Difference between Islamic & Conventional Finance

Difference between Islamic & Conventional Finance

Introduction

In recent times people are moving from conventional financing system towards Islamic financing. Recently it has been observed that Islamic finance has evolved all over the world and has changed from a small section of an economy towards a major part of the industry. Globalization has enabled Muslims and Non-Muslims to work together and make each other understand about the products and services differences in both types of the financing systems. The Islamic Financing has successfully passed the stages of promoting and recognizing its products to the world but now it is in the phase of growth and providing its services in all parts of the world. The products and services provided under Islamic finance offers competitive prices and provide sufficient care for the implementation of Shariah. The report will give in detail description of Islamic Finance, history or from where did the Islamic Finance emerged, what are the objectives of Islamic Finance and how much has been able to establish its existence in the world economies. The latter part of the report will discuss the difference between Islamic Finance and the conventional Financing systems. The report will try to find the basis on which these differences are made between the two financing systems.

Discussion

What is Islamic Finance?

According to Ahamd (2010) the biggest breakthrough in the financial markets is the evolution of Islamic Finance. The financing system has been able to prove its existence in all parts of the world. Different countries use Islamic finance to provide different kinds of products and services. Muslims are a very large part of the world's population and as all the economic, social, political and religious practices fall under the legal system of Islam, they also wanted to make products and services available in the financial sector as well. Muslims by getting the alternative of Islamic finance as compared to the conventional finance they feel more satisfied in getting the products and services according to the Shariah compliance. Many of the Muslims in Islamic societies consider Shariah as the basis of their religious, but Muslims living in a non-Islamic society faced difficulties in order to get the financial products and services according to Shariah as it is only a part of a law not implemented on the financial sector of the economy. The basic meaning of Islamic Finance is disapproving usury and termed as Riba which is the lending of money at reasonable rates. Further in Islamic Finance money has no intrinsic value and so nothing should charge against the value of the money. Thus Islamic Finance is asset based and not currency based as it only depends on the exchange of assets and using money as only the way of making payments. The whole Islamic Finance System is based on the principle of Shariah which is practiced by all the Muslims living in different Islamic societies. Sahriah is termed as the Law of Islam that is based on two cornerstones first is The Quran, which ...