London School of International Business (LSIB)

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

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

One of the main differences between Islamic banking and conventional banking is the prohibition of interest in Islamic banking. In Islamic finance, the charging or paying of interest, also known as riba, is strictly prohibited as it goes against Islamic principles. Instead, Islamic banks operate on the principle of profit-sharing, where the bank and the customer share the profits and losses of an investment.

Another key difference is the concept of risk-sharing in Islamic banking. In conventional banking, the bank bears all the risk associated with a loan or investment. However, in Islamic banking, the risk is shared between the bank and the customer, promoting a more equitable distribution of risk and reward.

Furthermore, Islamic banking is guided by Shariah principles, which govern all aspects of financial transactions. This includes the prohibition of investing in businesses that are considered haram (forbidden) such as alcohol, gambling, and pork products. This ethical framework sets Islamic banking apart from conventional banking, which does not have such strict guidelines.

Additionally, Islamic banking promotes social responsibility and financial inclusion. Islamic banks are encouraged to provide financial services to underserved communities and support charitable causes through the concept of zakat, which is a form of almsgiving required of all Muslims.

Overall, the Rqf Level 5 Certificate Concepts of Islamic Finance and Banking course provides a comprehensive understanding of the differences between Islamic banking and conventional banking. By studying this course, students will gain valuable insights into the principles and practices of Islamic finance, and how they differ from traditional banking systems.

Islamic Banking	Conventional Banking
Prohibition of interest (riba)	Charging and paying of interest
Risk-sharing	Bank bears all the risk
Guided by Shariah principles	No strict ethical guidelines
Promotes social responsibility	Focuses on profit maximization