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Islamic Banking vs. Conventional Banking

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Islamic Banking vs. Conventional Banking

Page 1 of 4
Islamic Banking vs. Conventional Banking
In most Islamic countries, they tend to practice two types of financing in banking industry which are conventional and Islamic banking. The country like in Malaysia has successfully developed an Islamic banking system that operates in parallel with the conventional banking system. There is similarity between conventional banking and Islamic banking which helps to promote economic growth provided financing services such as credit facilities for business activity, mortgage, securities, etc. in order to achieve their same ultimate profit objectives. However, there are also having differences in practicing financial services due to most investors having their own preferences on their investments and business activities which they may involve in Islamic banking or conventional banking. The three main differences between Islamic bank and conventional bank are in term of rules and regulations, concept of money lending and products and services. “Malaysia is one of the unique countries which operate a dual banking system where the Islamic banking system operates in parallel with the conventional banking system” (Haron & Azmi, 2008, p.619). By the way, Islamic bank has more restrictions on rules and regulations compared to conventional bank. Islamic banking principles are unique and based on Islamic Shariah law which to ensure activities are done according to the Islamic Syariah principle (Al-Tamimi, Lafi & Uddin, 2009). According to Investopedia (n.d.), Shariah is defined as “Islamic religious law that governs not only religious rituals, but aspects of day-to-day life in Islam”. There are two primary sources of Shariah law: the precepts set forth in the Quran, and the example set by the Islamic prophet Muhammad in the Sunnah. Shariah is interpreted by Islamic judges with varying responsibilities for the religious leaders. In other hand, conventional banks activities are conducted by referring to guidelines set by central bank...