islamic and conventional different

Let us first understand the major difference between Islamic banking and conventional banking system. Islamic banking is an Ethical Banking System, and its practices are based on Islamic (Shariah) laws. Interest in completely prohibited in Islamic banking. It is asset based financing, in which trade of elements prohibited by Islam are not allowed. For example, you cannot take a loan for a Wine Shop. On the other hand, Conventional Banking is an Un-Ethical Banking system based on Man-Made Laws. It is profit-oriented and its purpose is to make money through interest.

Now, let us review some major differences between Islamic banking and conventional banking systems:

THE DIFFERENCES BETWEEN ISLAMIC AND CONVENTIONAL BANKING.

CONVENTIONAL BANKING:

-money is a commodity besides medium of exchange and store of value.
-time value is the basic for changing interest on capital
-interest is charged even in case the organization suffers loses by using banking funds
-while disturbing cash finance, running finance or working capital finance, no agreement for exchange of goods and service is made
-conventional banks use money as a commodity which leads to inflation


ISLAMIC BANKING:

-money is not a commodity through it is used as a medium of exchange and store of value
-profit on trade of goods or changing on providing service is the basic for earning profit
-islamic bank operates on the basic of profit and loss sharing
-the execution of agreement for the exchange of goods and services is a must, while disturbing funds under murabahah, salam and istisna contracts
-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 economy development.