18. Islamic banking tends to create link with the real sector of the economic system by using trade related activities. Conventional banks use money as a commodity which leads to inflation The execution of agreements for the exchange of goods & services is a must while disbursing funds under Murabaha, salam & Istisna contracts While disbursing cash finance, running finance or working capital, no agreement for exchange of goods & services is made. Islamic bank operates on the basis of profit and loss sharing Interest is charged even in case the organization suffers losses by using bank’s fund Profit on trade of goods for charging on providing service is the basis for earning profit Time value is the basis for charging interest on capital Money is not a commodity thought it is used as a medium of exchange and store of value Money is a commodity besides medium of exchange and store of value Islamic Banks Conventional Banks
19. Islamic banks cannot guarantee of all its deposits. A conventional bank has to guarantee of all its deposits. The status of Islamic bank in relation to its clients is that of Partners, Investors, and Trader, Buyer and Seller. The status of a conventional bank, in relations to its clients, is that of creditors and debtors. Islamic banking only deals in Halal products and services, all transactions must be in SHARIAH COMPLIANCE Conventional banks invest their deposit in interest based modes The Islamic banks have no provision to charge any extra money from the defaulters. It can charge additional money incase of defaulters Compounding calculation is strictly prohibited under Islamic banking system Lending money and getting it back with compounding interest is the fundamental functions of the conventional banks In contract it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur) The investor is assured of a pre determined rate of interest Islamic Banks Conventional banks
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