Islamic law (Sharia’h) principles guided by Islamic economics.

Conventional banking is based on the principle that the more you have, the more you can get.

Islam has given an immense importance to trade

The nobility of this profession is obvious from the fact that it was the chosen profession of prophet Muhammad (PBUH).

Importance of Trade in Islam

The primary objectives of Islamic Economic System are as under.

Equal Distribution of wealth

Social justice

These objectives can never be achieved in Interest/Riba based economic systems.

Conventional banking practices are concerned with "elimination of risk" where as Islamic banks "bear the risk" when involve in any transaction.

ISLAMIC: CONVENTIONAL:

promotes risk sharing between provider of capital (investor)

predetermined rate of interest. 

maximizing profit but subject to Shari’ah restrictions. 

maximizing profit without any restriction. 

small amount of compensation 

charge additional money

DIFFERENCE BETWEEN ISLAMIC 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

DIFFERENCE BETWEEN ISLAMIC 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

DIFFERENCE BETWEEN ISLAMIC 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

DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING

Islamic Banking

4) Partners, investor and traders, buyer or seller relationship

Conventional Banking

4) Creditor-Debtor relationship

DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING

Islamic Banking

5) Encourage asset-based financing and based on commodity trading

Conventional Banking

5) Basaed on money trading. Money is a medium of exchange and not a commodity, its sale and purchase is prohibited in Islam.

DIFFERENCE BETWEEN ISLAMIC 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.