Differences Between Islamic Bank and Conventional Essay

Differences Between Islamic Bank and Conventional - Essay Examplenterest (riba) in the proceedings, avoiding economic transactions that involve oppression (zulm), and the introduction of an Islamic tax known as zakat (Fahim & Mario 2010, p. 92).Under formal banking, the endangerment of insolvency is lower as compared to Islamic banking. Fluctuations in the income of a conventional bank are passed on to depositors as fluctuating payments. On the contrary, losses incurred in Islamic banking do non affect the account holders. As such, Islamic banks may suffer the losses rather than passing on the losses to the customers. In conventional banks, the major aim to protect against possible risks and losses that may emanate from investments. Therefore, depositors choose to invest their money in banks that have high returns. On the different hand, depositors in Islamic banks do not bearing for banks that have high rates of return since the sole aim is not to make high mesh (Visser 2009 , p. 140).In conventional banking, transactions are shaped by the limits in applying usury prohibition. This ensures separation of the banks from the risks associated with the activities of the customers. On the other hand, in Islamic banking, a system based on the participation of the creditors in the risks and shekels replaces the interest-based system (Fahim & Mario 2010, p. 91). The interest earned in conventional banking is based on the fact that the lender ought to construct a fixed return on the investment, regardless whether the venture of the borrower succeeded or did not succeed. On the other hand, Islamic banking prohibits the presence of predetermined return, although it recognizes the legitimacy of profit sharing.Conventional banking operates for the own interests of the bank thus, the bank does not make efforts to make sure that there is growth with equity. On the contrary, Islamic banking gives a lot of wideness to the interest of the public. Thus, it aims at ensur ing that there is growth with equity. In conventional banking, commercial banks