1.

Introduction:
In this project we do the Comparative study of Islamic versus Secular / Conventional banking. For our study we read different research papers and articles to collect information. In our project we choose one Islamic Bank and one Conventional Bank by choosing these two banks we make a comparison on their products and services and also their financial statement and from those statements we calculate different financial ratios.

1.1 About Islamic Bank: We define to Islamic Bank that it is a banking system that is based on the principles of Islamic law (also known Shariah) and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest. Collecting interest is not permitted under Islamic law.

1.2 About Conventional Bank: A financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit. The traditional commercial bank is a brick and mortar institution with tellers, safe deposit boxes, vaults and ATMs. However, some commercial banks do not have any physical branches and require consumers to complete all transactions by phone or Internet. In exchange, they generally pay higher interest rates on investments and deposits, and charge lower fees.

1.3 General Comparison between Conventional Banks versus Islamic Banks: 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

Islamic Banks

1. The functions and operating modes of 1. The functions and operating modes of Islamic banks conventional banks are based on fully are based on the principles of Islamic Shariah. manmade principles. 2. The investor is assured of a predetermined 2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds rate of interest. (entrepreneur). 3. It aims at maximizing profit without any 3. It also aims at maximizing profit but subject to Shariah restrictions. restriction. 4. It does not deal with Zakat. 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 5. Participation in partnership business is the compounding interest is the fundamental fundamental function of the Islamic banks. So we have to understand our customer's business very well. function of the conventional banks. 6. It can charge additional money (penalty 6. The Islamic banks have no provision to charge any and compounded interest) in case of extra money from the defaulters. Only small amount of compensation and these proceeds is given to charity. defaulters. Rebates are give for early settlement at the Bank's discretion. 7. Very often it results in the bank's own 7. It gives due importance to the public interest. Its interest becoming prominent. It makes no ultimate aim is to ensure growth with equity. effort to ensure growth with equity. 8. For interest-based commercial banks, 8. For the Islamic banks, it must be based on a Shariah borrowing from the money market is approved underlying transaction. relatively easier. 9. Since income from the advances is fixed, it 9. Since it shares profit and loss, the Islamic banks pay

gives little importance to developing expertise greater attention to developing project appraisal and evaluations. in project appraisal and evaluations. 10. The conventional banks give greater 10. The Islamic banks, on the other hand, give greater emphasis on the viability of the projects. emphasis on credit-worthiness of the clients. 11. The status of a conventional bank, in 11. The status of Islamic bank in relation to its clients relation to its clients, is that of creditor and is that of partners, investors and trader, buyer and seller. debtors. 12. A conventional bank has to guarantee all 12. Islamic bank can only guarantee deposits for deposit account, which is based on the principle of alits deposits. 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..

2. Bank Comparison between Islamic and Conventional Banking:

In our report we choose one Islamic Bank which is Meezan Bank and one Conventional Bank Habib Bank Limited. So first we give the introduction about Meezan Bank and Habib Bank Limited and we deal in its commercial banking aspects and commercial products and services. After this entire introduction we compare both banks product and services and in the end we show different graphs related to their products and services of Meezan Bank and also Habib Bank Limited and also we make a ratio-analysis comparison. 2.1 Introduction about Meezan Bank: Meezan Bank developed a number of new deposit products to cater to the unique needs of different market segments. Among the products launched during this year were Meezan Business Plus, a Mudarabah-based account that offers an array of free services for businesses, Meezan Euro Savings Account and Meezan Pound Savings Account. Meezan Banks Car Ijarah completed its 9th year and stood at Rs. 4.2 billion with over 8,000 active vehicles. Meezan Bank stood among the top three auto-finance providers in the country. Al Meezan Investment Management launched Meezan Sovereign Fund an open-end fund; the eighth fund under its management, including two closed-end funds, five open-end funds and one voluntary pension scheme. The Bank developed a financing product based on the concept of Wakalah, to encourage the development of financing partnerships between Islamic banks and Microfinance banks. During the year, 38 Islamic banking awareness seminars were held in 23 cities across Pakistan and were attended by more than 4,400 participants representing customers, general public and professionals. Meezan Bank was awarded Best Islamic Bank in Pakistan' by Islamic Finance News of RED money Group, Malaysia and 'Best Islamic Financial Institution in Pakistan' by Global Finance Magazine, New York. Meezan Bank's branch network reached 222 branches in 63 cities across Pakistan and it became the 11th largest bank in Pakistan in terms of branch network. The Bank demonstrated robust business growth in 2010, closing the year with a deposit figure of Rs. 131 billion and Import/Export business of Rs. 143 billion.

2.1.1 Meezan Bank Future: Futures is an interdisciplinary field, studying yesterday's and today's changes, and aggregating and analyzing both lay and professional strategies, and opinions with respect to tomorrow. It includes analyzing the sources, patterns, and causes of change and stability in the attempt to develop foresight and to map possible futures. Our future is based on three things (Vision, Mission and Values) which are as follows: Vision. Mission. Values.

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 product 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. Values: Our values focus on four things which are as follows: Core Values. Staff. Brand Personality. Relationships.

Core Values: Shariah Compliance, Integrity, Professionalism, Service Excellence, Social Responsibility. Staff: Committed, motivated and professionally trained employees who are empathic to their customers needs. Brand Personality: A sober and established, strong, empathic, professional person; who is an extremely loyal and dependable friend and business partner, and is committed to offering comprehensive value-based Shariah-compliant financial solutions. Relationships: Our relationships are long-term. We recognize and value our customers needs above all and strive to ensure their fulfillment. All customers are treated with professionalism and in a friendly manner. It is our endeavour to ensure that they receive efficient and timely service. The Meezan Bank experience is a unique one. 2.2 Introduction about Habib Bank Limited: HBL established operations in Pakistan in 1947 and moved its head office to Karachi. Our first international branch was established in Colombo, Sri Lanka in 1951 and Habib Bank Plaza was built in 1972 to commemorate the banks 25th Anniversary. With a domestic market share of over 40%, HBL was nationalized in 1974 and it continued to dominate the commercial banking sector with a major market share in inward foreign remittances (55%) and loans to small industries, traders and farmers. International operations were expanded to include the USA, Singapore, Oman, Belgium, Seychelles and Maldives and the Netherlands. On December 29, 2003 Pakistan's Privatization Commission announced that the Government of Pakistan had formally granted the Aga Khan Fund for Economic Development (AKFED) rights to 51% of the shareholding in HBL, against an investment of PKR 22.409 billion (USD 389 million). On February 26, 2004, management control was handed over to AKFED. The Board of

Directors was reconstituted to have four AKFED nominees, including the Chairman and the President/CEO and three Government of Pakistan nominees. 2.2.1 Habib Bank Limited Future: Futures is an interdisciplinary field, studying yesterday's and today's changes, and aggregating and analyzing both lay and professional strategies, and opinions with respect to tomorrow. It includes analyzing the sources, patterns, and causes of change and stability in the attempt to develop foresight and to map possible futures. Our future is based on three things (Vision, Mission and Values) which are as follows: Vision. Mission. Values. Vision: Enabling people to advance with confidence and success Mission: To make our customers prosper, our staff excel and create value for shareholders. Values: Our values are the fundamental principles that define our culture and we are brought to life in our attitudes and behavior. It is our values that make us unique and unmistakable. Our values are defined below: Excellence. Integrity. Customer Focus. Meritocracy. Excellence: This is at the core of everything we do. The markets in which we operate are becoming increasingly competitive, giving our customers an abundance of choice. Only through being the

very best - in terms of the service we offer, our products and premises - can we hope to be successful and grow. Integrity: We are the leading bank in Pakistan and our success depends upon trust. Our customers - and society in general - expect us to possess and steadfastly adhere to high moral principles and professional standards. Customer Focus: We understand fully the needs of our customers and adapt our products and services to meet these. We always strive to put the satisfaction of our customers first. Meritocracy: We believe in giving opportunities and advantages to our employees on the basis of their ability. We believe in rewarding achievement and in providing first-class career opportunities for all.

3. Product Comparison of Islamic Bank vs Conventional Bank:

Islamic Bank (Meezan Bank)

Conventional Bank (Habib Bank Limited)

Personal Banking Deposit Accounts Rupee Current Account Rupee Saving Account Labbaik Saving Aasaan Dollar Saving Account Euro Saving Account Pound Saving Account Meezan Bachat Account Business Plus Account Term Certificates Certificate of Islamic Investment Meezan Amdan Certificate Monthly Mudarabah Certificate Dollar Mudarabah Certificate Business Banking Karobari Munafa Account Business Plus Account Rupee Current Account Rupee Saving Account Dollar Saving Accounts Islamic Institution Deposit Account Euro Saving Account Pound Saving Account

Individual Banking Deposit Accounts Current Account Term Account Savings Account Foreign Currency Account

Term Certificates Offered No Term Certificates

Business Customer Corporate Banking Commercial Banking Cash Management Zarai Banking Global Treasury Asset Management

3.1 Islamic Bank Rupee Current Account: Islamic Current Account is based on Qard contract where the Bank is liable to pay your money back on demand. Features:
Minimum investment required to open an account is Rs. 1000/No restriction on withdrawals or number of transactions. No deduction on low balance maintained.

Conventional Bank Current Account: Conventional Current Account is not based on Qard Account, based on manmade principles. Features:
Minimum balance of Rs. 5,000/Unlimited transactions. Non-profit bearing. Funds transfer to any bank through HBL Phone Banking.

From Customer Point of View: After see the comparison between both Islamic Rupee Current Account and Conventional Bank Current Account and discuss the features as shown above so Islamic Bank is much better as compare to conventional bank because it is based on Qard contract so bank is liable to pay back as compare to conventional bank. 3.2 Islamic Bank Rupee Saving Account: In Islamic Bank the Riba-free Rupee Saving Account is a basic banking account for every customers need. The account provides expected monthly returns along with a variety of free packaged benefits. On agreeing to become a Rupee Saving Account holder, the customer enters into a relationship based on Mudarabah Key Features of Islamic Rupee Saving Account: There is no minimum investment required to open an account Profit will be calculated on daily product basis Profit will be paid on monthly basis (5.01 % profit per annum). No restriction on withdrawals or number of transactions Cheque books

Globally accepted Meezan VISA Debit Card Free Online Banking services at our branch network nationwide Free Internet Banking facility Free bank balance certificates Access to priority desk Issuance of duplicate statement of account

Conventional Bank Saving Account:

Conventional Bank saving account based on manmade principles and the features which we found are as follows: Key Features of Conventional Bank Saving Account: 5.06% profit per annum. Profit paid bi-annually. HBL Debit Card and Inter Branch Transaction System (IBTS) facilities. Funds transfer to any bank through HBL Phone Banking. Minimum balance of Rs. 20,000. Unlimited transactions. From Customer Point of View: After searching out both the features of Islamic and Conventional Saving Account the profit in Islamic Bank is lower than the profit per annum of Conventional bank but in Islamic Bank it follows the rule of Shariah and its saving account is interest free which mostly person needed so according to our views Islamic Bank Saving Account and its features for customer is much better from to Conventional Bank. 3.3 Islamic Bank Dollar Saving Account: In Islamic Bank the Riba-free Dollar Savings Account is a Mudarabah-based savings account that you can open and operate using US Dollars and is therefore an excellent business tool for both individuals and corporate clients for meeting their business needs and for diversifying their investment in different foreign currencies to safeguard against currency fluctuations.

Key Features of Islamic Bank Dollar Saving Account: Minimum investment required to open an account is $100. There is no deduction of service charges if the balance maintained is low. You will have instant access to your account through free Internet Banking. Profit will be paid a on monthly basis. Profit will be calculated on daily product basis, which ensures that you are getting a return on your investment all the time. Foreign Remittances.

Conventional Bank Dollar Saving Account:

In Conventional Bank Savings Account offered also in USD (US dollar) there some key features are as follows: Key Features of Conventional Bank Dollar Saving Account: Tiered product, with rates depending on choice of currency To earn profit, minimum balance should be 1000 USD. Interest is payable on a quarterly basis. From Customer Point of View: After searching out both the features of Islamic and Conventional Bank Dollar Saving Account the profit in Islamic Bank is lower than the profit per annum of Conventional bank but in Islamic Bank it follows the rule of Shariah and its saving account is interest free which mostly person needed so according to our views Islamic Bank Saving Account and its features for customer is much better from to Conventional Bank.