Islamic Banking vs Conventional Banking: Key Differences, Functions, and Features Explained

Unlock the world of banking with our detailed educational PowerPoint presentation that explores the key differences between Islamic Banking vs Conventional Banking. In this presentation, you’ll discover how Islamic Banking operates on ethical principles, offering an alternative to the interest-based systems in Conventional Banking. Understand the key functionalities and features of both systems, such as profit-sharing, risk management, and the prohibition of interest in Islamic finance. Learn why many people believe Islamic Banking is better than Conventional banking, offering a more socially responsible, fair, and transparent approach to finance.

Whether you're a student, professional, or simply curious about the world of banking, this presentation provides valuable insights into both systems. Dive into this comprehensive guide to broaden your understanding of the evolving banking landscape!

For a complete lecture on difference between islamic banking and conventional banking, and for more lectures on Islamic Banking and Finance visit: https://aims.education/study-online/difference-between-islamic-banking-and-conventional-banking-system/

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1. www.website.com [phone] Difference Between Islamic and Conventional banking

2. Difference between Islamic Banking and Conventional Banking Let us first understand the Islamic banking and conventional banking system.

3. Islamic Banking is an Ethical Banking System, and its practices are based on Islamic ( Shariah ) laws. Interest is completely prohibited in Islamic banking. It is asset-based financing, in which trade of elements prohibited by Islam is prohibited. For example, you cannot take a loan for a Wine Shop. Islamic Banking System

4. Conventional Banking System On the other hand, Conventional Banking is an Unethical Banking system based on Man-Made Laws. It is profit-oriented and aims to make money through interest.

5. Islamic Banking and Conventional Banking - Major Differences Now, let us review some major differences between Islamic banking and conventional banking systems:

6. Medium of Exchange Medium of Exchange Money is a product besides medium of exchange and store of value Real Asset is a product. Money is just a medium of exchange Islamic Banking and Conventional Banking - Major Differences

7. Interest on Capital Profit on Exchange of Goods & Services Time value is the basis for charging interest on capital Profit on exchange of goods & services is the basis for earning profit Islamic Banking and Conventional Banking - Major Differences

8. Expanded Money in the Money Market No Expansion of Money The expanded money in the money market without backing the real assets, results deficit financing Balance budget is the outcome of no expansion of money Islamic Banking and Conventional Banking - Major Differences

9. No Loss Sharing Loss Sharing Interest is charged even in case, the organization suffers losses. Thus no concept of sharing loss Loss is shared when the organization suffers loss Islamic Banking and Conventional Banking - Major Differences

10. No Exchange of Goods & Services under Contract Exchange of Goods & Services under Contract While disbursing cash finance, running finance or working capital finance, no agreement for exchange of goods & services is made The execution of agreements for the exchange of goods & services is must, while disbursing funds under Murabaha , Salam & Istisna contracts Islamic Banking and Conventional Banking - Major Differences

11. Inflation No Inflation Due to non existence of goods & services behind the money while disbursing funds, the expansion of money takes place, which creates inflation Due to existence of goods & services no expansion of money takes place and thus no inflation is created Islamic Banking and Conventional Banking - Major Differences

12. Increase of Prices Control in Prices Due to inflation the entrepreneur increases prices of his goods & services, due to incorporating inflationary effect into cost of product Due to control over inflation, no extra price is charged by the entrepreneur Islamic Banking and Conventional Banking - Major Differences

13. Inappropriate Surveillance Proper Surveillance: Bridge financing and long term loans lending is not made on the basis of existence of capital goods Musharakah & Diminishing Musharakah agreements are made after making sure the existence of capital good before disbursing funds for a capital project Islamic Banking and Conventional Banking - Major Differences

14. Easy to Obtain Loans without Monitoring Monitoring Board Restrictions Government very easily obtains loans from Central Bank through Money Market Operations without initiating capital development expenditure Government can not obtain loans from the Monetary Agency without making sure the delivery of goods to National Investment fund Islamic Banking and Conventional Banking - Major Differences

15. Poverty Takes Place Real Growth of Wealth Real growth of wealth does not take place, as the money remains in few hands Real growth in the wealth of the people of the society takes place, due to multiplier effect and real wealth goes into the ownership of lot of hands Islamic Banking and Conventional Banking - Major Differences

16. Non Performing Loans Changes for Better Management Due to failure of the projects the loan is written off as it becomes non performing loan Due to failure of the project, the management of the organization can be taken over to hand over to a better management Islamic Banking and Conventional Banking - Major Differences

17. Decrease in Real GDP Increase in Real GDP Debts financing gets the advantage of leverage for an enterprise, due to interest expense as deductible item form taxable profits. This causes huge burden of taxes on salaried persons. Thus the saving and disposable income of the people is affected badly. This results decrease in the real Gross Domestic Product (GDP) Sharing profits in case of Mudarabah and sharing in the organization of business venture in case of Musharakah , provides extra tax to Federal Government. This leads to minimize the tax burden over salaried persons. Due to which savings & disposable income of the people is increased, which results the increase in the real Gross Domestic Product (GDP) Islamic Banking and Conventional Banking - Major Differences

18. Bad Impact of Decrease in Real GDP Good Impact of Increase in Real GDP Due to decrease in the real GDP, the net exports amount becomes negative. This invites further foreign debts and the local-currency becomes weaker Due to increase in the real GDP, the net exports amount becomes positive, this reduces foreign debts burden and local-currency becomes stronger Islamic Banking and Conventional Banking - Major Differences

19. These study contents are taken from  Islamic finance courses online . These courses are delivered through interactive learning and they are designed by AIMS for  masters in Islamic banking and finance , which leads to   phd Islamic finance .