Major Differences Between Islamic and Banking System

Major Differences Between Islamic and Banking System

  • Submitted By: khalil1404
  • Date Submitted: 12/07/2011 4:58 PM
  • Category: Business
  • Words: 555
  • Page: 3
  • Views: 251

Major Differences between Islamic and Banking System |
|
Islamic System |
| Conventional System |
|
Money is a product besides medium of exchange and store of value. | Real Asset is a product. Money is just a medium of exchange. |
Time value is the basis for charging interest on capital. | Profit on exchange of goods & services is the basis for earning profit. |
Interest is charged even in case, the organization suffers losses. Thus no concept of sharing loss. | Loss is shared when the organization suffers loss. |
While disbursing cash finance, running finance or working capital finance, no agreement for exchange of goods & services is made. | The execution of agreements for the exchange of goods & services is must, while disbursing funds under Murabaha, Salam & Istisna contracts. |
Due to non existence of goods & services behind the money while disbursing funds, the expansion of money takes place, which creates inflation. | Due to existence of goods & services no expansion of money takes place and thus no inflation is created. |
Due to inflation the entrepreneur increases prices of his goods & services, due to incorporating inflationary effect into cost of product. | Due to control over inflation, no extra price is charged by the entrepreneur. |
Bridge financing and long term loans lending is not made on the basis of existence of capital goods. Rather, they are disbursed on the basis of Windo Dressed project feasibility and credibility of the entrepreneur. | Musharakah & Diminishing Musharakah agreements are made after making sure the existence of capital good before disbursing funds for a capital project. |
Government very easily obtains loans from Central Bank through Money Market Operations without initiating capital development expenditure. | Government can not obtain loans from the Monetary Agency without making sure the delivery of goods to National Investment fund. |
The...

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