Islamic and traditional banks

The difference between Islamic and interest banks (commercial / conventional)

Some people may think that the difference between Islamic and interest banks is the predetermined interest; however, differences go beyond that. Some major differences are:

  • Islamic banks are based on religious beliefs that oppose interest in principal, while interest banks are based on interest as the base for dealings. Proponents of Islamic banks believe that interest is forbidden and that money belongs to Allah, therefore, they have to abide by His rules and legislations. 
  • Interest banks are based on interest and their dealings embrace gambling and damage as they collect people's money as deposits and give them interest, and then they lend this money again to other people with higher interest, so they deal with interest giving and taking. 
  • Islamic banks care for ideal morals and ethics and they reflect them in their dealings with clients as they believe that this is an inseparable part from Islam. Some visible example is represented in forgiving clients when passing through insolvency that makes them unable to pay back their debts on the predetermined times following the holy verse:

(And if the debtor is in a hard time (has no money), then grant him time till it is easy for him to repay, but if you remit it by way of charity, that is better for you if did but know)
280: Surat Al-Baqarah
On the other hand, interest banks' main focus is the maximum profit possible even if it means to ignore morals and ethics. Therefore, if those in debt were unable to pay back their debts, they are sued and loaded with delay interests. What's more, they sometimes send those people to jail, force them to announce bankruptcy and confiscate their properties.

  • Islamic banks are founded on a social base as one of their chief purposes is establishing social development. This is realized in the social services offered by these banks such as loans, social loans, giving part of alms to poor families, scholars, building mosques, charity societies, and the holy qura'an schools. It is noteworthy that Islamic banks make a balance between social and economical development and such a character is lacking in interest banks. 
  • Unlike interest banks, Islamic banks do not invest money in areas that are forbidden by Islamic legislations such as cabarets, tobacco industry or raising pigs; rather, they invest money in the projects that contribute to social and economical development making satisfying profits for investors. However, some interest banks lend money to some service industrial companies that promote economical development. 
  • Islamic banks depend on partnership and the interaction between the working capital and work. Many economical, social and human benefits are gained because of this interaction. In the contrary, interest banks depend in investing money on re-lending money to other people with a higher interest and this result in many disadvantages such as threatening human resources and directing money to useless investments for the Islamic community. 
  • Islamic banks are interested in dealing with craftsmen and small merchants while interest banks that focus only on well-known customers who can provide the needed guarantees. 
  • Islamic banks focus on controlling expenses as they are based on excluding interest in all their dealings and consequently lifting it from the shoulders of their customers. On the other hand, interest banks give loans to economical institutions with interest that is added to production costs. This eventually leads to rising prices and recession of profits. 
  • One of the responsibilities of Islamic banks is propaganda for Islam through translating the Islamic economical thought into a reality that shows that Islam is a state and religion as well as worships and dealings. Islamic banks are also interested in awareness raising through issuing brochures and journals, in addition to offering solutions to some economical problems. On the other hand, propaganda for Islam is not existent in the activities of interest banks due to the lack of values and beliefs as the deal with interest giving and taking.
  • This fatwa was issued based on many resources and above all (Islamic banks between thought and application by Dr. Hussain Shahata, Islamic economy expert, a doctor at the faculty of commerce, Al-Azhr University).