ASSIGNMENT BOP JAN 2021 - Group Iqbal

KOLEJ PROFESIONAL MARA BANDAR MELAKA


DIPLOMA IN ISLAMIC BANKING & FINANCE



BANKING OPERATIONS AND PRACTICES (MGT 3663)


‘COMPARISON ON BANKING OPERATIONS BETWEEN ISLAMIC

BANK AND CONVENTIONAL BANK’


PREPARED BY:


NAME ID NUMBER


IQBAL AMIRUL SYAH BIN NAZARUDDIN BMF19-06-036

MUHAMMAD AMIN BIN MAT ALI BMF19-06-013

NUR A’INA NAJAT BINTI MOHD AMRAN BMF19-06-064

AINI SYAKIRAH BINTI ZAMANY BMF19-06-065


NURUL EZZATI BT. ROSLI @ JEFRI BMF19-06-111




CLASS:


DBF 6B


SUBMISSION DATE:


26 APRIL 2021



PREPARE FOR:


MRS. NOOR AISYAH BINTI OTHMAN






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Table of Contents



Acknowledgement ..................................................................................................... 3

Introduction of the Assignment ............................................................................... 4

Introduction of Product for Sources of Funds .......................................................... 6


Basic Savings Account-I Bank Islam ............................................................................ 6

Basic Savings Maybank............................................................................................... 7

Differences on Sources of Funds between Bank Islam and Maybank ..................... 8

Introduction of Product for Uses of Funds .............................................................. 10

Property Financing-i (Tawarruq) – Baiti Home Financing-I Bank Islam ........................... 10

MaxiHome Flexi Loan Maybank .................................................................................. 11

Differences on Uses of Funds between Bank Islam and Maybank ......................... 12

Conclusion ................................................................................................................ 14

References ................................................................................................................ 15


Appendix ................................................................................................................... 17





































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Acknowledgement



Alhamdulillah, first of all, we would like to thank to Allah S.W.T for his mercy and

guidance in giving us full strength to complete our assignment. Even facing with many
difficulties in completing this assignment, we give our best and put effort to finish this

assignment.

We are really grateful because we managed to complete this assignment on banking

operations and practices subject within the time given by our lecturer Mrs. Noor Aisyah
Othman. We would like to express our special thanks of gratitude to our lecturer Mrs. Noor
Aisyah Othman, who gave us the opportunity to do this assignment about the comparison of

banking operations between Islamic bank and conventional bank. This assignment also helps

us in doing a lot of research and we came to know about so many new things.

In this assignment, we also learn about how Islamic bank and conventional bank use

their sources of fund and uses of funds in their services. We were grateful for the opportunity
to learn more about it through this assignment. Besides that, we also can see many differences
between Islamic bank and conventional bank that applies sources of fund and uses of funds

in their services.

This assignment cannot be complete without the effort and co-operation from our

group members, Iqbal Amirul Syah, Muhammad Amin, Aini Syakirah, Nurul Ezzati and Nur

A’ina Najat.



































3

Introduction of the Assignment



This assignment required us to choose sources of funds and uses of funds from chapter

3 and 4 that we had learned. We were also required to choose one Islamic banking and one
conventional bank to apply it on the differences of sources of funds and uses of the fund

between Islamic bank and conventional bank.

Our group chooses Bank Islam as an Islamic bank and Maybank as a conventional

bank. The sources of funds from Bank Islam are Basic Savings Account-I and from Maybank
is Basic Savings. For the uses of funds, we choose Property Financing-I (Tawarruq) – Baiti
Home Financing-I from Bank Islam and MaxiHome Flexi Loan Maybank for Maybank.


The categories for the products that we choose for sources of funds is the saving
deposit and for the uses of funds is the home financing or home loan.


Sources of fund usually companies are often looking for a new source of financing in
order to expand their operations. The act of contributing money to finance a programme,

project, initiative or need is referred to the funding or financing. Funding can be started for

either short-term or long-term purposes. In contemporary of Islamic banking operations,
customers receive funding from deposit funds which provides savings or safekeeping and
guarantee repayment of the amount deposited as well as investment funds which require a

method and procedure to be invested without guarantee of benefit or return to the principal.

Our group chooses basic savings where it is a basic type of bank account that allows

customer to deposit their money, keep it safe and withdraw funds while earning interest. In
Islam, interest is prohibited because there is a Riba, which the concept of growth, increasing

or exceeding the real amount of payment when the customer cannot afford to settle the loan.
Islamic savings happen when depositor deposits a certain amount of money with the Islamic

bank for the purpose of safekeeping and guarantee. The bank serves as a custodian of the
customer’s funds under the Wadiah contract and does not guarantee or promise any return

on the deposit. The Islamic bank gives guarantees to the principal amount. The money would
then be used by the bank in various forms of investment or financing. When a profit is made,

all the profit goes to the bank. If the bank has higher profit at that time, the bank would
willingly decide to share the profit to the customer which is known as give Hibah.


Next, as we learnt in Banking operations and practices, uses of fund can be divided
into two types which are Islamic retail financing and corporate financing. Islamic retail

financing where the main importance is on service for individual rather than the businesses



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and corporate entities. It can be divided into three categories which are home financing,

automobile financing and personal financing. Home financing most common use in the models
and structures of Bay’ Bithaman Ajil (deferred payment sale), Musharakah mutanaqisah
(diminishing of partnership), Parralel Istisna’ (construction required sale) and Tawarruq Home

Financing. Automobile financing most popular structure used by Islamic Financial Institution

is Al Ijarah Thumma Al Bay’ (AITAB) where it is known as Islamic hire purchase underlined by
a leasing contract and ends with the transfer of ownership to the customers upon completion.
Personal financing is where the customers require a cash or liquidity for various reasons and

purposes such as education, medical, performing pilgrimage, marriage and also payment of
debt. For corporate finance can be describe for the specific needs of the business community.


Our group has decided to choose Tawarruq Home Financing under Islamic retail
financing type. We have unanimously voted for this topic. Tawarruq Home Financing happens

when a customer identifies a house and usually customer has to pay 10% down payment to
the developer or the house owner. After that, customers will apply financing to the Islamic

bank and the bank will assess his credit worthiness. When the bank receives customer request,
the bank buys the commodity from broker A. Bank pays the purchase price to the broker A

then the ownership will transfer to the bank upon purchase. After that, the bank will sell the
commodity to the customer at cost plus a markup price (Murabahah contract) with deferred

payment and the ownership will transfer to the customer. Afterwards, the customer sells the
commodity to Broker B and get the cash. The customer then has to pay the remaining 90%

balance to the house developer or the house owner. Thus, the transaction of Tawarruq is
legally permissible in Islam.



































5

Introduction of Product for Sources of Funds

Basic Savings Account-I Bank Islam


Benefits and Features

Minimum Services • Cash deposit

• ATM and over-the-counter (OTC) withdrawals
• Fund transfers and bill payment facilities

Internet Banking • Fund transfer facility (with EXCEPTION of GIRO facility where the
Bank will impose a service charge of RM0.10 per transaction to BCA

holders)
• Online bill payment facilities within the Bank
• Account enquiries including account balances/summary, account

statement and transaction history

Other benefit • No service or maintenance charge will be imposed on the account
• Enjoy the convenience of printing mini statement via ATM machines

• ATM withdrawal via MEPS



Contract: Qard

“The Customer shall give consent to the Bank to deal with the whole or any part of any

balances in the account in the manner that the Bank deems fit. Any profit generated by the
Bank from the use of the funds shall belong to the Bank. The Bank may at its absolute

discretion, give reward (Hibah) to the Customer. Subject to the terms hereof, the Bank
guarantees payment of the whole sum standing to the credit of the Customer’s account upon

demand” (Bank Islam)

Eligibility


Eligible Person : Malaysian citizens and permanent residents

Minimum Opening : RM20

Minimum Balance : RM20


Age Requirement : Open to all


Types of Account : For Individual, Joint and Trust






6

Introduction of Product for Sources of Funds

Basic Savings Maybank


Benefit and Feature:

• To earn interest, no matter what your account balance.

• No service or maintenance charges as long as a minimum balance of RM20 is
maintained.
• Free mini statement.

• Online banking with Maybank2u.com

Options for withdrawal:


• Pay as you use
✓ 6 over-the-counter (OTC) visits

✓ 8 free ATM cash withdrawals (on the 9th withdrawal onwards, RM0.50 will be
charged)

✓ No fee shall be imposed for non-cash withdrawal transactions (e.g balance inquiry
or fund transfer within Maybank)

✓ First 2 GIRO transactions via over-the-counter in a month at a fee of RM0.50 per
transaction and RM2.00 from the 3rd transaction onwards.

✓ GIRO transactions via M2U, M2U Mobile and MyMobile, the charges imposed is
RM0.10 per transaction


• RM 8 Annual Fee

✓ Unlimited OTC transactions and ATM cash withdrawals
✓ First 2 GIRO transactions via over-the-counter in a month at a fee of RM0.50 per

transaction and RM2.00 from the 3rd transaction onwards.
✓ GIRO transactions via M2U, M2U Mobile and MyMobile, the charges imposed is

RM0.10 per transaction

Available accounts:


• Basic Savings Account (BSA) – for adults above 18 years old
• Basic Savings Account Trust (BSA Trust) – for children below 18 years old with parents

or legal guardians below 60 years of age
• Basic Savings Account Minor (BSA Minor) - for teenagers aged 12 to below 18 years

old




7

Differences on Sources of Funds between Bank Islam


and Maybank



There are many differences of the sources of funds between Bank Islam and Maybank. In this
case, we will discuss about their products which is savings deposit.


The obvious differences that you can see is from Basic Savings from Maybank that
their goal is to earn interest no matter how much balance the customers have in their account.

This is basically a guaranteed profit from the customers that use the conventional deposit
meanwhile in Basic Savings Account-I from Bank Islam that clearly provided with a statement

that the bank may give Hibah to the customers for their deposit. It is not a guaranteed profit
for the customers using savings deposit from Bank Islam. This is to help maintain the fairness

for the low-income consumers to deposit their money. Maybank clearly wants to maximize
their profit so when they were a guaranteed profit for the customers, it will attract thus

increasing the amount of the customers that they had.

The second differences are that in Bank Islam websites, they clearly state that the

deposit that had been gained by Bank Islam will be used for investment, however, all the
profits will be given to the bank and they may distribute a small amount of money in terms of

Hibah or gifts. In the contrary, Maybank gives their customers profit in the terms of interest,
a term that is prohibited in the Shariah ruling.


The third differences are the sources of the profits that the banks gain from. Where
did they get profit from the deposit of the customers? For Bank Islam, they use the deposit in

an investment that must be complied with Shariah. Gambling, tobacco, and wine are the
example of business that are prohibited in Shariah. Meanwhile, Maybank is free to use the
deposit to invest in any business that they want. As a Muslim, we should aware about where

our money goes to. If our money being used to help the business that are not in compliance

with Shariah, it would be a great sin.

The fourth differences are in the statement of Bank Islam, it is stated that the savings

is based on the contract Al Qard. This means that the amount borrowed by the bank is the
exact same amount that the customer can get upon request. In Maybank, the deposit is based
on savings contract which means that the amount deposited will be changed because of the

guarantee of profit from the investment because in Islamic rules of Al Qard, the payback

amount cannot exceed the principal amount.





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Lastly, in the terms of transactions, Bank Islam is required to be halal in all

transactions. For an example, Bank Islam debit card will not be accepted in establishments
that serve alcohol and serve pork as they deemed non-halal. In Maybank, it will allow you to
transact your debit card in any shop or business that accepts credit cards. For the example,

the payment by card can be used on any non-halal element. This is when the customers use

their deposited money and request to withdraw it by using one of the services provided by
the banks which is a debit card.

For easy understanding, below is the summary of the differences of the uses of funds

between Bank Islam and Maybank.


Basic Savings Account-I Bank
Islam Items Basic Savings Maybank



Help consumers especially low-

income consumers to access basic
Goal Attract new customers and depositors
banking services


Hibah will get but not pre-
Interest predetermined and
determined and not guaranteed Profit
guaranteed


Use customer’s deposit in

investment under Shariah Sources of Free to use customer’s deposit in any

compliance profit investment’s places


Al-Qard
Contract Savings contract


Islamic Debit Card in halal shop and
business not relate to the non-halal Permitted
Debit card in any shop or business
element transaction















9

Introduction of Product for Uses of Funds

Property Financing-i (Tawarruq) – Baiti Home Financing-I Bank Islam


Benefits and Features

• Under construction / completed house

• High Margin of financing up to 90% excluding:
✓ Mortgage Reducing Term Takaful (MRTT) / MLTT (Mortgage Level Term
Takaful) – (compulsory)

✓ HOT (Houseowner/Householder Takaful Plan) – (if applicable)
✓ Stamp Duty

✓ Legal Fees
✓ Valuation Fees

• Financing Tenure of up to 35 years or age 70, whichever is earlier
• No lock-in period

• No compounding elements
• No processing fees


Eligibility

• Malaysian Citizen

• Age 18 and above
• Not a bankrupt or have any legal action

• Gainfully employed or Profitable business for at least 3 years
• Minimum 1-year good payment track record
































10

Introduction of Product for Uses of Funds

MaxiHome Flexi Loan Maybank


Benefits and Features

• Enjoy the flexibility of deciding how much to pay into the home loan.

• Own the dream home faster: the more you pay, the more interest you save and the
sooner the loan will be settled.
• Integration of home loan, savings and current accounts into one account.

• Cash Deposits go immediately towards reducing the outstanding principal loan

amount.
• Competitive interest rates.
• Margin of financing up to 90%.

• Loan tenure of up to 35 years or age 70, whichever event occurs first.
• Deposit any amount at any time.

• Withdraw excess payments anytime with no extra charges.
• Interest is computed on a daily basis for immediate savings on interest.

• No commitment fees.
• Checking facility for your convenience.

• Financing provided for all types of residential properties whether completed and under
construction.

• MRTA, legal fees and valuation fees may be financed.
• Free Personal Accident cover of up to RM50,000 and free medical expenses of up to

RM3,000 with a minimum credit balance of RM1,000.
• Earn interest of up to 1.85% pa for credit balances above RM5,000.































11

Differences on Uses of Funds between Bank Islam and


Maybank



There are many differences between Bank Islam and Maybank in their uses of funds.

Firstly, in the term of Tawarruq that is been used by Bank Islam is the purchase of a

house on deferred payment basis. The house is sold by the broker to Bank Islam on a spot
basis and then Bank Islam will sell it to the customers on deferred payment and the

mutawarriq or the customer will sell it to house buyer on spot basis. Meanwhile, in
conventional loan that been used by Maybank that they always use is that the bank will

purchase the house and sell it to the customer with extra charges known as interest. Banks
then earn profit from the interest charged on the amount borrowed. Bank Islam gains their

profit from the agreed cost-plus profit price when the second transaction between the bank
and the customers happen, whereas the customer needs to pay for deferred but with

Murabahah concept.

Secondly, the relationship between Bank Islam and their customers is as a buyer

partnership that focusing on sales. In Maybank, the relationship is treated as the bank as
lender and the customers as their borrower. In Shariah, the financing given cannot be treated

as a debt and thus the relationship between the customers and Bank Islam is better treated
as a partnership between two parties in a contract.


Thirdly, the interest in Bank Islam is forbidden because making money out of money,
such as by charging interest (Riba), is illegal (usury), so Shariah-compliant banking would not

allow it. Compare it to Maybank, the customer who takes out a loan will pay back the loan
sum, as well as the interest rate and the prescribed rate, in instalments over a set tenure of
time. The rate is calculated using a margin above the bank's base lending rate (BLR). This is

the profit that Maybank will get, which is in term of interest. For Bank Islam to gain profit,

they used the Murabahah concept which is a cost-plus profit price when they sell the house
to another buyer.


Next, when a customer did not pay the deferred payment on time, the bank usually
charges penalty to them. Bank Islam did charge penalty for late payment. However, the
penalty money, which is charged 1% are not the profit of the bank, they need to give the

money gain from the penalty charges as a Sadaqah to others or to Baitul Mal. But for Maybank,

they will take charge interest if the borrower misses a payment or defaults on a loan and then
the bank has the authority to charge extra interest on the outstanding balance. When you pay



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late, the interest you have accrued is a means of paying additional fees and most importantly,

these charges are considered as profit for the institution.

Other than that, in Maybank, the interest charges are not fixed that will lead to Gharar

element in Islam. In some year the interest might be high or in the other year the interest is
low. This can proceed to a higher amount of total money that the customers need to pay from
the principal amount if the economy is bad at the time. Unlike in, Bank Islam that did not

charge interest, the price is fixed and will not change until the end of the payment.

For easy understanding, below is the summary of the differences of the uses of funds

between Bank Islam and Maybank.

Property Financing-i

(Tawarruq) – Baiti Home Items MaxiHome Flexi Loan Maybank

Financing-I Bank Islam
Tawarruq Concept Loan
Sales / buyer partnership Parties Lender / borrower relation

Cost plus profit Profitability Interest

Purchase asset with deferred
Payment Purchase asset with floating rate
payment

Late
Not a profit Penalty Profit

Treatment
Fixed Price Will change from time to time
































13

Conclusion



In conclusion, all the banks have their pros and cons. Most of the conventional banks

are too focused on the world achievement until they forget about the spiritual achievement.
Here, Islamic banking system rises to balance the world and spiritual element of the banking

world. However, most of people do not favourable to Islamic banking as the world now needs
more money than ever. Because of the pandemic that started way back in 2019, more and

more of companies and individuals are in a dire need of money. The only way to maximize
their money is through conventional banking and this is the core reason for the lacking of

customers in the world of Islamic banking.

From our research, we gain a lot of useful information on the differences between

Islamic banking system and conventional. From the very core of the products until the general
differences. We also have come to a conclusion that Islamic banking system is more than the

best system that should be accepted by all people. Lastly, we hope that more people are
aware about their wellbeing not only just in this world but also in the hereafter. Therefore,

we highly recommend all, especially the Muslims to start involve in the Islamic banking for
their wealth.













































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References



Admin. (19 November, 2019). Islamic vs conventional financing. Retrieved from Loanstreet:
https://loanstreet.com.my/learning-centre/islamic-vs-conventional-financing


Admin, A. B. (n.d.). Islamic vs conventional banking. Retrieved from Allied Bank:

https://www.abl.com/islamic-banking/islamic-vs-conventional-
banking/?doing_wp_cron=1618497668.9534690380096435546875


Admin, U. (n.d.). Differences between conventional bank and islamic bank. Retrieved from
UBL:https://www.ubldigital.com/Banking/UBL-Ameen/Knowledge-Center/Differences

-between-Conventional-Bank-and-Islamic-Bank

Financing : tawarruq (commodity murabaha). (n.d.). Retrieved from Islamic bankers resource

centre:https://islamicbankers.me/islamic-banking-islamic-contracts/financing
commodity-murabaha-tawarruq/


Foo, L. C. (May, 2018). Compare Malaysia's best islamic loans in 2021. Retrieved from
Compare Hero.my: https://www.comparehero.my/personal-loan/islamic



Institute, C. F. (n.d.). What are sources of funding? Retrieved from Corporate Finance
Institute:https://corporatefinanceinstitute.com/resources/knowledge/finance/
sources-of-funding/#:~:text=Summary,public%20(issuing%20debt%20securities).


Islam, A. B. (n.d.). Basic savings account-i. Retrieved from Bank Islam:
https://www.bankislam.com/personal-banking/deposit-and-investments/deposit-

account/basic-savings-account-i/

LoanStreet. (19 November, 2019). Islamic vs conventional financing. Retrieved from

https://loanstreet.com.my/learning-centre/islamic-vs-conventional-financing

Maybank2u, A. (n.d.). Kawanku savings account. Retrieved from Maybank2u:

https://www.maybank2u.com.my/maybank2u/malaysia/en/personal/accounts/saving
s/kawanku_savings_account.page


Othman, N. A. (n.d.). Banking Operation and Practices. Bandar Melaka.













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Pereira, G. (7 December, 2017). How is an islamic savings account different from a

conventional one? Retrieved from RinggitPlus: https://ringgitplus.com
/en/blog/banking/how-is-an-islamic-savings-account-different-from-a-conventional-
one.html


Pritchard, J. (24 April, 2020). What Is a savings account? Retrieved from
https://www.thebalance.com/savings-accounts-4073268


Compare Islamic Personal Loans - Online Application. (2021). Retrieved 11 April, 2021, from
comparehero.


Tawarruq in Islamic Finance. (5 March, 2011). Retrieved 15 April, 2021, from iefpedia:
http://www.iefpedia.com/english/wp-content/uploads/2011/11/Tawarruq-in-

Islamic.pdf













































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Appendix






















































































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