In this edition of our monthly write-up, we’ve decided to tackle a topic that has been creating many debates and leaving the financial community with mixed feelings. You have guessed right! we’re talking about Islamic banking as a banking system distinct from its conventional counterpart.

In effect, Islamic banking is a system of banking based on the concept of profit and risk sharing, solidarity, and redistribution of wealth. In other words, it is referred to as Shariah-compliant banking since Islamic banking follows Shariah principles. Conversely, conventional banking is a capitalistic system with a key focus on profit maximization and its purpose is to make money through interest.

In a few ways, Islamic banking is similar to conventional banking as both systems mobilize savings from the surplus side of the public and give loans to the deficit size for consumption and investment purposes. However, Islamic banks do not charge interest on loans or pay interest on savings because interest is proscribed in Islam. Hard work and partnership are put forth to ensure everybody earns what they deserve.

The table below gives the key differences between Islamic and conventional banking.

Differences between Islamic and conventional banking

Source: Author


All things considered, Islamic banking is a system that blends Shariah principles with banking practices to provide products and services that uphold society, reduce inequality, and strengthen the economy. In no way is Islamic banking trying to eclipse conventional banking. Instead, Islamic banking presents itself as an alternative type of banking and seeks to be complementary to its conventional counterpart. Both systems are important to the economy and they can work together to facilitate financial inclusion and economic growth.