Islamic banking and conventional banking are two distinct systems that operate on different principles. In the context of the Ofqual Level 5 Certificate in The Concepts of Islamic Finance and Banking qualification, it is crucial to understand the key differences between the two.
| Islamic Banking | Conventional Banking |
|---|---|
| Based on Sharia principles, which prohibit the payment or acceptance of interest (riba). | Interest-based system where interest is charged and paid on loans and deposits. |
| Focuses on profit-sharing and risk-sharing arrangements, promoting fairness and transparency. | Primarily profit-driven, with fixed interest rates and fees. |
| Investments must comply with Islamic principles, such as avoiding industries related to alcohol, gambling, and pork. | No restrictions on the types of investments, as long as they are legal. |
Overall, Islamic banking promotes ethical and socially responsible financial practices, while conventional banking operates on a profit-driven model. Understanding these differences is essential for students pursuing the Ofqual Level 5 Certificate in The Concepts of Islamic Finance and Banking qualification.