Article
Topic:
Difference between Islamic Banking and Conventional Banking
What is Islamic Banking?
It is a
Banking System that is in accordance with the Shariah or Islamic Law.
What is Conventional
Banking?
The Banking
system based on Principles other than that of Shariah.
Difference between
Islamic Banking and Conventional Banking
Islamic Banking
· Islamic Banking is based on the
Laws of Shariah.
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Conventional Banking
· Conventional Banking is based on
the laws of Ideologies other than Shariah like Capitalism and Socialism.
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· The Investor and the entrepreneur
share the losses along with the profit.
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· The investor is guaranteed an
amount as interest or returns whatever the situation.
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· Shariah restrictions are applied on
the profit although the aim is maximization of the profit.
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· Unrestricted profit maximization.
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· It deals with the collection and
paying out of Zakat.
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· It does not deal with Zakat.
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· Fundamental function of Islamic
Banking is participating in partnership business.
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· Fundamental Function is lending
money and getting it back with interest.
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· No additional charges are demanded
and if so, such proceeds are typically given as charity.
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· Additional interest and other
charges may be asked of the defaulters.
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· “Maslaht ul naas” is given special
preference.
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· Banks give preference to their own
interests, only.
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· Project development is given
special consideration and is thoroughly evaluated as the bank shares profit
and loss.
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· Income through Interest is fixed so
Banks give little importance.
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· Emphasizes on the viability of
projects.
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· Greater emphasis on the
creditworthiness of the clients
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· Relationship with clients is often
of Partner, Trader and Investor, Buyer and seller.
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· Relationship with clients is of
Creditor-Debtor.
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· Accounts based on “Mudarabah”
concept are not guaranteed and have to share the losses.
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· All the deposits are guaranteed.
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