What is the difference between conventional banking and Islamic banking?

 CONVENTIONAL BANKING VS ISLAMIC BANKING 

The following are the main differential points between conventional banking and Islamic banking. 

ONE........

CONVENTIONAL 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. 

ISLAMIC BANKING:

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. 

TWO........

CONVENTIONAL BANKING: Time value is the basis for charging interest on capital. 

ISLAMIC BANKING: Profit on trade of goods or charging on providing service is the basis for earning profit. 

THREE.......

CONVENTIONAL BANKING: Interest is charged even in case the organization suffers losses by using bank’s funds. Therefore, it is not based on profit and loss sharing. 

ISLAMIC BANKING: Islamic bank operates on the basis of profit and loss sharing. In case, the businessman has suffered losses, the bank will share these losses based on the mode of finance used (Mudarabah, Musharakah). 

 FOUR.......

CONVENTIONAL BANKING: While disbursing cash finance, running finance or working capital finance, no agreement for exchange of goods & services is made. 

ISLAMIC BANKING: The execution of agreements for the exchange of goods & services is a must, while disbursing funds under Murabaha, Salam & Istisna contracts. 

FIVE..........

CONVENTIONAL BANKING: Conventional banks use money as a commodity which leads to inflation. 

ISLAMIC BANKING: Islamic banking tends to create link with the real sectors of the economic system by using trade related activities. Since, the money is linked with the real assets therefore therefore it contributes directly in the economic development.