Islamic Banking vs Conventional Banking
Money and Banking: Islamic Banking & Conventional Banking
Submitted By: Rehman Sohail Hamza Arshad
Submitted To: Ms. Shehla Akhtar
[pic]
Management Sciences Department National University of Modern Languages H-9, Islamabad
Islamic Banking Vs Conventional Banking One must refrain from making a direct comparison between Islamic banking and conventional banking (apple to apple comparison). This is because they are extremely different in many ways. The key difference is that Islamic Banking is based on Sharia’h foundation. Thus, all dealing, transaction, business approach, product feature, investment focus, responsibility are derived from the Sharia’h law, which lead to the significant difference in many part of the operations with as of the conventional
The foundation of Islamic bank is based on the Islamic faith and must stay within the limits of Islamic Law or the Sharia’h in all of its actions and deeds. The original meaning of the Arabic word Sharia’h is 'the way to the source of life' and is now used to refer to legal system in keeping with the code of behavior called for by the Holly Qur'an (Koran). Amongst the governing principles of an Islamic bank are:
* The absence of interest-based (riba) transactions;
* The avoidance of economic activities involving oppression (zulm)
* The avoidance of economic activities involving speculation (gharar);
* The introduction of an Islamic tax, zakat;
* The discouragement of the production of goods and services which contradict the Islamic value (haraam)
On the other hand, conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on one hand, and between the borrowers and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money.
Islamic law considers a loan to be given or taken, free of charge, to meet any
Submitted By: Rehman Sohail Hamza Arshad
Submitted To: Ms. Shehla Akhtar
[pic]
Management Sciences Department National University of Modern Languages H-9, Islamabad
Islamic Banking Vs Conventional Banking One must refrain from making a direct comparison between Islamic banking and conventional banking (apple to apple comparison). This is because they are extremely different in many ways. The key difference is that Islamic Banking is based on Sharia’h foundation. Thus, all dealing, transaction, business approach, product feature, investment focus, responsibility are derived from the Sharia’h law, which lead to the significant difference in many part of the operations with as of the conventional
The foundation of Islamic bank is based on the Islamic faith and must stay within the limits of Islamic Law or the Sharia’h in all of its actions and deeds. The original meaning of the Arabic word Sharia’h is 'the way to the source of life' and is now used to refer to legal system in keeping with the code of behavior called for by the Holly Qur'an (Koran). Amongst the governing principles of an Islamic bank are:
* The absence of interest-based (riba) transactions;
* The avoidance of economic activities involving oppression (zulm)
* The avoidance of economic activities involving speculation (gharar);
* The introduction of an Islamic tax, zakat;
* The discouragement of the production of goods and services which contradict the Islamic value (haraam)
On the other hand, conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on one hand, and between the borrowers and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money.
Islamic law considers a loan to be given or taken, free of charge, to meet any