Islamic Banking vs Conventional Banking

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Transcript of Islamic Banking vs Conventional Banking

Islamic

law (Shariah) principles guided by Islamic economics.

Conventional

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

Importance of Trade in IslamIslam 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).

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: promotes risk sharing between provider of capital (investor) maximizing profit but subject to Shariah restrictions. small amount of compensation

CONVENTIONAL: predetermined rate of interest. maximizing profit without any restriction. charge additional money

DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING

Islamic Banking 1) Functions and operations are based on Shariah 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-

Conventional Banking

2) Investor is assured of presharing between provider of capital determined rate of (investor) and user interest of funds (entrepreneurs)

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

Conventional Banking

4) Creditor-Debtor 4) Partners, relationship investor and traders, buyer or seller relationship

DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING Islamic Banking Conventional Banking

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

DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING

Islamic Bankingif there is no risk involved. The profit and loss sharing depositor may lose money in case of loss.

Conventional Banking

6) No right of profit 6) It is almost riskfree banking and depositor has no risk of losing its money because interest is guaranteed.