What is the difference between commercial bank and Islamic bank?

Answer 1

There are two major difference between Islamic Banking and Conventional Banking:

1. Conventional banking practices are concerned with "elimination of

risk" where as Islamic banks "bear the risk" when involve in any

transaction.

2. When Conventional banks involve in transaction with consumer they

do not take the liability only get the benefit from consumer in form of

interest whereas Islamic banks bear all the liability when involve in

transaction with consumer. Getting out any benefit without bearing its

liability is declared Haram in Islam.

Answer 2

Conventional Banks Islamic Banks 1. The functions and operating modes of conventional banks are based on fully manmade principles. 1. The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah. 2. The investor is assured of a predetermined rate of interest. 2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur). 3. It aims at maximizing profit without any restriction. 3. It also aims at maximizing profit but subject to Shariah restrictions. 4. It does not deal with Zakat. 4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to be a Zakat Collection Centre and they also pay out their Zakat. 5. Lending money and getting it back with compounding interest is the fundamental function of the conventional banks. 5. Participation in partnership business is the fundamental function of the Islamic banks. So we have to understand our customer's business very well. 6. It can charge additional money (penalty and compounded interest) in case of defaulters. 6. The Islamic banks have no provision to charge any extra money from the defaulters. Only small amount of compensation and these proceeds is given to charity. Rebates are give for early settlement at the Bank's discretion. 7. Very often it results in the bank's own interest becoming prominent. It makes no effort to ensure growth with equity. 7. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity. 8. For interest-based commercial banks, borrowing from the money market is relatively easier. 8. For the Islamic banks, it must be based on a Shariah approved underlying transaction. 9. Since income from the advances is fixed, it gives little importance to developing expertise in project appraisal and evaluations. 9. Since it shares profit and loss, the Islamic banks pay greater attention to developing project appraisal and evaluations. 10. The conventional banks give greater emphasis on credit-worthiness of the clients. 10. The Islamic banks, on the other hand, give greater emphasis on the viability of the projects. 11. The status of a conventional bank, in relation to its clients, is that of creditor and debtors. 11. The status of Islamic bank in relation to its clients is that of partners, investors and trader, buyer and seller. 12. A conventional bank has to guarantee all its deposits. 12. Islamic bank can only guarantee deposits for deposit account, which is based on the principle of al-wadiah, thus the depositors are guaranteed repayment of their funds, however if the account is based on the mudarabah concept, client have to share in a loss position..

Answer 3

An Islamic loan is governed by Islamic banking guidelines, popularly called Sharia Guidelines. Sharia Guidelines is the Islamic way of life for all walks of life.

Broadly seen, there is not much difference in the transactions within the Conventional Banking and the Islamicfi loans or Financing but most pertinent is the way it is done i.e. the concept and the operations and the recording of the transactions. The validity of a transaction does not depend on the end result but rather the process and activities executed and the sequence thereof. If a transaction is done according to the Guidelines of Islamic Shariah it is permissible even what is achieved is no different to what it is in conventional banking. The documentation, the contracts and product structures under Islamic Loans or Financing are different from that of the conventional banks. In the verse 2:275 of the Holy Quran, Allah the Almighty has responded to the apparent similarity between a trade and interest transaction by resolutely guiding that He has permitted trade and prohibited Riba (though both the transactions may look similar). Thus the concept of Islamic financing or Islamic Loans or Participating Financing, evolves under this guidance and governed by known Sharia Guidelines.

Answer 4

Conventional banking involves giving and receiving interest payments which as per Islamic laws is not acceptable. Hence it is Haram or not Halal. As per Islamic laws giving and receiving interest is considered Haram or Unlawful. So, Islamic banking practices were started to provide banking services to customers following the Islamic faith so that they can take up banking without offending their religious sentiments.

Answer 5

Conventional banking involves giving and receiving interest payments which as per Islamic laws is not acceptable. Hence it is Haram or not Halal. As per Islamic laws giving and receiving interest is considered Haram or Unlawful. So, Islamic banking practices were started to provide banking services to customers following the Islamic faith so that they can take up banking without offending their religious sentiments.

Answer 6

A Commercial bank is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits. They both receive and pay interest on the deposits or loans granted. Whereas an Islamic bank operates as per Islamic law wherein accepting or giving interest is considered unethical.

The presence of Interest is the difference between commercial and Islamic banks.

Answer 7

The basic principle of Islamic banking is the prohibition of Riba- (Usury - or interest)

Answer 8

Apparently Islamic banks charge less interest on loans to keep it halal.