Comparison of Islamic Banking and Conventional Banking Essay

The foundation of Islamic pious platitude is based on the Islamic belief and must stay within the limits of Islamic Law or the sharia law in all of its actions and deeds. The original meaning of the Arabic word sharia is the way to the source of life and is now used to refer to levelheaded system in keeping with the code of behaviour called for by the Holly Quran (Koran). Amongst the political science principles of an Islamic bank are * The absence of interest-based (riba) transactions* The avoidance of scotch activities involving oppression (zulm)* The avoidance of economic activities involving speculation (gharar)* The introduction of an Islamic tax, zakat* The dismay of the production of goods and services which contradict the Islamic value (haram)On the opposite hand, conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on one hand, and between the borrowers and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money.Islamic law considers a add to be given or taken, free of charge, to meet any contingency. thusly in Islamic Banking, the creditor should not take advantage of the borrower. When money is impart out on the basis of interest, more often that it leads to some charitable of injustice. The first Islamic principle underlying for such kind of transactions is deal not unjustly, and ye shall not be dealt with unjustly 2279 which explain wherefore commercial banking in an Islamic framework is not based on the debtor-creditor relationship.The other principle pertaining to financial transactions in Islam is that at that place should not be any reward without taking a risk. This principle is applicable to both labor and capital. As no payment is allowed for labor, unless it is applied to work, there is no reward for capital unless it is exposed to business risk.Thus, financial mediation in an Islamic framework has been devel oped on the basis of the above-named principles. Consequently financial relationships in Islam have been participatory in nature.