Difference between Islamic Banks and Commercial Banks Performance in Pakistan

(ProQuest: ... denotes formulae omitted.)IntroductionAs the banking sector is the most growing sector in the Pakistan. There are many types of banks operating in Pakistan, Conventional and Islamic banks.Commercial banks are those financial instructions which accept and advancing loan on interest basis. They perform different functions as leasing, agency function etc. They have different types of accounts, locker facility for customers. Commercial banking is based on manmade rules and focus on interest financing. Islamic banks perform functions as commercial banks but they follow the rules of Islamic Sariah board. Islamic banking is the interest free banking. They follow the Islamic modes of finance Mudarabah, Musharaka, Ijarah etc.In Islamic banking Islamic rules are following. Islamic banking started in Pakistan to minimize and eliminate the interest. Meezan bank limited is first and largest Islamic bank in Pakistan. State bank of Pakistan also allow banks to conduct banking on the basis of Islam. State bank of Pakistan established a commission for transformation of financial system (CTFs) which made Shariah compliant modes which help banks to conduct banking according to the Islamic rules.Conventional banks rely on Manmade principles and focuses on maximization of profit. The fundamental function of conventional banking is lending money and takes it back with high interest including profit. Conventional banks are in large number than Islamic banks that don't share profit and loss with customers. State bank of Pakistan made an Islamic banking department in 15 September 2003 under this Islamic banking play his role in financing and other economic and social sector. State bank of Pakistan in January 2002 give license to Meezan bank limited for operating as a first Islamic and largest bank in Pakistan. Islamic banking growth increasing day to day not only in terms of countries in which it is operating but also in financing fields or areas. Some countries convert their banking systems all in Islamic bases, for example, Sudan and Iran, large number of Islamic banks established e.g. Faisal Islamic Bank of Egypt (1977), Dubai Islamic bank (1975), Bahrain Islamic Bank (1979) and Faisal Islamic Bank of Sudan (1977) etc. Islamic banks share profit and loss with its customers and depositors. This sharing gives more strong ground to Islamic Banking.Islamic Banking working base on interest free banking. But conventional banks base on Interest-based techniques and principles. Islamic banking prohibits Riba whereas conventional banking doesn't. In 1970, Pakistan started interest-free financing through few Islamic interest-free products. Islamic banks work same like conventional banks but without interest.Islamic Shariah laws restrict the interest charged on payments. Conventional banks charge interest and made relationship with customers as debtor and lender. Islamic banking use some principle like Mudarbah (Speculation), Musharaka (full partnership), Murabha (Markup financing), Istisna (Manufacturing contracts), Ijarah (Lease financing) and Qarz-e-hasna (benevolent loans). Under the Mudarba products of Islamic banking, banks provide loan and customer invest his efforts.Under Musharka product of Islamic banking profit and losses equally shared among all investors. Under the Murabaha product of Islamic banking is same like conventional banking leasing contracts. In Murabaha, bank purchase commodity or good on the behalf of the client and sell it to the client with payment and profit margin like fee. In Ijarah, bank kept ownership of the investment good and give it to the client in rents for a fee.Qarz-e-hasna is a type of lending in which bank give money to those people who are suffering from critical financial situation. Pakistani government tries to establish Islamic banking at national level. Struggle of islamization can't produce required output regarding minimizing Riba from society. …