Differences Between Islamic Bank and Conventional Banks

Differences Between Islamic Bank and Conventional

Conventional Banks Islamic Banks

1. The functions and operating modes of conventional banks are based on fully manmade principles. 1. The functions and operating modes of Islamic banks are based on the principles of IslamicShariah.

2. The investor is assured of a predetermined rate of interest. 2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur).

3. It aims at maximizing profit without any restriction. 3. It also aims at maximizing profit but subject to Shariah restrictions.

4. It does not deal with Zakat. 4. 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.

5. Lending money and getting it back with compounding interest is the fundamental function of the conventional banks. 5. Participation in partnership business is the fundamental function of the Islamic banks. So we have to understand our customer's business very well.

6. It can charge additional money (penalty and compounded interest) in case of defaulters. 6. The Islamic banks have no provision to charge any extra money from the defaulters. Only small amount of compensation and these proceeds is given to charity. Rebates are give for early settlement at the Bank's discretion.

7. Very often it results in the bank's own interest becoming prominent. It makes no effort to ensure growth with equity. 7. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity.

8. For interest-based commercial banks, borrowing from the money market is relatively easier. 8. For the Islamic banks, it must be ba...

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... through an overall framework with checks and balances that include recognised ownership of the risk by businesses and independent risk management oversight. The Group and the Bank mitigate their operational risk by setting up its key controls and assessments according to Citigroup’s and Regulators’ standards. They are also evaluated, monitored, and managed by its sound governance structure. The Group’s and the Bank’s Self-Assessments and Operational Risk Framework include the Risk and Control Self-Assessment and the Operational Risk Policy, and define the Group’s and the Bank’s approach to operational risk management. The objective of the policy is to establish a consistent approach to assessing relevant risks and the overall control environment across the Group and the Bank, to facilitate adherence to

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