Jhglu

Introduction:

Islamic banking is based on “sharia’ laws” which results in that all activities, transactions, products and services are sourced from “sharia’ law”. The main difference between Islamic and conventional banking is that Islamic banking rely on our Islamic ethical rules and guidelines which prohibit interest (usury), “Zulm”, “Gharar”, and “Maysir”. Islamic banking disregards any activity that is considered to be out of “sharia’ laws. Usury or "Riba" is rejected due to its contrary to the fundamental of the Islamic banking system. The other difference is that Islamic banking is taking the risk t share capital with partners (depositors) in business which is known as "Al-Ghunm bi al-Ghurm" where partners (bank and depositors) are guarantors and agents and share benefits and risks. Where in conventional banks, interest is the main function that the bank is making profit through. Conventional banks use money as commodity through lending it to borrowers as loan. The functions of conventional banks are based on the founders (manmade) laws and principles. Profit also is assured in a predetermined rate of interest.

In this paper we will discuss in general the common characters and differences between conventional banks and Islamic banks using balance sheet and profit and loss statement of Dubai Islamic Bank as Islamic bank and Emirates Investment Bank as conventional bank. Second, we describe the type of financing mechanisms that are used in both financial banks. Third, there will be description of the fund resources components in each type and we will focus specifically on the liability side in the balance sheet of the Islamic bank. Finally, we will go through the conditions of Islamic financing mechanism on assets side that is used commonly in the balance sheet.

The common characters and the difference between Islamic banks and Conventional banks using Balance Sheet and profit and Loss Statement:

Financial accounting plays a crucial role in defining the...