Conventional Banks |
Islamic Banks |
| The functions and operating modes of conventional banks are based on fully manmade principles |
The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah. |
| The investor is assured of a predetermined rate of interest. |
In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (Moudareb). |
| Applied rate of interest may vary during the period of the loan |
Applied profit rate is fixed during the financing period |
| It aims at maximizing profit without any restriction |
It also aims at maximizing profit but subject to Shariah restrictions (ethical & Transparent ) |
| Lending money and getting it back with compounding interest is the fundamental function of the conventional banks. |
Participation in business is the fundamental function of the Islamic banks. No cash lending only application on buying and selling concept. |
| Proceeds from penalties to defaulters go to profit and loss account. |
Proceeds from penalties to defaulters go to charity |
| Apply greater emphasis on credit-worthiness of the client. |
Places greater emphasis on the viability of the projects in addition to the credit worthiness of the client |
| The status of a conventional bank, in relation to its clients, is that of a creditor to a debtors |
The status of Islamic bank in relation to its clients is that of partners, investors and trader, buyer and seller. |
| A conventional bank has to guarantee all its deposits |
Islamic bank can only guarantee deposits only against misconducts by the banks or its employees |
| (3) Regulatory bodies are; Internal Auditors, External Auditors, Banks Control Commission |
(4)regulatory bodies: Shariaa Auditors, Internal Auditors, External Auditors, Banks Control Commission |
