Islamic or Sharia and Conventional comparison is still hot issue in studying finance, banking, and economic. Most of Europe countries or banks are implemented Islamic or Shari banking or finance system.
Conventional finance and banking system is proofed can not avoid of monetary crisis. Greece, Lehman brothers in USA, Spain are some countries that still using conventional banking and finance system, and they are collapsed.
On the other hands, Germany and United Kingdoms that were adopted Islamic finance and banking system are surviving in the monetary crisis. That why Islamic finance was very recommended.
Here are some the differences between conventional and Islamic banking and finance system:
Conventional Banking | Islamic Banking |
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Money is a commodity besides medium of exchange and store of value. Therefore, it can be sold at a price higher than its face value and it can also be rented out.
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Money is not a commodity though it is used as a medium of exchange and store of value. Therefore, it cannot be sold at a price higher than its face value or rented out.
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Time value is the basis for charging interest on capital.
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Profit on trade of goods or charging on providing service is the basis for earning profit.
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Interest is charged even in case the organization suffers losses by using bank’s funds. Therefore, it is not based on profit and loss sharing.
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Islamic bank operates on the basis of profit and loss sharing. In case, the businessman has suffered losses, the bank will share these losses based on the mode of finance used (Mudarabah, Musharakah).
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While disbursing cash finance, running finance or working capital finance, no agreement for exchange of goods & services is made.
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The execution of agreements for the exchange of goods & services is a must, while disbursing funds under Murabaha, Salam & Istisna contracts.
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Conventional banks use money as a commodity which leads to inflation.
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Islamic banking tends to create link with the real sectors of the economic system by using trade related activities. Since, the money is linked with the real assets therefore it contributes directly in the economic development.
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source: http://www.mib.com.mv/
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