NAME:
LECTURER:
COURSE:
DATE:
DK. HJH. HANA MOLINA
USTAZ DR. ISMAIL MAT
ISLAMIC BANKING & TAKAFUL
9 OCTOBER 2010
DIFFERENCES BETWEEN A CONVENTIONAL BANK AND ISLAMIC BANK
Conventional Bank
The
functions
and
operating
Islamic Bank
modes
of The functions and operating modes of Islamic
conventional banks are based on fully manmade banks are based on the principles of Islamic
principles
Shariah
Depositor are paid interest
Depositors are entitled to profit sharing
The investor is assured of a predetermined rate
In contrast, it promotes risk sharing between
of interest.
provider of capital (investor) and the user of
funds (entrepreneur).
The customer has no say where banker invest
money
Under special investment account, the customer
can decide where banker invest the money.
It aims at maximizing profit without any It also aims at maximizing profit but subject to
restriction.
Shariah restrictions.
Borrowers are charged interest
Financing is done through purchase and resale to
the customer, thus earning profit. If a loss is
incurred under Al-Mudharabah, the capital
provider will bear the loss, whereas under AlMusyarakah, the loss will be shared according to
the financing ratio.
It does not deal with Zakat.
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 they also pay out their Zakat.
Except for financing under leasing, margin of
Under al-Mudharabah or Bai' Bithaman Ajil
financing will be less than 100%
concept, 100% financing can be available.
Repayment is not fixed
Repayment is fixed
Legal relationship: The status of a conventional Legal relationship: The status of Islamic bank in
bank, in relation to its clients, is that of creditor relation to its clients is that of:
and debtors.

Seller and Buyer

Lessor and Lessee

Partner and Partner

Investors and Traders,
Commodity
Commodity
example: house becomes the security
example: house is the subject matter and major
element
A conventional bank has to guarantee all its
Islamic bank can only guarantee deposits for
deposits.
deposit account, which is based on the principle
of al-wadiah, thus the depositors are guaranteed
repayment of their funds, however if the account
is based on the mudarabah concept, client have
to share in a loss position.