COMPARATIVE ANLYSIS BETWEEN ISLAMIC AND TRADITIONAL BANKING SYSTEM

Abstract

This research incorporates the basic difference between Islamic and Conventional banking system with the help of AL-Meezan bank and National bank of Pakistan. It also incorporates historical background of the Islamic Banking, constitutional provisions, methodologies, strategies to promote Islamic Banking, problems that are faced by the system and their possible solutions as compare to conventional banks. The prohibition of interest in Islamic economic system and I ts implementation in the Economy. Analysis revealed by the progress and promotion of different Islamic banks especially Al-Meezan Bank in Pakistan. It has elaborately discussed over the ‘Critical review between two economic systems and its loopholes’ It discusses chronologically the comparative analysis between Islamic and traditional economic systems, and difficulties encountered in implementing the ‘Islamic economic system’. This report also contains analyses of a traditional banking system and the basic functions used by them, compared by the Islamic banking modes to handle these accounts using the Shariah rules. It also gives role of the bank in a society. This report explains the Musharakah and its different modes of finance and description of different ways to operate in the current system. Because the bank’s biggest business’s stakeholders are depositors, customers, and shareholders. So it adopts those policies that benefices and are acceptable by all the stakeholders, unless it does not contradicts with the regulations. Islamic Banking System is planning to provide the alternatives to the bank’s traditional business activities (conventional banking) under Shariah framework, such as trade, leasing, partnership based arrangements, securities and other collaterals and guarantees.