DIFFERENCE BETWEEN ISLAMIC AND CONVENTIONAL BANKING & ISSUES RELATED TO ISLAMIC BANKING TERMS

Abstract

This research paper discusses the conflict between Islamic banking and Conventional way of banking. In Conventional banking, profit is in the form of interest which is prohibited in Islam under the guidelines provided in the form of Quran and Shariah. This was irritating for the Muslims to make the bank transaction. To overcome this problem Islamic banking was introduced in 1976 for the first time in Indonesia. Islamic way of banking tends to follow the banking laws provided by Shariah. Islamic banking includes the terms: Morabaha, Modaraba, Musharika and Ijarah (leasing). In contrast to Conventional banking, in Islamic Banking depositors are actually sleeping partners with the bank. The bank invests the money of the depositor and shares the profit and loss with him.