Diff between normal & Islamic banking in maldeev

Difference between Conventional and Islamic

banking
Conventional Banking

Islamic Banking

Money is a commodity besides medium of

exchange and store of value. Therefore, it can
be sold at a price higher than its face value and
it can also be rented out.

Money is not a commodity though it is used as

a medium of exchange and store of value.
Therefore, it cannot be sold at a price higher
than its face value or rented out.

Time value is the basis for charging interest on Profit on trade of goods or charging on
capital.
providing service is the basis for earning profit.

Islamic bank operates on the basis of profit and

Interest is charged even in case the organization
loss sharing. In case, the businessman has
suffers losses by using banks funds.
suffered losses, the bank will share these losses
Therefore, it is not based on profit and loss
based on the mode of finance used (Mudarabah,
sharing.
Musharakah).

The execution of agreements for the exchange

While disbursing cash finance, running finance
of goods & services is a must, while disbursing
or working capital finance, no agreement for
funds under Murabaha, Salam & Istisna
exchange of goods & services is made.
contracts.

Islamic banking tends to create link with the

real sectors of the economic system by using
Conventional banks use money as a commodity trade related activities. Since, the money is
which leads to inflation.
linked with the real assets therefore it
contributes directly in the economic
development.

What is difference between conventional mortgage financing and Islamic

Mortgage financing?
Under conventional mortgage, in order to purchase a property the customer borrows money and
repays it with an additional amount over a period of time. The additional amount is the amount
of interest which is against the Shariah rulings of Islam. Under Islamic mortgage finance facility,
Islamic bank shares with the customer in purchasing his desired property. Accordingly, the
customer and the bank become the joint owners of the property in proportion to their share in
purchasing the property. In order to own and use the entire property, the customer purchases the
share of banks property over a period of time and also pays the rent for using the banks
share of the property. Over a period of time, the customer manages to purchase the entire share
of bank in the property. Ultimately, the customer becomes the sole owner. Further, in case of
Islamic mortgage finance, the rent will be charged after the lessee has taken delivery of the
property and it is in workable/usable condition. Rent cannot be charged from the day the price
was paid to acquire the property/asset. If the supplier has delayed the delivery after receiving the
full price, the lessee should not be liable for the rent of the period of delay. In case of
conventional mortgage finance, normally the lease rentals starts from the date the bank make
payment for purchasing the property/asset.