London School of International Business (LSIB)

How does Islamic banking differ from conventional banking in the context of the Rqf Level 5 Certificate in The Concepts of Islamic Finance and Banking qualification?

Islamic banking and conventional banking are two different systems of banking that operate on different principles and values. In the context of the Rqf Level 5 Certificate in The Concepts of Islamic Finance and Banking qualification, it is important to understand the key differences between the two systems.

Islamic banking is based on the principles of Shariah law, which prohibits the payment or receipt of interest (riba). In Islamic banking, profits are generated through ethical investments in assets and businesses that comply with Islamic principles. This means that Islamic banks do not engage in interest-based transactions, speculative activities, or investments in industries that are considered haram (forbidden) such as alcohol, gambling, and pork.

On the other hand, conventional banking operates on a profit-driven model where interest is charged on loans and deposits. Conventional banks invest in a wide range of industries and assets, without any restrictions on the type of investments they can make.

One of the key differences between Islamic banking and conventional banking is the concept of risk-sharing. In Islamic banking, profits and losses are shared between the bank and the customer, creating a more equitable relationship between the two parties. This encourages responsible lending and investment practices, as both parties have a stake in the success of the venture.

Another important difference is the concept of asset-backing. In Islamic banking, all transactions must be backed by tangible assets, such as real estate or commodities. This provides a greater level of security for both the bank and the customer, as the value of the assets can be used to cover any losses in the event of default.

Furthermore, Islamic banking promotes ethical and socially responsible investing, with a focus on promoting economic development and social welfare. This is in line with the principles of Shariah law, which emphasize the importance of fairness, justice, and compassion in all financial transactions.

Overall, the Rqf Level 5 Certificate in The Concepts of Islamic Finance and Banking qualification provides a comprehensive understanding of the key differences between Islamic banking and conventional banking. By studying this qualification, students will gain a deeper insight into the principles and values that underpin Islamic finance, and how they differ from the conventional banking system.

Islamic Banking	Conventional Banking
Based on Shariah law	Profit-driven model
Prohibits interest (riba)	Charges interest on loans and deposits
Promotes risk-sharing	No risk-sharing
Asset-backed transactions	No asset-backing required
Ethical and socially responsible investing	No specific focus on ethical investing