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Islamic law (Sharia’h) principles guided by Islamic economics.
Conventional banking is based on the principle that the more you have, the more you can get.
Islam has given an immense importance to trade
The nobility of this profession is obvious from the fact that it was the chosen profession of prophet Muhammad (PBUH).
Importance of Trade in Islam
The primary objectives of Islamic Economic System are as under.
Equal Distribution of wealth
Social justice
These objectives can never be achieved in Interest/Riba based economic systems.
Conventional banking practices are concerned with "elimination of risk" where as Islamic banks "bear the risk" when involve in any transaction.
ISLAMIC: CONVENTIONAL:
promotes risk sharing between provider of capital (investor)
predetermined rate of interest.
maximizing profit but subject to Shari’ah restrictions.
maximizing profit without any restriction.
small amount of compensation
charge additional money
DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING
Islamic Banking
1) Functions and operations are based on Sharia’h principles
Conventional Banking
1)Functions and operations are based on fully man made principles
DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING
Islamic Banking
2) Promote risk-sharing between provider of capital (investor) and user of funds (entrepreneurs)
Conventional Banking
2) Investor is assured of pre-determined rate of interest
DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING
Islamic Banking
3) Aim at maximising profit but subject to Sharia'h restrictions
Conventional Banking
3) Aim at maximising profit without any restrictions
DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING
Islamic Banking
4) Partners, investor and traders, buyer or seller relationship
Conventional Banking
4) Creditor-Debtor relationship
DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING
Islamic Banking
5) Encourage asset-based financing and based on commodity trading
Conventional Banking
5) Basaed on money trading. Money is a medium of exchange and not a commodity, its sale and purchase is prohibited in Islam.
DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING
Islamic Banking
6) No right of profit if there is no risk involved. The profit and loss sharing depositor may lose money in case of loss.
Conventional Banking
6) It is almost risk free banking and depositor has no risk of losing its money because interest is guaranteed.