Differences Between Islamic Bank and Conventional Essay

Differences Between Islamic Bank and Conventional - Essay Example nterest (riba) in the transactions, avoiding economic transactions that involve oppression (zulm), and the introduction of an Islamic tax known as zakat (Fahim & Mario 2010, p. 92). Under conventional banking, the danger of insolvency is lower as compared to Islamic banking. Fluctuations in the income of a conventional bank are passed on to depositors as fluctuating payments. On the contrary, losses incurred in Islamic banking do not affect the account holders. As such, Islamic banks may suffer the losses rather than passing on the losses to the customers. In conventional banks, the major aim to protect against possible risks and losses that may emanate from investments. Therefore, depositors choose to invest their funds in banks that have high returns. On the other hand, depositors in Islamic banks do not look for banks that have high rates of return since the sole aim is not to make high profits (Visser 2009, p. 140). In conventional banking, transactions are shaped by the limits in applying usury prohibition. This ensures separation of the banks from the risks associated with the activities of the customers. On the other hand, in Islamic banking, a system based on the participation of the creditors in the risks and profit replaces the interest-based system (Fahim & Mario 2010, p. 91). The interest earned in conventional banking is based on the fact that the lender ought to get a fixed return on the investment, regardless whether the venture of the borrower succeeded or did not succeed. On the other hand, Islamic banking prohibits the presence of predetermined return, although it recognizes the legitimacy of profit sharing. Conventional banking operates for the own interests of the bank; thus, the bank does not make efforts to make sure that there is growth with equity. On the contrary, Islamic banking gives a lot of importance to the interest of the public. Thus, it aims at ensuring that there is growth with equity. In conventional banking, commercial banks