Difference Between Islamic Banking And Islamic Banking System

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Register to read the introduction… Without taking risk financial transactions are not allowed in Islam. Under Islamic framework, depositors are taking risk as Sahib-al-Mal. Therefore the earning of the depositors is uncertain. As Islamic banks works on the basis of profit loss sharing system, depositors or Sahib-al-Mal have to bear the loss if any. On the other hand conventional banks have to guarantee all its deposits. Without considering the trend of income these banks have to give interest on the deposits money at predetermined rate. They do not share any profit or loss with their clients. They only maintain a debtor-creditor relationship with their …show more content…
In an interest based system, there is lack of symmetry in the cash flow of the banks and the cash flow of the enterprise. The entrepreneurs of the businessman have to give a fixed interest to the banks that has no relationship to the actual return of the project. This creates instability in the entire business sector. The bankers also lack equilibrium in their assets and liability side because their assets are fixed while liabilities are variable.
In case of Islamic banking system, the liabilities of the bank are on the basis of mudarabah and hence are also variable. If there is any stock, it affects equally both asset and liability side of the banker's balance sheet. Thus their liabilities are related with actual performance of the projects hey financed. The asset and liabilities are mutually linked and this mechanism returns equilibrium between the assets and the liabilities of the Islamic banks. So there is a very likelihood of bank failures.

Growth of the banking
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When a client make an offer or a proposal regarding loan or investment the bank emphasizes more on the character of the applicants. The bank must verify the character of the applicant before allowing his application. The banks deal with their client based on faith and trust. So it is necessary for the bankers to know the background, family status, educational qualification, business experience, reputation of the applicant. Again the bank may meet with the prospective client regarding his investment needs and business experience prior to an application/proposal is submitted. The bank may review the client's past performance and other financing arrangement he may have had with the bank in the past. When the banks become contain that the applicant is not involved with any activities violating the Islamic Shari’ah they grant his

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