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Understanding Islamic vs. Conventional Banking Differences

Learn about the disparities between Islamic and conventional banking, including principles, risk-sharing, profit maximization, and financing methods. Islamic banking emphasizes Sharia'h principles and profit-and-loss sharing, while conventional banking relies on interest-based systems. Explore the distinct features of both banking systems.

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Understanding Islamic vs. Conventional Banking Differences

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  1. DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 1) Functions and operations are based on Sharia’h principles Conventional Banking 1)Functions and operations are based on fully man made principles

  2. DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 2) Promote risk-sharing between provider of capital (investor) and user of funds (entrepreneurs) Conventional Banking 2) Investor is assured of pre-determined rate of interest

  3. DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 3) Aim at maximising profit but subject to Sharia'h restrictions Conventional Banking 3) Aim at maximising profit without any restrictions

  4. DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 4) Partners, investor and traders, buyer or seller relationship Conventional Banking 4) Creditor-Debtor relationship

  5. DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 5) Encourage asset-based financing and based on commodity trading Conventional Banking 5) Based on money trading. Money is a medium of exchange and not a commodity, its sale and purchase is prohibited in Islam.

  6. DIFFERENCE BETWEEN ISLAIC AND CONVENTIOANL BANKING Islamic Banking 6) No right of profit if there is no risk involved. The profit and loss sharing depositor may lose money in case of loss. Conventional Banking 6) It is almost risk free banking and depositor has no risk of losing its money because interest is guaranteed.

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