest (Riba)

2. Islamic bank based on trading and conventional bank based on interest (Riba)

3. Islamic banks are come in form of trading activities which are form profit on sale, rent, profit sharing and fees

4. Understanding the structure and relationship on which Islamic bank products are based in order to realized its true difference, as buyer and seller, lessor and lessee, partnership, principle and agent

And one more the Islamic banks not only regulate by central bank but also regulate by independent shariah board and own advisory council and in house shariah supervisory department strengthen the bank governance and social conjunction  

5.2) Recommendations:

1. The researcher to enhance development of Islamic banks in a Islamic county and its is the duty of the central bank to change financial laws

2. Their should be seminars and awareness camping’s for the development of Islamic banks

3. More studies and research should be conducted to develop Islamic banking system so that it will serve the people in best possible ways.

4. Conventional banks should change their systems since in Islamic financial system they earn both profit and security in their wealth invested and stability in the country.

5.3) Limitations:

This research is related to specific person and cannot be applicable on general level. This research is only for virtual university not for all universities and banking fields. It is a descriptive study regarding two different banking institutions. Researcher is only concerned with the limited products and services that are being discussed in the paper. Researcher is not concerned with rest of the elements or principles regarding bank.

Reference:

1. Abdul GhafoorAwan (2009) “comparison of Islamic and conventional banking in pakistan.

2. A.L.M Abdul Ghafoor (1995) “interest free commercial banking”

3. Abdul kaderChachi (2005) “Origin and development of commercial and Islamic banking operations”

4. Dr. Natalie Schoon. Intoduction to Islamic banking and finance

5. Dr. Muhammad Loqman (2002) Islamic banking for economic developments 

6. Rules of business in islam, paper 2008

7. Muhammad Hanif 2011 Difference and similarities in Islamic and conventional banking

8. Athanasoglou, P, Brissimis, S & Delis, M.D. (2005), “Bank-specific, industry specific and macroeconomic determinants of bank profitability”, MPRA Paper No. 153

9. Sarker, Md.  & Abdul Awwal (1999):  “Islamic banking in Bangladesh: performance, problems and prospects.”  International Journal of Islamic Financial Services 1/ No.3 15-36.

10. Villalonga, B. and Amit, R.H. (2006): “How Do Family Ownership, Control and Management Affect Firm Value?” Journal of Financial Economics.80, 385-417

11. Bashir, Abdel-Hameed (2001) “Assessing the Performance of Islamic Banks: Some Evidence from the Middle East.”  American Economic Association Annual Meeting, New Orleans, Louisiana 

12. Bashir, Abdel-Hameed (2003) "Determinants of Profitability in Islamic banks: Some Evidence from the Middle East." Islamic Economic Studies 11, No. 131:-57