Differences between Islamic and Conventional Banking - Essay Example

Differences between Islamic and Conventional Banking Differences between Islamic and Conventional Banking Banking, just like anyother field in the world, has its different modes of operation. There are different ways in which the banking systems present today work. This may depend on the geographical and demographical position of the system, the social structure that surrounds it, among many other factors (Quresh, Hussain & Rehman 2012). The Islamic community dictates that things must be done differently, so that the culture and traditions of people can be maintained.

This is seen even in the manner in which their education system is run. They follow the Shariah law in everything they undertake so that the system cannot be corrupt by any foreign or western influence. Conventional banking may not be strict in the monitoring of any religious laws, but they must have a code of conduct to guarantee the smooth operations of the organization. This paper will scrutinize the contrasts between the two types of banking, and differentiates them, even in this day and age.

International conventional banking systems are feeling the pressure that is brought on by Islamic banking. They are, therefore, trying to incorporate this system to suit current times. This incorporation is done in compliance with Shariah principles in different regions, for example, Pakistan. It is the belief of many that only the religious factor counts in Islamic banking. This may not be entirely true. People often look at other factors, for example, customer and employee interactions, financial services, and convenience that may determine whether a customer may opt for Islamic or conventional banking (Quresh, Hussain & Rehman 2012).

These factors, in different Muslim strongholds, may assist the banking systems present choose or decide to have various services for their customers. In conventional banking systems, interest is the main driving force as conventional banks are created under the ideology of capitalism. Interest in Islam is banned and may act as a hindrance in the formation of a morally upright banking structure. Muslims, Allah believers, believe that dealing in such a system that promotes interest is going against their beliefs (Quresh, Hussain & Rehman 2012).

This has pushed them to set their banking systems, which follow their guidance and principles. It is; therefore, fair to say that Islamic banking systems are interest free. The approval and organization of funds is also under the laws and principles of Islam. Another major difference between the two forms of banking is the overheads present. In Islamic banking, it is observed that the overheads are lesser. The products, goods, and services offered by IBs are lesser than those offered by the conventional banks.

In other instances, Islamic banks have to offer consumers better and much valuable products and services. This is so as to keep up with conventional banks, which are now opting to adopt the Islamic structure in their banking system. Appearance, image, and the emergence of the Islamic structure, with regard to religion, are simply not enough to appeal to consumers in the ever-expanding global community (Quresh, Hussain & Rehman 2012). The benefits, both financial and social, that Islamic banking systems offer may be factors that propel or draw customers to this form of banking.

This is while conventional banking systems are trying to compete and catch up with IBs. Another difference that sets IBs apart is the excellence that many customers place on the management and running of these organizations. The services, goods, and products are often said to be reputable than their counterparts in CBs. Corporate social responsibility is an expression that is used to refer to accountability by organizations toward the external environment. IBs are said to be keen on corporate social responsibility, and are more sensitive and aware of their environment than their counterparts (Quresh, Hussain & Rehman 2012).

These factors are likely to draw more customers to the system of banking, especially in modern times. Individuals around the world are beginning to look for such small issues, enabling them to accept their surroundings. Therefore, if IBs proffer better valuables than CBs, then they are the way forward. In conclusion, the world has to realise the global trend that is emerging (Quresh, Hussain & Rehman 2012). There is a new way of doing things that may be better suited to the current situations.

Whatever suits an individual in terms of banking may rest entirely on their perception toward the system present. IBs and CBs are competing for the same consumer base in the different and culturally diverse regions they are located. To promote the smooth and easy flow of operations, management in these systems must realise that customers must be satisfied. The differences that exist between the two systems may be the reason for their success and/or failure. Change is, therefore, inevitable for all these systems if they need to stay ahead, and at the top.

Reference Quresh, HA, Hussain, Z & Rehman, K 2012, ‘A Comparison between Islamic banking and conventional banking sector in Pakistan’, Information Management & Business Review, vol. 4, no. 3, pp. 195-204.