For those considering whether to make the switch from conventional banking to Islamic banking, the distinction between the two is pretty important.

Although people are aware that Islamic banking exists and of its basic principles, they need more information to convince them to make the jump.

Read on to learn why Islamic banking is both different and the same as conventional banking, but most of all, better.

THE FUNDAMENTAL DIFFERENCES

While conventional banks are based upon a system of man-made laws and make profit through debt and interest, Islamic banks operate upon a basis of profit and loss sharing. This means that any profit, and any loss, will be shared amongst customers of the bank. On the other hand, conventional banks will charge interest despite any losses suffered.

For conventional banks, time value is the basis for charging interest on capital. Whereas Islamic banks make money on trade of goods or charging for providing services as the basis for making profit. Islamic banking connects with the real sectors of the economic system by using trade-associated activities. This, then, contributes directly to economic advancement.

Conventional banks use money as a commodity, for delivering debts and charging interest. This excess supply of credit often leads to inflation , therefore we see an increase in prices of goods and services.

So overall, Islamic banking is ethically driven whereas conventional banking is interest driven. Which do you think can handle your money better?