Current Account
| Islamic Banking | Conventional Banking |
| Islamic Current Account is Qard based and funds are invested in Shari’ah compliant avenues. | Conventional banking current account is also based on loan, wherein customer’s deposited funds are used in lending and interest earning businesses. |
Saving Account & Term Deposit Account
| Islamic Banking | Conventional Banking |
| Savings Account and Term Deposit in Islamic banks are based on the concept of Mudarabah and Islamic banks pay out actually earned profits on Shari’ah compliant transactions. Mudarabah is a partnership of services and capital between two parties. In Islamic banks, banks render their services and expertise against a capital (deposit) of a customer. It is a partnership where the returns are shared between the bank and client as per the agreed profit sharing ratio and weightages whereas, the loss is borne by the investor as per their respective investment ratio. | Savings Account and Term Deposit in Conventional banks are based on loan or Qard basis. Conventional banks pay interest earned on loans to its depositors as returns. |
Financing Products
| Islamic Banking | Conventional Banking |
| Islamic banks primarily work upon different modes of finance such as Murabaha, Salam and Diminishing Musharakah etc, Murabaha: It is a sale and purchase contract between the two parties with disclosing of profit. In this case the bank (as seller) discloses the cost and profit to the customer (the buyer). Salam: It is a sale and purchase contract of homogeneous goods between the two parties where 100% payment is made in advance and goods delivery is set on a future date. Diminishing Musharakah: It is a form of joint ownership in asset or property in which any of the joint owners undertakes and promises to buy the ownership share of the other joint owner(s) gradually until the ownership of the joint asset or property is completely transferred to the purchasing joint owner. | Conventional banks only have one mode of financing for its customers and that is a ‘Loan’. Be it an individual customer, a business partnership or a corporate client. They can avail an array of products with an underlying mode of debt from a conventional bank. However, conventional banks have designed several products such as credit cards, running finance, car and house loans and long-term loan facility for different customer segments but all of them simplify as a loan advanced by a bank to its customer. For instance, a credit card is also a debt instrument, a car lease finance translates into an accrued loan for any customer. Likewise, a registered partnership or a corporate customer avails both short-term and long-term financing facilities. All of them are essentially outstanding loans to a company and they pay interest or mark-up to the bank on quarterly or annual basis. For example, if a customer avails a house or car finance from a bank and due to some reason car or house gets damaged or is destroyed, the bank would then ask the customer to keep paying monthly installments despite the asset loss till insurance settlement comes in or else the customer would be reported as a defaulter in case of non-payment of the same and their e-CIB shall be adversely affected. |
