Hirzil Azka

11220150000058
Pendidikan IPS 2C
THE DIFFERENCES BETWEEN SHARIA BANKS AND CONVENTIONAL BANKS

In today's financial landscape, a distinct contrast exists between Islamic banks and
conventional banks. While both institutions provide financial services, they diverge
significantly in their underlying principles and practices. It is crucial to understand the
dissimilarities between these two banking systems as they can greatly impact individuals,
communities, and the global economy.

Firstly, Islamic banks operate based on the principles of Shariah law, which is derived
from the Quran and the teachings of Prophet Muhammad. This adherence to Islamic ethics
ensures that financial transactions align with moral and ethical values. In contrast,
conventional banks operate within a secular framework, focusing primarily on profit
maximization without necessarily considering ethical guidelines.

Secondly, the nature of transactions in Islamic banks is fundamentally different from

conventional banks. Islamic banking prohibits the collection and payment of interest (Riba),
as it is seen as exploitative. Instead, Islamic banks engage in profit-sharing arrangements
(Mudarabah) and asset-based financing (Murabaha). These mechanisms promote risk-sharing
and discourage speculative behavior, fostering a more equitable financial system.
Conventional banks, on the other hand, rely heavily on interest-based lending and borrowing,
which can lead to excessive debt burdens and economic instability.

Thirdly, Islamic banks prioritize investments in real economic activities that have
tangible social benefits. They promote the concept of Halal (permissible) investments,
avoiding sectors such as alcohol, gambling, and speculative ventures. This emphasis on
socially responsible investments fosters sustainable economic growth and ensures that
financial activities contribute positively to society. In contrast, conventional banks may invest
in a wider range of industries, including those with potential negative social and
environmental impacts.

In conclusion, According to my opinion, as Muslims, it is better for us to switch to

using Islamic banks because they do not involve usury (riba). And Islamic banks themselves
are based on the principles of the Quran. The differences between Islamic banks and
conventional banks stem from different philosophies, principles, and operational frameworks.
Islamic banks give priority to ethical and socially responsible financial practices, while
conventional banks prioritize profit maximization.