Islamic banking is completely separate and distinctive from conventional banking regarding its principles, objectives, procedures, and methodologies. To summarize, the basic difference between Islamic Banking and Conventional Banking, as discussed above, are:
| Islamic Banking | Conventional Banking |
|---|---|
| All the activities of Islamic Banking are done according to Islamic law (Shariah), i.e., as per guidelines and directives of the Holy Quran and Sunnah. | Conventional Banking activities are done by the procedures and laws evolved through human research, studies, and innovation. |
| In Islamic Banking, interest (Riba) is strictly prohibited, and consequently, all its activities are operated without the involvement of interest. | – Conventional banks do not lend money in cash and are interested in a trade with no direct relation, partnership, or commodities. – Interest is predetermined and compounded periodically, becoming exorbitant and explorative and helping the concentration of wealth through the lending business. |
| – Islamic banks do not do the trading of money; rather, partnerships and trading goods/commodities are legitimate. – Banks do not pay money directly to their customers as an investment. – They allow investment through commodities; the bank’s profit is the profit of buying and selling commodities. – On the other hand, the bank shares the profit of the partnership business with its customers. | The basis of conventional banking interests and, as such, all its activities are operated with interest. |
| – Its sources of income are profit, rental and service charges, commissions, etc. – Profit is uncertain and calculated after completing the business or transactions where the investors have risks and uncertainty. | – Its source of income is interest (Riba) and services and commissions. – Interest is pre-fixed and certain. – The debtor is bound to pay the interest, and the creditors have no risk or loss. |
| In Islamic Banking, interest (Riba) is strictly prohibited; consequently, all its activities are operated without the involvement of interest. | In conventional banks, the relationship between customers and bankers is nothing but debtor and creditor. The bank does not have the responsibility for the profit/loss of the customer. |
| – An Islamic Bank is a banker and a business partner. – It is participatory banking in both capital and profit/loss. | Conventional Banks do not think about such economic and social responsibility. |
| Islamic banks make coordination with social development. It has a clear social commitment. | There is no such commitment or undertaking in the conventional banking system. |
| – Islamic banks do not trade money; rather, partnerships and trading goods/commodities are legitimate. – Banks do not pay money directly to their customers as an investment. – They allow investment through commodities; the bank’s profit is the profit of buying and selling commodities. – On the other hand, the bank shares the profit of the partnership business with its customers. | – Islamic banks do not trade money; partnerships and trading goods/commodities are legitimate. – Banks do not pay money directly to their customers as an investment. – They allow investment through commodities; the bank’s profit is the profit of buying and selling commodities. – On the other hand, the bank shares the profit of the partnership business with its customers. |
| Islamic banks encourage investment in the production of essentials as well as in the social welfare sector. | Conventional banks do not consider these factors/aspects; rather, it gives more importance to earning interest. |
| Islamic banks do not do business on items harmful to societies though there are possibilities to earn more profit there. | – There is no justification or consideration as to whether the business is good or bad in the conventional banking system. – Earning interest is the only motive of this system. |
