Islamic Banking Vs Traditional Banking

Introduction

A bank is a financial intermediary that accepts money from the general public and channelized the accepted money into the lending activities. Within the banking system we can distinguish between public banks and private banks, which in turn can be commercial, industrial and mixed business. The private commercial banks are primarily concerned with providing loans to private individuals. The industrial or business invests its assets in industrial firms, acquiring them and directing them.

In this paper we will discuss the Islamic banking VS traditional banking and the differences between these two banking and how does it affect on the general public.

Discussion

Traditional Banking

Traditional Banking system comprises of the ordinary banking where customers open bank account, enjoy the banking facilities through depositing the money in the local bank. They are liable to withdraw their money through check or ATM card or through bank drafts. Interest has to be paid on the money borrowed from the traditional banking which is called cost of money.

Principles of Traditional Banking

The main role is to channelize the borrowed funds as well as to provide safe, transactions denominated liabilities. For the protection of these funds, banks charge a number of committees, which also apply to the various services that modern banks offer their customers in increasingly competitive framework: credit cards, overdraft, and bank telephone among others (Moin S., 2008, pp. 7).

However, since the savings the bank may dispose of the depositor, the latter compensated by paying interest. We can distinguish various types of deposits. First, the deposits can be realized in so-called current account: the client gives the bank a certain amount for it to the store and can dispose of them at any time. Time ago to acquire historical, these deposits were not paid, but the increasing competition among banks has made this trend has changed dramatically in all Western countries. Second, banks offer savings accounts, which are also deposits, i.e. you can have them anytime. Deposits and withdrawals are made and are recorded through a savings account, which has the nature of financial documents. 

The availability of such deposits is less than the current account as it requires recourse to the bank to provide funds, while the current accounts allow the provision of funds by using checks and credit cards. Thirdly we must mention the so-called fixed-term accounts, where there is no free disposal of funds, but they recover to the due date but, in practice, you can dispose of these funds prior to default, but with a penalty (the compensation fund is less than in the case of waiting for the expiration date). Fourth, there are the so-called certificates of deposit, financial instruments very similar to deposits or time deposits, the main difference comes from how the document.  Certificates will be made through a written document interchangeably, i.e., whose property can be transferred.  Finally, within the different types of deposits, savings deposits are linked interest-bearing accounts related to banking asset (the case of a housing account: the amounts deposited to be used for a particular purpose, such as the house ...