Subject: Entrepreneurship
Chapter: PDF NOTES
Type: Free PDF Notes
Banking Products and Source of Funding/Resources — Free written notes for Entrepreneurship on EduFlame Pakistan.
Overview of Banking Products Including Islamic Modes of Financing
Banks provide different financial products to help individuals and businesses manage money and grow.
Conventional Banking Products
1. Current Account
Used for daily business transactions. No interest is paid on deposits.
2. Savings Account
Money deposited earns interest. Suitable for saving and emergency funds.
3. Business Loan
Money borrowed from the bank to start or expand a business. It is repaid with interest over time.
4. Overdraft Facility
Allows a customer to withdraw more money than available in the account up to a limit. Useful for short-term cash flow problems.
5. Letter of Credit
Used in international trade. The bank guarantees payment to a foreign supplier on behalf of the buyer.
Islamic Modes of Financing
Islamic banking does not allow interest (riba). Instead, it uses profit-sharing and trade-based models.
1. Murabaha
The bank buys a product and sells it to the customer at a higher price. Payment is made in installments.
Example: A machine costing 500,000 is sold by the bank for 600,000 on installments.
2. Musharakah
The bank and entrepreneur become partners in a business. Both share profit and loss according to their investment ratio.
3. Mudarabah
The bank provides capital, while the entrepreneur manages the business. Profit is shared, but loss is borne by the bank (if no negligence by entrepreneur).
4. Ijarah
Islamic leasing system. The bank buys an asset and leases it to the customer. Eventually, ownership may be transferred.
Exam Focus
Sources of Funding for Startups
Startups need money to begin operations. This funding can come from different sources.
1. Personal Savings
Using your own money. No debt, but high personal risk if business fails.
2. Friends and Family
Borrowing from close people. Easy access, but can affect relationships if repayment fails.
3. Angel Investors
Wealthy individuals who invest in early-stage startups in exchange for equity. They often provide mentorship as well.
Example: Many Silicon Valley startups started with angel investment.
4. Venture Capital (VC)
Investment firms that fund high-growth startups in exchange for equity. They often influence business decisions.
Example: Careem received venture capital funding to expand rapidly.
5. Debt Financing
Loans from banks or institutions. You repay with interest but keep full ownership.
6. Equity Financing
Selling shares of your business to investors. You get funding but lose partial ownership.
7. Crowdfunding
Raising small amounts of money from many people through online platforms like Kickstarter or Indiegogo.
8. Government Grants and Schemes
Support programs like Kamyab Jawan and SMEDA in Pakistan that help young entrepreneurs.
Exam Focus