Home / Islamic Banking vs Conventional Banking: Key Differences
Home / Islamic Banking vs Conventional Banking: Key Differences
Home / Islamic Banking vs Conventional Banking: Key Differences
Islamic banking and conventional banking are two distinct systems that operate on different principles and practices. In the Level 5 Certificate Concepts of Islamic Finance and Banking online, students learn about the key differences between these two systems. Let's explore some of the main differences:
| Islamic Banking | Conventional Banking |
|---|---|
| Based on Shariah principles | Not based on any specific principles |
| Prohibits interest (riba) | Charges and pays interest |
| Focuses on profit-sharing and risk-sharing | Primarily based on lending and borrowing |
| Assets and liabilities must be Shariah-compliant | No specific requirement for assets and liabilities |
| Promotes ethical and socially responsible investments | Focuses on maximizing profits |
Islamic banking operates on the principles of Shariah law, which prohibits the payment or receipt of interest (riba). Instead, Islamic banks engage in profit-sharing arrangements where both the bank and the customer share in the profits and losses of an investment. This promotes a more equitable distribution of wealth and encourages risk-sharing among all parties involved.
Conventional banking, on the other hand, is based on the concept of lending and borrowing with the payment of interest. Banks make money by charging interest on loans and paying interest on deposits. The focus is on maximizing profits for the bank and its shareholders, rather than promoting ethical or socially responsible investments.
Students studying the Level 5 Certificate Concepts of Islamic Finance and Banking online will gain a deeper understanding of how Islamic banking differs from conventional banking in terms of principles, practices, and ethical considerations. By learning about the key differences between these two systems, students will be better equipped to navigate the world of finance and banking with a broader perspective.
In conclusion, Islamic banking and conventional banking are fundamentally different in their approach to finance and banking. Islamic banking emphasizes ethical and socially responsible investments, profit-sharing, and risk-sharing, while conventional banking focuses on interest-based transactions and maximizing profits. Understanding these differences is essential for students pursuing a career in Islamic finance and banking.