What Is The Difference Between Conventional And Islamic Banking

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Question 1 Explain the term of Islamic banking and how does it can be differentiate with conventional banking. Provide your answer with examples. Islamic banking is a banking system which is in consonance with the spirit, ethos and value system of Islam. It is governed by the principles laid down by Islamic law (Shariah) in all of the action, transaction and contracts. Islamic banking follows the Islamic laws (Shariah), which called as fiqh muamalat (Islamic rules and transactions). As we know, this rules and transactions came from Quran and the Sunnah and also other secondary source of Islamic laws. For instance, opinions that has been collect and agree among Shariah scholars which known as (ijma’). The common Shariah concepts in Islamic banking are Wadiah (Safekeping), Mudharabah (profit sharing), Bai’ Bithaman Ajil (deferred payment sale), Murabahah (cost plus), Musyarakah (joint venture), Ijarah Thumma Bai (hire purchase), wakalah (Agency), Qard (interest free loan) and Hibah (gift). There is difference between conventional and Islamic banking in terms of principles. In Islamic banking, the function and operating modes is based on the principles of Islamic Shariah. However, in conventional banks is based on fully manmade principles which means largely capitalism theory. In Islamic banks, it is prohibition of riba (interest). It means that, they cannot lend money to earn additional amount on it. However, a conventional bank is differ where they can charge interest even

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