COMPARISON BETWEEN ISLAMIC BANKING & CONVENTIONAL BANKING PRODUCTS.

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ISLAMIC BANKING

INTRODUCTION:
Islamic banking has been defined as banking in consonance with the ethos and value system of Islam and governed, in addition to the conventional good governance and risk management rules, by the principles laid down by Islamic. Interest free banking is a narrow concept denoting a number of banking instruments or operations, which avoid interest. Islamic banking, the more general term is expected not only to avoid interest-based transactions, prohibited in the Islamic Shariah, but also to avoid unethical practices and participate actively in achieving the goals and objectives of an Islamic economy. Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics. Sharia prohibits the payment or acceptance of interest fees for the lending and accepting of money respectively, (Riba, usury) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam, forbidden). While these principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to apply these principles to private or semi-private commercial institutions within the Muslim community.

PHILOSOPHY OF ISLAMIC BANKING:

Basically the philosophy of Islamic Shariah & Islamic banking is to prohibit interest but it does not prohibit us from gains on capital. It is only the increase stipulated or sought over the principal of a loan or debt that is prohibited. Islamic principles simply require that performance of capital should also be considered while rewarding the capital. The prohibition of a risk free return and permission of trading, as enshrined in the Verse 2:275 of the Holy Quran, makes the financial activities in an Islamic setup real asset-backed with ability to cause value addition.

Islamic banking system is based on risk-sharing, owning and handling of physical goods, involvement in the process of trading, leasing and construction contracts using various Islamic modes of finance. As such, Islamic banks deal with asset management for the purpose of income generation. They will have to prudently handle the unique risks involved in management of assets by adherence to best practices of corporate governance. Once the banks have stable stream of Halal income, depositors will also receive stable and Halal income. The forms of businesses allowed by Islam at the time the Holy Quran was revealed included joint ventures based on sharing of risks & profits and provision of services through trading, both cash and credit, and leasing activities. In the Verse II:275, Allah the Almighty did not deny the apparent similarity between trade profit in credit sale and Riba in loaning, but resolutely informed that Allah has permitted trade and prohibited Riba. Profit has been recognized as reward for (use of) capital and Islam permits gainful deployment of surplus resources for enhancement of their value. However, along with the entitlement of profit, the liability of risk of loss on capital rests with the capital itself; no other factor can be made to bear the burden of the risk of loss. Financial transactions, in order to be permissible, should be associated with goods, services or benefits. At macro level, this feature of Islamic finance can be helpful in creating better discipline in conduct of fiscal and monetary policies. Besides trading, Islam allows leasing of assets and getting rentals against the usufruct taken by the lessee. All such things/assets corpus of which is not consumed with their use can be leased out against fixed rentals. The ownership in leased assets remains with the lessor who assumes risks and gets rewards of his ownership.

HISTORY OF ISLAMIC BANKING:

In early golden Islamic age, forms of proto-capitalism and free markets were present in the Caliphate, where an early market economy and an early form of mercantilism were developed between the 8th-12th centuries, which some refer to as "Islamic capitalism". A vigorous monetary economy was created on the basis of the expanding levels of circulation of a stable high-value currency (the dinar) and the integration of monetary areas that were previously independent.

During this age, number of innovative concepts and techniques were introduced in early Islamic banking which are still existing in this modern Islamic banking world, including bills of exchange, the first forms of partnership (mufawada) such as limited partnerships (mudaraba), and the earliest forms of capital (al-mal), capital accumulation (nama al-mal), cheques, promissory notes, trusts (see Waqf), startup companies, , transactional accounts, loaning, ledgers and assignments. Organizational enterprises similar to corporations independent from the state also existed in the medieval Islamic world, while the agency institution was also introduced during that time. Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards.

HISTORICAL DEVELOPMENT:
Moreover, the development in the history of Islamic banking started when a system of interest free banking is launched. History of interest free banking is divided into two parts, first I took it as an idea and secondly after implementing when it becomes reality.

Interest-free banking as an idea

Interest-free banking seems to be of very recent origin. The earliest references to the reorganization of banking on the basis of profit sharing rather than interest are found in Anwar Qureshi (1946), Naiem Siddiqi (1948) and Mahmud Ahmad (1952) in the late forties, followed by a more elaborate exposition by Mawdudi in 1950 (1961).Muhammad Hamidullahs 1944, 1955, 1957 and 1962 writings too should be included in this category. They have all recognised the need for commercial banks and the evil of interest in that enterprise, and have proposed a banking system based on the concept ofMudarabha - profit and loss sharing.

The coming into being of interest-free banks

The first private interest-free bank, the Dubai Islamic Bank, was also set up in 1975 by a group of Muslim businessmen from several countries. Two more private banks were founded in 1977 under the name of Faisal Islamic Bank in Egypt and the Sudan. In the same year the Kuwaiti government set up the Kuwait Finance House. However, small scale limited scope interest-free banks have been tried before. One in Malaysia in the mid-forties and another in Pakistan in the late-fifties. Neither survived. In 1962 the Malaysian government set up the Pilgrims Management Fund to help prospective pilgrims to save and profit. The savings bank established in

1963 at Mit-Ghamr in Egypt was very popular and prospered initially and then closed down for various reasons. However this experiment led to the creation of the Nasser Social Bank in 1972. Though the bank is still active, its objectives are more social than commercial. In the ten years since the establishment of the first private commercial bank in Dubai, more than 50 interest-free banks have come into being. Though nearly all of them are in Muslim countries, there are some in Western Europe as well: in Denmark, Luxembourg , Switzerland and the UK. Many banks were established in 1983 (11) and 1984 (13). The numbers have declined considerably in the following years. In most countries the establishment of interest-free banking had been by private initiative and were confined to that bank. In Iran and Pakistan, however, it was by government initiative and covered all banks in the country. The governments in both these countries took steps in 1981 to introduce interest-free banking. In Pakistan, effective 1 January 1981 all domestic commercial banks were permitted to accept deposits on the basis of profit-and-loss sharing (PLS). New steps were introduced on 1 January 1985 to formally transform the banking system over the next six months to one based on no interest. From 1 July 1985 no banks could accept any interest bearing deposits, and all existing deposits became subject to PLS rules. Yet some operations were still allowed to continue on the old basis. In Iran, certain administrative steps were taken in February 1981 to eliminate interest from banking operations. Interest on all assets was replaced by a 4 percent maximum service charge and by a 4 to 8 percent profit rate depending on the type of economic activity. Interest on deposits was also converted into a guaranteed minimum profit. In August 1983 the Usury-free Banking Law was introduced and a fourteen-month change over period began in January 1984. The whole system was converted to an interest-free one in March 1985.

ISLAMIC BANKING IN PAKISTAN:

Islamization of banks and financial institution of Pakistan were started in 1977-78. Pakistan was among the three countries in the world that had been trying to implement interest free banking at Comprehensive. But as it was a mammoth task, the switchover plan was implemented in phases. The Islamization measures included the elimination of interest from the operations of specialized financial institutions including HBFC, ICP and NIT in July 1979 and that of the commercial banks during January 1981 to June 1985. The legal framework of Pakistan's financial and corporate

system was amended on June 26, 1980 to permit issuance of a new interest-free instrument of corporate financing named Participation Term Certificate (PTC). An Ordinance was promulgated to allow the establishment of Mudaraba companies and floatation of Mudaraba certificates for raising risk based capital. Amendments were also made in the Banking Companies Ordinance, 1962 (The BCO, 1962) and related laws to include provision of bank finance through PLS, mark-up in prices, leasing and hire purchase.

ACCOUNTING AND AUDITING ORGANIZATIONS FOR FINANCIAL INSTITUTIONS:

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is an Islamic international autonomous non-for-profit corporate body that prepares accounting, auditing, governance, ethics and Shari'a standards for Islamic financial institutions and the industry. Professional qualification programs (notably CIPA, the Sharia Adviser and Auditor "CSAA", and the corporate compliance program) are presented now by AAOIFI in its efforts to enhance the industrys human resources base and governance structures. AAOIFI was established in accordance with the Agreement of Association which was signed by Islamic financial institutions on 1 Safar, 1410H corresponding to 26 February, 1990 in Algiers. Then, it was registered on 11 Ramadan 1411 corresponding to 27 March, 1991 in the State of Bahrain. The objectives of AAOIFI are: 1. to develop accounting and auditing thoughts relevant to Islamic financial institutions; 2. to disseminate accounting and auditing thoughts relevant to Islamic financial institutions and its applications through training, seminars, publication of periodical newsletters, carrying out and commissioning of research and other means; 3. to prepare, promulgate and interpret accounting and auditing standards for Islamic financial institutions; and 4. to review and amend accounting and auditing standards for Islamic financial institutions.

AAOIFI carries out these objectives in accordance with the precepts of Islamic Sharia which represents a comprehensive system for all aspects of life, in conformity with the environment in which Islamic financial institutions have developed. This activity is intended both to enhance the confidence of users of the financial statements of Islamic financial institutions in the information that is produced about these institutions, and to encourage these users to invest or deposit their funds in Islamic financial institutions and to use their services.

The Islamic Financial Services Board (IFSB):

The Islamic Financial Services Board (IFSB), which is based in Kuala Lumpur, was

officially inaugurated on 3rd November 2002 and started operations on 10th March 2003. It serves as an international standard-setting body of regulatory and supervisory agencies that have vested interest in ensuring the soundness and stability of the Islamic financial services industry, which is defined broadly to include banking, capital market and insurance. In advancing this mission, the IFSB promotes the development of a prudent and transparent Islamic financial services industry through introducing new, or adapting existing international standards consistent with Shari'ah principles, and recommend them for adoption. the IFSB has issued seven Standards, Guiding Principles and Technical Note for the Islamic financial services industry. The published documents are on the areas of: 1. 2. 3. 4. 5. 6. 7. Risk Management Capital Adequacy Corporate Governance Supervisory Review Process Transparency and Market Discipline Recognition of Ratings on Shar`ah-Compliant Financial Instruments Development of Islamic Money Markets

The IFSB is also working on five new standards and guidelines. They are:

8. Special Issues in Capital Adequacy 9. Governance for Collective Investment Schemes 10. Corporate Governance in Takaful Operations 11. Shariah Governance 12. Market conduct.

Major modes of Islamic banking:

Following are the main modes of Islamic banking and finance:

MURABAHA
Literally it means a sale on mutually agreed profit. Technically, it is a contract of sale in which the seller declares his cost and profit. Islamic banks have adopted this as a mode of financing. As a financing technique, it involves a request by the client to the bank to purchase certain goods for him. The bank does that for a definite profit over the cost, which is stipulated in advance.

IJARAH
Ijarah is a contract of a known and proposed usufruct against a specified and lawful return or consideration for the service or return for the benefit proposed to be taken, or for the effort or work proposed to be expended. In other words, Ijarah or leasing is the transfer of usufruct for a consideration which is rent in case of hiring of assets or things and wage in case of hiring of persons.

IJARAH-WAL-IQTINA A contract under which an Islamic bank provides equipment, building or other assets to the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the lease period, the ownership in the asset would be transferred to the lessee. The undertaking or the promise does not become an integral part of the lease contract to make it conditional. The rentals as well as the purchase price are fixed in such manner that the bank gets back its principal sum alongwith with profit over the period of lease. MUSAWAMAH Musawamah is a general and regular kind of sale in which price of the commodity to be traded is bargained between seller and the buyer without any reference to the price paid or cost incurred by the former. Thus, it is different from Murabaha in respect of pricing formula. Unlike Murabaha, seller in Musawamah is not obliged to reveal his cost. Both the parties negotiate on the price. All other conditions relevant to Murabaha are valid for Musawamah as well. Musawamah can be used where the seller is not in a position to ascertain precisely the costs of commodities that he is offering to sell.

ISTISNAA It is a contractual agreement for manufacturing goods and commodities, allowing cash payment in advance and future delivery or a future payment and future delivery. Istisnaa can be used for providing the facility of financing the manufacture or construction of houses, plants, projects and building of bridges, roads and highways. BAI MUAJJAL Literally it means a credit sale. Technically, it is a financing technique adopted by Islamic banks that takes the form of Murabaha Muajjal. It is a contract in which the bank earns a profit margin on his purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. It has to expressly mention cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price. MUDARABAH A form of partnership where one party provides the funds while the other provides expertise and management. The latter is referred to as the Mudarib. Any profits accrued are shared between the two parties on a pre-agreed basis, while loss is borne only by the provider of the capital. MUSHARAKAH Musharakah means a relationship established under a contract by the mutual consent of the parties for sharing of profits and losses in the joint business. It is an agreement under which the Islamic bank provides funds, which are mixed with the funds of the business enterprise and others. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner strictly in proportion to respective capital contributions. BAI SALAM Salam means a contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. The objects of this sale are goods and cannot be gold, silver or currencies. Barring this, Bai Salam covers almost everything, which is capable of being definitely described as to quantity, quality and workmanship.

HISTORY:
Meezan Bank Limited is a publicly listed company, first incorporated on January 27, 1997. It started operations as an Islamic investment bank in August of the same year. In January, 2002, in an historic initiative, Meezan Bank was granted the Nations first full-fledged commercial banking license dedicated to Islamic Banking, by the State Bank of Pakistan.
Meezan Bank, stands today at a noteworthy point along the evolution of Islamic Banking in

Pakistan. The banking sector is showing a significant paradigm shift away from traditional means of business, and is catering to an increasingly astute and demanding financial consumer who is also becoming keenly aware of Islamic Banking. Meezan Bank bears the critical responsibility of leading the way forward in establishing a stable and dynamic Islamic Banking system replete with dynamic and cutting-edge products and services. The Banks main shareholders are leading local and international financial institutions, including "Pak Kuwait Investment Company", the only AAA rated financial entity in the country, the Islamic Development Bank of Jeddah, and the renown Shamil Bank of Bahrain. The established position, reputation, strength and stability, of these institutions add significant value to the Bank through Board representation and applied synergies.

Vision:
Establish Islamic banking as banking of first choice to facilitate the implementation of an equitable economic system, providing a strong foundation for establishing a fair and just society for mankind.

Mission:
To be a premier Islamic bank, offering a one-stop shop for innovative value added products and services to our customers within the bounds of Shariah, while optimizing the stakeholders value through an organizational culture based on learning, fairness, respect for individual enterprise and performance.

Services:
Bank is providing the following services all over the country and working as a full fledged Islamic banking in a country.

Personal Banking and Finance Corporate Finance Commercial Finance Syndicated & Structured finance Project Financing Financial Advisory Services Treasury Car Ijarah - Car Financing Easy Home - Home Financing Asset Management.

MEEZAN BANK Car Ijarah, Pakistans First Islamic Car Financing

As a step towards Meezan Banks mission to provide a one-stop shop for innovative value added Shariah compliant products, Meezan Banks Car Ijarah unit provides a car financing, based on the principles of Ijarah and is free of the element of interest.

"Car Ijarah"
Car Ijarah is Pakistans first "Interest Free" car financing based on the Islamic financing mode of Ijarah (Islamic leasing). This product is ideal for individuals looking for car financing while avoiding an interest-based transaction. Meezan Banks Car Ijarah is a car rental agreement, under which the Bank

purchases the car and rents it out to the customer for a period of 3 to 5 years, agreed at the time of the contract. Upon completion of the lease period the customer gets ownership of the car against his initial security deposit. Meezan Banks Car Ijarah is a car rental agreement, under which the Bank purchases the car and rents it out to the customer for a period of 3 to 5 years, agreed at the time of the contract. Upon completion of the lease period the customer gets ownership of the car against his initial security deposit. Car Ijarah is unique and is approved by Meezan Banks Shariah Board Car Ijarah, designed under the supervision of Meezan Banks Shariah Supervisory Board, is unique to car leasing facilities provided by other banks. Rights & liabilities of Owner v/s User

An Islamic Ijarah is an asset-based contract, i.e. the Lessor should have ownership of the asset during the period of the contract. Under Islamic Shariah, all ownership related rights and liabilities should lie with the owner while all usage-related rights and liabilities should lie with the user. A conventional lease contract does not distinguish between the nature of these liabilities and places all liabilities on the user of the asset, contradictory to Islamic Shariah. Under Ijarah, all ownership-related risks lie with the Bank while all usage related risks lie with the user, thus making the Lessor the true owner of the asset and making the income generated through the contract permissible (Halal) for the Bank.

Continuation of lease rentals in case of total loss or theft of vehicle If the leased vehicle is stolen or completely destroyed, the conventional leasing company continues charging the lease rent till the settlement of the Insurance claim. Under the Islamic system, rent is consideration for usage of the leased asset, and if the asset has been stolen or destroyed, the concept of rental becomes void. As such, in the above-mentioned eventualities, Meezan bank does not charge the lease rental. Permissibility for Penalty of Late Payment of Rent under Islamic Shariah In most contemporary financial leases, an extra monetary amount is charged, in their income, if the rent is not paid on time. This extra amount is the considered as Riba and is Haram. Under Ijarah, the Lessee may be asked to undertake, that if he fails to pay rent on its due date, he will pay certain amount to a charity, which will be administered through the Islamic Bank. For this purpose the bank maintains a charity fund where such amounts may be credited and disbursed for charitable purposes.

Key Features of Car Ijarah 1. Ease of acquiring any new locally assembled car 2. No upfront Insurance Payment 3. No advance Rental 4. Available in tenures of 3, 4 and 5 years 5. Minimum security deposit as low as 15% Car Ijarah also features Used Vehicles In addition to our leasing of new cars, Meezan Bank also provides the unique opportunity of leasing second hand, locally assembled, vehicles as well. This feature is specifically designed as a highly economical option. The Used Car Ijarah facility is made available at a minimum-security deposit as low as 20%. Used Car Selection Criteria The second hand car selected should be from its first owner. The vehicle should not be older than 5 years. The minimum security deposit for a vehicle up to 2 years of age is 20%, while minimum security deposit for a vehicle over 2 years of age is 30%.
At the time of termination of the Ijarah agreement, the vehicle should not be more than 8 years old. This means that if a car is 5 years old, the Car Ijarah tenure is not more than 3 years and if its 4 years old, the tenure may be set for a maximum 4 year term. This facility is for locally manufactured cars of Suzuki, Toyota, Honda & the new model of Santro only.Second hand vehicles selected should not be worth more than Rs. 1 million and less than Rs. 250,000/-. Meezan Bank will have the vehicle valued by an independent valuation company accordingly. Documentation: Individuals/Self-Employed Professionals/Businessmen 1 2 3 4 5 Copy of NIC Two recent passport sized photographs Recent Utility Bill (Electric/Gas/Water) received at the residential address Last Six Month Bank Statement Last Six Month Bank Statement of Business (for Businessmen)

6 Certified/Original copy of Recent Pay slip (for Salaried Individuals) 7 Copy of Rent Agreement (if applicable) The details and the monthly payment for car ijarah financing scheme are given below:

Calculations:
New Car Payment Details Car Description: Cost Price: Tenure: Honda CITY I-VTEC CVT 1.3 L (Vario) Rs. 1,329,000.00/5 Years Initial Payment Security Deposit: Processing Fee: Total: Rs. 332,250.00/- (25%) Rs. 5,000.00/Rs. 337,250.00/Monthly Payment 60 Monthly Rentals of Rs. 30,547.00/- approx.

If you wants to apply for used car then meezan Islamic banking is also providing the facility of used car financing. The details of the car and monthly payments of the used car are given below:
Old Car Payment Details Car Description: Cost Price: Tenure: Honda Rs. 800,000.00/4 Years Initial Payment Security Deposit: Evaluation Fee: Processing Fee: Total: Rs. 200,000.00/- (25%) Rs. 1,500.00/Rs. 3,000.00/Rs. 204,500.00/Monthly Payment 48 Monthly Rentals of Rs. 20,863.00/- approx.

MEEZAN BANK HOME FINANCING:

Welcome to Pakistans long awaited totally Shariah-compliant Home Finance facility! One that is comprehensive, affordable, and totally hassle-free. For at Meezan Bank, we are committed to meeting our customers needs, in a truly Shariah-compliant manner coupled with dedicated service excellence. Meezan Banks Easy Home is the answer youve been waiting for.

Islamic Financing on a Diminishing Musharakah basis:

With Easy Home you participate with Meezan Bank in a joint ownership of your property, where the Bank will provide a certain amount of financing (usually up to 80%). You agree to a monthly payment to the bank of which a component is for the use of the home, and another for your equity share. In fact, the total monthly payment is reduced regularly as your share in the property grows. When you have made the full investment, which had been agreed upon, you become the sole owner with a free and clear title to the property.

EASY HOME SHARIAH COMPLAINT:

As a Diminishing Musharakah it conforms to Shariah laws specifically related to financing, ownership and trade. Taking ownership through a partnership and then transferring complete ownership to the consumer instead of simply lending money is the major factor that makes our product Shariah compliant. The nature of the contract is a co-ownership and not a loan because the transaction is not based on the lending and borrowing of money but on the joint ownership of an asset. Meezan Bank shares in the cost of the asset being purchased, for example in the case of buying a home. In conventional mortgages the interest charged is a mark-up on the money lent. The profit charged by Meezan Bank is the utilization payment for your use of our share throughout the life of the contract. Your payments to Meezan Bank are completely riba-free.

PROFIT MARGIN CHARGED:

At Meezan Bank, the profit margin is directly correlated to market trends to provide a competitive product to our customers. Shariah allows the use of any conventional market factor as a benchmark to determine the profit rate of a particular product.

The mere fact that the applied profit rate of our product is based on similar factors used in determining the applied rate of interest of a mortgage does not render the transaction or the contract invalid from the Shariah perspective, and neither does it make the transaction an interest-bearing one. On the other hand, it is the underlying structure of the product that determines its Shariah compliance.

PAYMENT PLAN:
In payment plan meezan bank used two models: 1. Step-up model 2. UMI MODEL

Step-up Model The Step-up Payment plan is introduced for customers who intend to avail maximum financing facility with lower installments. The step up model is based on Shariah Compliant structure of Diminishing Musharakah. In this model, the banks share s divided into more Musharakah units and in the initial half of the facility tenure, the customer purchases one Musharakah unit from bank every month and in the later half of the facility tenure, the customer purchases two Musharakah units from bank every month. Thus the monthly installment during initial years is comparatively lower which is easily affordable. This model is a Shariah Compliant Alternative available to the customers who wish to avail maximum financing facility from bank. UMI Model Easy Home is structured under the concept of diminishing Musharakah where Meezan Bank and Customer enter into a Musharakah Agreement whereby both the parties provide their investments to be utilized for the purposes of purchase/construct/renovate the property. The Joint ownership is created in the property between Bank & customer by virtue of the Musharakah agreement. (This is based on the principle of Shirkat ul Milk) Banks share is divided into units and is given to the client on rent and Client promises to purchase Banks share (units) over the tenure of transaction Client purchases the units every month and will eventually become the owner of the property. Rental amount is adjusted according to the banks share (units) remaining in the property. In UMI , the Musharakah unit price remains constant throughout the financing period.

Maximum Financing Tenure

Now you can avail financing facility for maximum up to 25 years period.

Buy, Build, Renovate, or Replace!

Buying a Home is Easy & Halal!

Choose it and be ready to move in. Meezan Bank will finance up to maximum of 70%(Salaried, SEP, NRP) of the appraised value of your new home or up to a value of Rs. 40 million, and a maximum of 60%(Businessman) up to a value of Rs 5 Million with a financing tenor of up to 20 years.

Building a home is Easy & Halal!

For that special home you want to build yourself. Meezan Bank provides financing up to 70%(salaried, SEP, and NRP) of the appraised value or Rs. 40 million, and a maximum of 60%(Businessman) up to a value of Rs 5 Million for a tenor of up to 20 years.

Renovating your home is Easy & Halal!

Making your home even better or just repairing it. Meezan Bank helps with financing up to 30% and a financing tenor of up to 15 years.

Replacing your existing Mortgage is Easy & Halal!

The wait is over. Now continue to enjoy your home but with the added satisfaction and peace of mind you have always wanted. Meezan Bank will help you switch your existing liability over to us and let you enjoy the benefits of Halal and totally flexible financing. Financing up to Rs. 40 million(Salaried, SEP, NRP) and Rs 5 million(Businessman) and a tenor of up to 20 years.

Special Benefits of Easy Home

Flexible Financing Tailored to Support You

o o o o o o

High financing amounts Adequate financing against property value Flexibility to make partial prepayments Minimal processing charges Affordable and competitive installment amounts with a regular reducing monthly rental Rate relaxation for select MNCs & LCGs

Quick Processing Time

Absolutely hassle-free. Quick turn-around-times, with no burdensome complexity or excess paper work. It is simple, halal, and easy!

Even the eligibility is Easy!

We at Meezan Bank, as prescribed by Islamic Shariah, seek to guarantee equal access to financing for all qualified applicants, while ensuring that the qualification process is bias-free.

Non Resident Pakistanis

Non Resident Pakistanis can apply with peace of mind for the fastest processing of their case.

Special Offer for Chartered Accountants

Qualified Chartered Accountants and Corporate CFOs can avail discounted rates and flexible repayment option with no pre-payment charges on early payment either partially or full.

Special Offer for Easy Replacement Cases Why paying high installment on high rate? Transfer your existing home finance facility to Meezan Bank and avail attractive profit rate with flexible payment options.

Easy Home Payment Plan Summary

Cost Price: (PKR) Customer Share: (PKR) Bank Share: (PKR) Profit Rate: Tenure in Years: Segment: 2,500,000 /- Total Units 1,000,000 /1,500,000 /15.78 % 10 Salaried Unit Sale Price: (PKR) Monthly Rent Per Unit: (PKR) Total Starting Rent: (PKR) Starting Month Payment: (PKR) Easy Home Category: 103 14,563 /192 /6,575 /6,575 /Builder (Construction) (UMI)

Tentative Payment Schedule

Tranche Tranche Amount (PKR) Months Rent (PKR) Unit Price (PKR) Monthly Payment (PKR) Balance Balance Unit Value Units (PKR)

500,000

2 3

500,000 500,000

0 500,000 1 6,575 6,575 500,000 2 6,575 6,575 500,000 3 6,575 6,575 1,000,000 4 13,150 13,150 1,000,000 5 13,150 19,725 1,500,000 6 19,725 19,725 1,500,000 7 19,725 19,725 1,500,000 8 19,725 19,725 1,500,000 9 19,725 19,725 1,500,000 10 19,725 19,725 1,500,000 11 19,725 19,725 1,500,000 12 19,725 19,725 1,500,000 Tentative Schedule to be revised on Anniversary 13 19,725 19,725 1,500,000 14 19,725 19,725 1,500,000 15 19,725 19,725 1,500,000 16 19,725 19,725 1,500,000 17 19,725 19,725 1,500,000 18 19,725 14,563 34,288 1,485,437 19 19,533 14,563 34,097 1,470,874 20 19,342 14,563 33,905 1,456,311 21 19,150 14,563 33,714 1,441,748 22 18,959 14,563 33,522 1,427,184 23 18,767 14,563 33,331 1,412,621 24 18,576 14,563 33,139 1,398,058 25 18,384 14,563 32,948 1,383,495 26 18,193 14,563 32,756 1,368,932 27 18,001 14,563 32,565 1,354,369 28 17,810 14,563 32,373 1,339,806 29 17,618 14,563 32,182 1,325,243 30 17,427 14,563 31,990 1,310,680 31 17,235 14,563 31,799 1,296,117 32 17,044 14,563 31,607 1,281,553

103 103 103 103 103 103 103 103 103 103 103 103 103 103 103 103 103 103 102 101 100 99 98 97 96 95 94 93 92 91 90 89 88

33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69

16,852 16,661 16,469 16,278 16,086 15,895 15,703 15,512 15,320 15,129 14,937 14,746 14,554 14,363 14,171 13,980 13,788 13,597 13,405 13,214 13,022 12,831 12,639 12,448 12,256 12,065 11,873 11,682 11,490 11,299 11,107 10,916 10,724 10,533 10,341 10,150 9,958

14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563

31,416 31,224 31,033 30,841 30,650 30,458 30,267 30,075 29,883 29,692 29,500 29,309 29,117 28,926 28,734 28,543 28,351 28,160 27,968 27,777 27,585 27,394 27,202 27,011 26,819 26,628 26,436 26,245 26,053 25,862 25,670 25,479 25,287 25,096 24,904 24,713 24,521

1,266,990 1,252,427 1,237,864 1,223,301 1,208,738 1,194,175 1,179,612 1,165,049 1,150,485 1,135,922 1,121,359 1,106,796 1,092,233 1,077,670 1,063,107 1,048,544 1,033,981 1,019,417 1,004,854 990,291 975,728 961,165 946,602 932,039 917,476 902,913 888,350 873,786 859,223 844,660 830,097 815,534 800,971 786,408 771,845 757,282 742,718

87 86 85 84 83 82 81 80 79 78 77 76 75 74 73 72 71 70 69 68 67 66 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51

70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106

9,767 9,575 9,384 9,192 9,001 8,809 8,618 8,426 8,235 8,043 7,852 7,660 7,469 7,277 7,086 6,894 6,703 6,511 6,320 6,128 5,937 5,745 5,554 5,362 5,171 4,979 4,788 4,596 4,405 4,213 4,022 3,830 3,639 3,447 3,256 3,064 2,873

14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563

24,330 24,138 23,947 23,755 23,564 23,372 23,181 22,989 22,798 22,606 22,415 22,223 22,032 21,840 21,649 21,457 21,266 21,074 20,883 20,691 20,500 20,308 20,117 19,925 19,734 19,542 19,351 19,159 18,968 18,776 18,585 18,393 18,202 18,010 17,819 17,627 17,436

728,155 713,592 699,029 684,466 669,903 655,340 640,777 626,214 611,650 597,087 582,524 567,961 553,398 538,835 524,272 509,709 495,146 480,583 466,019 451,456 436,893 422,330 407,767 393,204 378,641 364,078 349,515 334,951 320,388 305,825 291,262 276,699 262,136 247,573 233,010 218,447 203,883

50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14

107 108 109 110 111 112 113 114 115 116 117 118 119 120
Total

2,681 2,490 2,298 2,107 1,915 1,724 1,532 1,341 1,149 958 766 575 383 192

14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563 14,563

17,244 17,053 16,861 16,670 16,478 16,287 16,095 15,904 15,712 15,521 15,329 15,138 14,946 14,755
2,815,000

189,320 174,757 160,194 145,631 131,068 116,505 101,942 87,379 72,816 58,252 43,689 29,126 14,563

13 12 11 10 9 8 7 6 5 4 3 2 1 0

1,308,425 1,499,989

UBL was set up in 1959 and is today one of Pakistan's major banks in terms of deposits and advances with a huge domestic and international network. Its salient features are:

Company Description:
UBL is a Banking Company, which is engaged in Commercial & Retail Banking and related services domestically and overseas.

History of the Company:

UBL was established in 1959 and is one of the major commercial banks of Pakistan. The Bank is making every effort to meet the up-coming challenges through strategic planning and making the best use of the resources at its command. A professional team was appointed in mid 1997 to restructure the bank and to commence rightsizing. The management is also in the process of rationalizing the branch network and identifying and recovering its doubtful and classified portfolio. It has planned to institute major improvements in customer services and internal systems to improve efficiency. It also intends to launch innovative products. The bank is increasing resource mobilization through regular deposit campaigns and accelerating the process of recovery of outstanding advances and non-performing assets.

Operational Structure:
UBL operates 1375 domestic and a subsidiary viz. United Executors and Trustees Company Ltd. as on 30.06.2000. It has 20 overseas branches situated in the UK, USA, UAE, Yemen, Bahrain and Qatar. It also operates one offshore branch in the Export Processing Zone, Karachi and it has representative offices in Cairo-Egypt and TehranIran. It also has a joint venture Oman United Exchange Co., Oman Muscat and a subsidiary United Bank A.G. Zurich, Switzerland set up in 1968. It has 21 ATMs with 8 in the UAE, 3 in Bahrain, 1 in Doha, 7 in Islamabad and 2 in Karachi.

Vision
To be a world class bank dedicated to excellence, and to surpass the highest expectations of our customers and all other stakeholders.

MISSION:
Our mission is to: 1. Set the highest industry standard for quality across all areas of operation, on a sustained basis; 2. Optimize people, processes and technology to deliver the best possible financial solutions to our customers; 3. Become the most sought after investment; 4. Be recognized as the employer of choice.

UBL DRIVE ( CAR FINANCING )

UBL Drive is a unique auto financing product which offers you features, options and flexibility unmatched by any other bank, because at UBL, You come first.

New Car Financing

UBL Drive allows you to drive away in your own car by making a down payment of just 15% and to top that with low monthly installments.

Pricing Plan
Tenure Rate 1 to 2 years 20.00% 3 to 4 years 20.50% 5 to 6 years 21.00% 7 years 21.50%

Used Car Financing

With UBL Drive you can buy your favorite used car (up to 5 years old) at the most affordable rates.

Pricing Plan
Tenure Rate 1 to 2 years 21.00% 3 to 4 years 21.50% 5 years 22.00%

Car Replacement Plan

Drives Car Replacement Plan is the slogan name for a premier auto financing product. Customers who intend to avail loan facility from UBL Drive under this variant can readily have their existing cars replaced after a year of financing.

Product Features Free Tracking Device Option will be provided to the customers on affordable rates. this will be done in collaboration with the insurance companies on our panel. Free Life Insurance Coverage Includes accidental death coverage and medical reimbursement to the customers in case of any unforeseen circumstances. Zero Pre-Payment Penalty No penalty will be charged from the customer if the loan is been paid off after a year. Payment Holidays A unique concept whereby which payment breaks will be given to the customers on occasions such as Eid etc. Payment Holidays will be givenonce a year to the customers. Payment Flexibility Whereby which the customer will be provided the flexibility to change the loan tenor, opt for partial payment of the outstanding principal amount.

Insurance Options
UBL Drive offers you the following insurance options: Comprehensive insurance Insurance financing for the first year Discounted rates with Trakker car security device installed at customers' cost

Processing Charge A processing charge of Rs. 5,000 will apply.

Financing Details Vehicle Price Rs. Tenure Security deposit ( 15%-50% ) Financed amount Rs. Markup Insurance co. Insurance rate Honda City I-DSI CVT 1.3L 1,359,000 5 Years 15% 1,155,150 18% NJI 4.5%

Rates are inclusive of mandatory tracker unit cost, installation and annual monitoring charges.

Monthly Instalments
Months 1-12 13-24 25-36 37-48 49-60 Monthly installment w/o insurance 29,965 29,965 29,965 29,965 29,965 Insurance 4,587 4,077 3,567 3,058 0 Total monthly payment 34,552 34,042 33,532 33,023 29,965

Initial Cash Outlay

Security deposit Rs. Insurance premium 1st Year Rs. Total upfront payment Rs. 203,850 61,155 265,005

Schedule of Bank Charges *

Application Processing Fee Rs.5,000/(Non-Refundable) Including 16% FED Charges 1. Termination prior to delivery of vehicle, upto 11.60% of outstanding amount at the time of settlement. 2. Termination after delivery of vehicle, upto 5.80% of outstanding amount at the time of settlement. Charges upto 5.80% of Partial Payment amount. Actual - upto Rs.35,000/Plus FED @ 16% to be recovered Upto Rs.600/- Flat per late payment

Early settlement charges

Partial Payment allowed upto 20% of Principal per annum Re-possession Charges Late Payment Charges

UBL HOUSE FINANCE:

Owning a house of your very own is a cherished dream. A lot of planning and hard work is involved in making this dream come true. That is why, at UBL we aim to make your decision easier, by offering you the right ingredients that can help you realize your dream with absolute convenience. UBL Address empowers you to become the proud owner of a home by offering a variety of product and pricing options that are flexible yet affordable. So choose the best product option and pricing to suit your needs. All product options are amortized and range over a tenor of 3 - 20 years.

Buying a Home Why rent when you can buy? Buying a home of your choice has never been so easy. With a maximum financing limit of 70% you can easily buy a house or apartment that best fits your requirements. So go ahead and start the search for your dream home because with easy and affordable installments you need not think of renting a house when youve got UBL Address. Building a Home Have you ever settled for anything less than perfect? Theres nothing like building your perfect home, your way. With every detail in place like the elegant French windows or the perfectly manicured lush green lawn, just the way youve always imagined. By chalking out well planned fund tranches at each phase of the building process, UBL Address brings you your dream house one step closer. Land Plus Construction What do you do with an empty piece of land? Construct your dream house with all the aesthetic details youve ever wished for. UBL Address helps you through every stage of construction by providing you with well planned out fund tranches so that you can better manage your construction.

Floating Rate

Payment charges on early payment either partially or full.

Eligibility Criteria
1. 2. 3. 4. 5. Minimum monthly income: Rs.50,000 Age: 23 to 65 years Resident Pakistani Self-employed businessman/professional or salaried individual Minimum loan size: Rs. 500,000

Documentation Requirements Copy Of NIC Two recent Photographs each of primary as well as co-borrowers Signed Lou (Letter of Understanding), which states the applicable rate at the time of booking of loan. General Income Documents for Salaried and SEB/SEP are given below. However, your exact Documentation Requirement as per your specific Segment & Profession will be communicated to you by our respective ROs. Segments
Salaried

SEB/SEP

Docs Required Employment Certificate confirming last 12 months work experience Tax Document for the past 24 months Current Salary Slip Bank Statement for the last 12 months Last 3 years Tax Assessment Order or Registered Partnership Deed Bank Statement for the last 12 months Salary Slip/Salary Certificate

Other Documents are required to substantiate the length of business

Markup Rates Both Floating and Adjustable Rate Options are available. The Floating Rate Option is subject to annual revision from the time of loan booking. Any change in the mark up rate may be either upward or downward revision (if required) after every twelve

(12) months from the date of the booking of the loan(upward or downward only to the extent of Kibor). Markup rates are calculated on the basis of the prevailing one year Karachi InterBank Offered Rate (KIBOR*) which is taken as the base rate. A margin that varies from one pricing option to another is charged over and above the base rate, the details of which are as follows:

Segments Pricing Salaried KIBOR + 3.5% = Applicable Markup Rate SEB/SEP KIBOR + 4.5% = Applicable Markup Rate The applicable markup rate will be the rate prevailing at the month of booking. This will be communicated to the applicant through the Repayment Schedule To know more about the applicable rates for various pricing options, please call UBL Phone Banking at 111-825-888.
* KIBOR is defined as the average rate ask side for one year tenure as published on Reuters Page KIBOR or as published by Financial Market Association of Pakistan in case Reuters Page in unavailable.

Penalty & Charges

Type of Penalty & Charges Amount & penalty %age

Late Fees (per installment) Appraisal Charges Legal Charges Life Insurance Property Ins Processing Charges Partial Payoff

Rs.1000 Rs 5,000 Rs 5,000 Optional Complimentary Rs 5,000 (Non refundable) Max 6 monthly installments. Penalty charges apply on amount exceeding Rs 50, 000 or 6 monthly installments. 8% for Year 1 5% in Year 2 3% in Year 3 & onwards

In this option, you get a fixed rate for a period of 12 months, which gets repriced annually. (Upward or downward, only to the extent of Kibor).

Cost Price: (PKR) Customer Share: (PKR) Bank Share: (PKR) Profit Rate: Tenure in Years: Segment:

2,500,000 /1,000,000 /1,500,000 /15.78 % 10 Salaried

Months
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Amount
24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24

Interest
18750 18681.87 18612.89 18543.05 18472.34 18400.74 18328.24 18254.84 18180.53 18105.28 18029.09 17951.95 17873.85 17794.77 17714.7 17633.63 17551.55 17468.44 17384.29 17299.09 17212.83 17125.49 17037.05 16947.51 16856.85

Principal
5450.24 5518.37 5587.35 5657.19 5727.91 5799.51 5872 5945.4 6019.72 6094.96 6171.15 6248.29 6326.39 6405.47 6485.54 6566.61 6648.7 6731.8 6815.95 6901.15 6987.42 7074.76 7163.19 7252.73 7343.39

Balance
1500000 1494550 1489031 1483444 1477787 1472059 1466259 1460387 1454442 1448422 1442327 1436156 1429908 1423582 1417176 1410690 1404124 1397475 1390743 1383927 1377026 1370039 1362964 1355801 1348548 1341205

26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66

24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24

16765.06 16672.12 16578.02 16482.74 16386.27 16288.6 16189.7 16089.57 15988.19 15885.54 15781.6 15676.37 15569.82 15461.94 15352.71 15242.12 15130.14 15016.76 14901.97 14785.74 14668.06 14548.91 14428.27 14306.12 14182.44 14057.22 13930.43 13802.06 13672.08 13540.48 13407.23 13272.32 13135.72 12997.41 12857.38 12715.59 12572.03 12426.68 12279.51 12130.5 11979.63

7435.18 7528.12 7622.23 7717.5 7813.97 7911.65 8010.54 8110.67 8212.06 8314.71 8418.64 8523.87 8630.42 8738.3 8847.53 8958.13 9070.1 9183.48 9298.27 9414.5 9532.18 9651.33 9771.98 9894.13 10017.8 10143.03 10269.81 10398.19 10528.16 10659.77 10793.01 10927.92 11064.52 11202.83 11342.87 11484.65 11628.21 11773.56 11920.73 12069.74 12220.61

1333770 1326241 1318619 1310902 1303088 1295176 1287166 1279055 1270843 1262528 1254110 1245586 1236955 1228217 1219369 1210411 1201341 1192158 1182859 1173445 1163913 1154261 1144489 1134595 1124577 1114434 1104165 1093766 1083238 1072579 1061786 1050858 1039793 1028590 1017247 1005763 994134.5 982360.9 970440.2 958370.5 946149.9

67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107

24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24

11826.87 11672.21 11515.61 11357.05 11196.51 11033.96 10869.38 10702.75 10534.03 10363.2 10190.24 10015.11 9837.8 9658.27 9476.49 9292.45 9106.1 8917.42 8726.39 8532.96 8337.12 8138.83 7938.07 7734.79 7528.97 7320.58 7109.58 6895.95 6679.65 6460.64 6238.89 6014.38 5787.05 5556.89 5323.85 5087.89 4848.99 4607.1 4362.18 4114.21 3863.13

12373.37 12528.04 12684.64 12843.2 13003.74 13166.28 13330.86 13497.5 13666.22 13837.04 14010.01 14185.13 14362.45 14541.98 14723.75 14907.8 15094.15 15282.82 15473.86 15667.28 15863.12 16061.41 16262.18 16465.46 16671.27 16879.66 17090.66 17304.29 17520.6 17739.6 17961.35 18185.87 18413.19 18643.35 18876.4 19112.35 19351.26 19593.15 19838.06 20086.04 20337.11

933776.5 921248.4 908563.8 895720.6 882716.9 869550.6 856219.7 842722.2 829056 815219 801209 787023.8 772661.4 758119.4 743395.7 728487.9 713393.7 698110.9 682637 666969.8 651106.6 635045.2 618783.1 602317.6 585646.3 568766.7 551676 534371.7 516851.1 499111.5 481150.2 462964.3 444551.1 425907.7 407031.3 387919 368567.7 348974.6 329136.5 309050.5 288713.4

108 109 110 111 112 113 114 115 116 117 118 119 120

24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24 24200.24

3608.92 3351.53 3090.92 2827.05 2559.89 2289.38 2015.49 1738.19 1457.41 1173.12 885.29 593.85 298.77

20591.33 20848.72 21109.33 21373.19 21640.36 21910.86 22184.75 22462.06 22742.83 23027.12 23314.96 23606.4 23901.48

268122.1 247273.3 226164 204790.8 183150.5 161239.6 139054.8 116592.8 93849.95 70822.83 47507.87 23901.48 0

This will change with the 1 Year KIBOR rate.

COMPARISON:
An Islamic alternative to conventional car financing is Islamic Car Ijarah, which meets the principals of Islamic Shari'ah. This is the ultimate solution or the best alternative being considered. Lease is not originally a mode of financing. It is simply a transaction meant to transfer the usufruct of a property from one person to another for an agreed period and an agreed upon consideration. Leasing can be used as a mode of financing in the Islamic banks as an alternative to the conventional car financing. (when we click more, then rest of the material should open up) However the consideration of leasing as a mode of financing should be based on certain conditions. It should be understood by all, using it as a mode of financing that it is not sufficient to substitute the name of interest by the name of rent and the term mortgage instead of the leased asset. There must be a significant difference between leasing and an interest-bearing loan. This form of lease is an alternative to car Ijarah because it deals with the problem of interest by charging rent only after the car has been delivered to the client or the lessee. Where as in the conventional car financing the payment of the rent (interest) starts before the delivery of the car to the lessee which is nothing but pure interest.

Moreover in the leasing or Car Ijarah the risk is not entirely of the lessee as in the case of conventional car financing. The lessee only has the risk of the damage to the property done due to his negligence otherwise the bank bears all the liability of the ownership of the car. Thus car Ijarah is the best alternative chosen for the Islamic mode which is permissible by Fiqh and Shariah.

One must refrain from making a direct comparison between Islamic banking and conventional banking (apple to apple comparison). This is because they are extremely different in many ways. The key difference is that Islamic Banking is based on Shariah foundation. Thus, all dealing, transaction, business approach, product feature, investment focus, responsibility are derived from the Shariah law, which lead to the significant difference in many part of the operations with as of the conventional The foundation of Islamic bank is based on the Islamic faith and must stay within the limits of Islamic Law or the Shariah in all of its actions and deeds. The original meaning of the Arabic word Shariah is 'the way to the source of life' and is now used to refer to legal system in keeping with the code of behaviour called for by the Holly Qur'an (Koran). 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) On the other hand, conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on one hand, and between the

borrowers and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money. 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 that it leads to some kind of injustice. The first Islamic principle underlying for such kind of transactions is "deal not unjustly, and ye shall not be dealt with unjustly" [2:279] which explain why commercial banking in an Islamic framework is not based on the debtor-creditor relationship. The other principle pertaining to financial transactions in Islam is that there should not be any reward without taking a risk. This principle is applicable to both labor and capital. As no payment is allowed for labor, unless it is applied to work, there is no reward for capital unless it is exposed to business risk. Thus, financial intermediation in an Islamic framework has been developed on the basis of the above-mentioned principles. Consequently financial relationships in Islam have been participatory in nature. Lastly, for the interest of the readers, the unique features of the conventional banking and Islamic banking are shown in terms of a box diagram as shown below:Conventional Banks 1. The functions and operating modes of conventional banks are based on fully manmade principles. 2. The investor is assured of a predetermined rate of interest. 3. It aims at maximizing profit without any restriction. 4. It does not deal with Zakat. Islamic Banks 1. The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah. 2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur). 3. It also aims at maximizing profit but subject to Shariah restrictions. 4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to be a Zakat Collection Centre and they also pay out their Zakat.

5. Lending money and getting it back with compounding interest is the fundamental function of the conventional banks. 6. It can charge additional money (penalty and compounded interest) in case of defaulters.

5. Participation in partnership business is the fundamental function of the Islamic banks. So we have to understand our customer's business very well. 6. The Islamic banks have no provision to charge any extra money from the defaulters. Only small amount of compensation and these proceeds is given to charity. Rebates are give for early settlement at the Bank's discretion. 7. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity. 8. For the Islamic banks, it must be based on a Shariah approved underlying transaction. 9. Since it shares profit and loss, the Islamic banks pay greater attention to developing project appraisal and evaluations. 10. The Islamic banks, on the other hand, give greater emphasis on the viability of the projects. 11. The status of Islamic bank in relation to its clients is that of partners, investors and trader, buyer and seller. 12. Islamic bank can only guarantee deposits for deposit account, which is based on the principle of al-wadiah, thus the depositors are guaranteed repayment of their funds, however if the account is based on the mudarabah concept, client have to share in a loss position..

7. Very often it results in the bank's own interest becoming prominent. It makes no effort to ensure growth with equity. 8. For interest-based commercial banks, borrowing from the money market is relatively easier. 9. Since income from the advances is fixed, it gives little importance to developing expertise in project appraisal and evaluations. 10. The conventional banks give greater emphasis on credit-worthiness of the clients. 11. The status of a conventional bank, in relation to its clients, is that of creditor and debtors. 12. A conventional bank has to guarantee all its deposits.