difference between islamic banking and conventional banking

Time is a major factor in calculating the interest charged on the loan capital in the conventional set-up. Real assets such as land and ornaments are considered as objects of value.

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Both systems accept deposits from consumers and commercial entities and offer various financing solutions to them.

. Difference between Islamic and conventional banking. Money is a product besides medium of exchange and store of value. Difference from Conventional Banking.

Profit on exchange of goods services is the basis for earning. This is the first in a series of articles on Islamic finance and banking concepts. Conventional Bank treats money as a commodity and lend it against interest as its compensation.

Borrower and earns more than the conventional ones. There are several Islamic banks in Bangladesh. Islamic banks primarily work upon different modes of finance such as Murabaha Salam and Diminishing Musharakah etc Murabaha.

In this paper an effort has been made to provide the fundamental difference between the conventional banking and Islamic banking system Keywords. An introduction to general Islamic banking principles and structures. Meanwhile Islamic banks do not recognize the term interest but the principle of profit and loss the amount is fixed not influenced by inflation but project profits.

Islamic Banking while on the surface is still banking but it is built on a totally different foundation. However specific considerations have been taken to separate the two and ensure. There are significant difference which is brought about by a single requirement.

The conventional system uses money as a medium of exchange as well as an object of value. In conventional banks the percentage of interest is based on the amount of savings or loans the customer has. Major Differences Between Islamic and Conventional Banking.

Conventional Banks use money as a commodity which leads to inflation. Conventional Banking Loan Contracts Characteristics. In the Islamic system money is used only as a medium of exchange.

This report focuses on the difference between Islamic banking and conventional banking. However the conventional banking focus on lending emphasis on ability to repay and apply only a financial criteria. Banking 1 COMPARISON BETWEEN CONVENTIONAL AND ISLAMIC BANKING f Banking 2 Abstract This paper provides a detailed insight into the two different kinds of banking systems that prevail in todays financial world.

It is a sale and purchase contract between the two parties with disclosing of profit. Relationship of customer bank is of Seller- Buyer and. For this purpose two big Islamic banks ie.

The Islamic Banking focus on investment emphasis on soundness of the project and apply moral criteria in investment. Conventional mode and its Islamic alternative are described with a comparative study between their objectives. Since the money is linked with the real assets therefore it contributes directly in the economic development.

THE STRUCTURE The basic difference between Islamic Banking and conventional banking is the structure of how the Bank is set up. The estimated size of Islamic banking is 166 trillion to 21 trillion worldwide. Islamic banking is not a mere copy of conventional practices rather major differences exist in the operations of Islamic Financial Institutions IFIs in comparison with conventional banking.

Conventional banks offer lending facilities to their clients to fulfil their cash requirement on the basis of loan contracts where the relationship between the Bank and client is that of lender and borrower respectively. Relation of customer bank is of Creditor-Debtor. No risk of underlying assets 2.

24 Differences between Islamic Banking and Conventional Banking As per Schaik 2001 p46 Islamic banking differs from conventional banking in 3 ways First of all in its mission and objectives because Islam is the backbone of Islamic banking moral principles and objectives play a more important role in the operations of an Islamic bank. Islamic banking products are usually asset backed and involves trading of assets renting of asset and participation on profit loss basis. In this case the bank as seller discloses the cost and profit to the customer the buyer.

Islamic Banking tends to link with the real sectors of the economic system by using trade related activities. Meezan Bank Pakistan and bank Islami are taken in the study for the comparison of their performance with two large. The present study is confined to the profitability efficiency and liquidity comparison between two types of banking that is Islamic and conventional banking.

For specific and detailed analysis and comparison for this report I choose EXIM bank Bangladesh LTD which was a conventional bank at past now become an Islamic bank. At first glance it may seem as though there is little to differentiate between Islamic and conventional banking. The present study.

Islamic Banking Conventional Banking Islamic Finance. Income through Interest 3. Time value is the basis for charging interest on capital.

Real Asset is a product Money is just a medium of exchange. If there is no profit the loss will be shared. Higher complexity in combination with the relatively young age of the Islamic financial institutions is likely to result in higher costs and thus a lower level of cost.

This has become all the more important since an increasing number of local and foreign banks in the UAE are either starting their own separate. The theoretical differences between Islamic and conventional banks do not have clear implications for total earnings the capability to access market capital or efficiency.

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