Islamic Banking VS Conventional Banking ? Meaning, Definition, and Example

Islamic banking and conventional banking differ fundamentally in their principles and practices. The key difference between Islamic banking and conventional banking lies in the prohibition of interest (Riba) in Islamic finance,

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while conventional banking allows interest-based transactions. In conventional banking, a conventional account refers to a traditional deposit account where the bank pays interest to the account holder, based on the amount and duration of the deposit. On the other hand, Islamic banking operates on profit-sharing principles, with products like Mudarabah and Musharakah,

where returns are based on actual business outcomes and risk-sharing, avoiding fixed interest payments. This distinction highlights the ethical and religious considerations that guide Islamic banking.

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