Advantages Conventional Banking Essay

696 Words Dec 15th, 2015 3 Pages

Banking sector constitute a major financial service sector affecting economic development. The stability and growth of any economy to a great extend depend on the stability of its banking sector. It functions as intermediary linking surplus and deficit units; facilitate funds for productive purpose and thereby contributes to economic development. Conventional banking based on interest prevails across the world. Islamic banking follows Islamic Shariah as the basis of operation. In both conventional banking and Islamic banking operates and offer its various products and services. While conventional banks offer its services that are interest based, Islamic banking services are interest-free and is based on
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The investor/lender is guaranteed of a predetermined rate of interest or returns. Unrestricted profit maximization illustrated by derivatives trading. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to be a Zakat Collection Centre and them also pay out their Zakat but in conventional bank does not deal with Zakat. Lending money and getting it back with compounding interest is the fundamental function of strictly private and confidential understanding the venture is therefore essential. Embedded know-your-customer orientation. The conventional banks money is a commodity and the motivation. Islamic banks have no provision to charge any extra money from the defaulters except for compensation typically such proceeds are given to charity. Rebates early settlement at the Bank's discretion. Often, lenders/banks interest becoming forefront. It makes no effort to ensure growth with equity. For the Islamic banks, it must be based on a Shariah approved underlying transaction. For interest-based commercial banks, borrowing from the money market is relatively strictly private and confidential easier. Since it shares profit and loss, the Islamic banks pay greater attention to developing project appraisal and evaluations but for conventional since income from the advances/loans is fixed, it gives little importance to developing

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