Summary of Difference between Islamic and Conventional Banking

The video explains the fundamental differences between Islamic and Conventional Banking systems, focusing on their financial principles and operational methodologies:

• Conventional Banking:
  • Loan-based system.
  • Deposits are treated as bank accounts with fixed returns or interest.
  • Money is lent out with an expectation of interest, irrespective of the outcome of the borrower’s business.
  • Profit is earned on the principal amount plus interest, often without direct risk-sharing.
• Islamic Banking:
  • Participation-based system without fixed interest or guaranteed returns.
  • Deposits (other than current accounts) are taken on the basis of Profit and Loss Sharing (participation and Mujbaat).
  • Financing clients is done through trade-based contracts such as Murabaha (cost-plus financing) and other profit-sharing modes.
  • The bank and depositor act as partners or entrepreneurs, sharing profits and losses together.
  • Islamic Banking involves actual trading or asset transfer, meaning money is earned through trade or service transactions, not merely lending money at interest.
  • Profit commitment is not guaranteed; the principal amount is not guaranteed either.
  • The bank often becomes a partner in the client's business, sharing risks and rewards.
  • Islamic Banking strictly prohibits earning money on money (no interest), emphasizing ethical trade and risk-sharing.
• Key Business Principles in Islamic Banking:
  • Banking operations are based on real economic activity (trade or services).
  • Profit and loss are shared between the bank and clients.
  • Transactions must involve asset transfer or service provision.
  • The system aligns with Islamic law (Shariah), forbidding interest (riba) and speculative practices.

Presenters/Sources:

The content appears to be presented by an expert or commentator knowledgeable in Islamic Finance, though no specific names are mentioned in the subtitles.

Notable Quotes

— 03:42 — « In the system of conventional banking, rupee is earned on rupee, money is given and on top of that, they say that we got more work on it because we gave money and we bore the risk, whereas from the point of view of Islam, the risk that comes as a result of giving money. »

Category

Business and Finance

Video