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BANKING INSTITUTIONS (Islamic (Element on financial contracts, processes,…
BANKING INSTITUTIONS
Conventional
To maximize the profit, where the owner himself works hard to gain the profit as the profit becomes his own property
The holders will lend funds to get back risk-free interest income as the return. The mechanism of interest based lending and borrowing gives the holders the opportunity to make money from his money without counting on business risk
Money becomes the most important source of happiness and accumulation of wealth becomes the highest point in measuring success of life
Variety of financial services such as depository institutions, contractual intermediaries and investment intermediaries
Islamic
Element on financial contracts, processes, instruments, activities, the underlying transactions and asset and the legal documentation should follow the rules and principles of Islamic law
All the activities under IFIs have made it compulsory that charging riba or interest is to be avoided
Islamic law does not encourage economic activities that
involve speculation (ghirar) and prohibit investing in business that is haram
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Differences
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The teaching of Islam would impact the operation of IFIs, as Islamic teaching always focused on moral elements compared to conventional banks.
Similarities
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Enhance the performance of the market by rreducing the transaction cost, transfer the risk and advisor of the inequality of information between parties
Both systems, which are market-based or bank-based, are better for economic growth