Conventional Banking Vs Islamic Banking (Basic Differences)
Assalamualaikum, Please take my greetings, to all my muslim and non-muslim brothers and sisters. Today I am going to discuss some major differences between Conventional Banking and Islamic Banking. There are some people who used to say that Conventional banking and Islamic banking are the same. But I strongly defend their statement and request them to know about Islamic banking before commenting absurd. However, In here I have tried to show the differences based on my limited knowledge.
Firstly, In conventional banking money is considered as a commodity and transaction of money can give birth of money. In simple word, money brings money. But Islamic Banks consider money as a medium of exchange and transaction of money can't bring money rather by trading money can be produced. In simple way, Through trading one can earn or produced money.
Secondly, Conventional bank consider time value of money and charge interest accordingly. Islamic banking doesn't consider the time value of money and is against of every kind of interest. Behind this reason there are social and economic reason. As interest creates imbalance in the society and also creates inflation in the economy.
Finally, Conventional banks take money from one party at a fixed rate and give it to another party at a higher fixed rate, then the spread is bank's income. On the other hand, Islami banks take money from one party and invest the fund alone or jointly (with another party). It is a business and through this the Islami bank earns profit or loss. This profit or loss is distributed according to pre agreed ratio. The profit is not fixed unlike interest.
Thanks for your time. As a human being I can do mistake, please let me know if you find any. Take care.