How is Islamic banking different?
Some of us still lack knowledge of what Islamic bank is all about and how it is different from the conventional banking systems. There are a number of misconceptions, wrong information, and ideas about the differences between these two banking systems.
The difference between Islamic banking and conventional banking:
The main difference is that the Islamic banking system is totally based on Islamic Shariah law. And the conventional banking system is based on human ideology and principles. Shariah law actually translates, ‘the way to the source of life.’ It covers all the laws and ideas of the various aspects of the life of a true Muslim.
Another dissimilation is that Islamic banks or financial institutions operate depending on profit and loss sharing. If a businessman experience losses, the Islamic bank will share it. This is based on the method of finance named Mudarabah or Musharakah. The conventional banks will still charge high interest even if the businessman suffers loss.
Orthodox banks use money as a commodity. Moreover, money is used as a mode of exchange. But the Islamic banking system uses money as a medium of exchange and a storage of value. Thus, it does not trade money at high prices like the orthodox banking system.
The difference between profit-making:
In the case of profit-making, the Islamic banking system uses time as a source of charging interest on capital. But the conventional banks use to profit on the exchange of goods and services as a source of profit charging.
Islamic banks focus more on debtor investment patterns, assessments, and evaluations. Repayments of money for deposit accounts are only guaranteed in Islamic banks only if the account has the principle of al-Wadiah. If there isn’t any, the depositor will share the losses in accordance with the Mudharabah ideology.
Islamic banks actually cater to the interest of the public. It has a primary objective of ensuring halal economic growth. And we all know, conventional banks mainly focus on making a profit.
Actually, the real difference between Islamic banks and conventional banks is that the fairness to the customers is truly focused on the idea of Islamic banking itself. The Islamic banking system has always wanted food for our sacred Ummah.