Islamic Vs Conventional Banking.Islamic banking and conventional banking are two different banking systems with distinct characteristics. The key difference between the two is that Islamic banking is based on the principles of Islamic law, or shariah, while conventional banking is based on the principles of interest-based finance.
Islamic Vs Conventional Banking
In Islamic banking, the principle of profit and loss sharing (PLS) is emphasized. This means that the bank shares both the profit and the loss with its clients. In contrast, conventional banks typically offer fixed or variable interest rates on loans and deposits.
Islamic banking also prohibits the charging or receiving of interest, as this is seen as exploitative and unfair. Instead, Islamic banks use various other financial instruments such as Mudarabah (profit-sharing), Musharakah (partnership), Murabahah (cost-plus financing), and Ijarah (leasing) to generate profits for themselves and their clients.
Furthermore, Islamic banking has strict guidelines on investments and business activities. For example, investments in industries such as gambling, alcohol, and pornography are prohibited. This is because these industries are considered harmful to society.
Overall, the main difference between Islamic banking and conventional banking is their underlying principles and ethical values. Islamic banking focuses on ethical and socially responsible finance, while conventional banking operates based on the principles of profit maximization.
