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Conventional Banking
Characteristics Islamic Banking System System (Interest-Based)
Business Framework Functions and operating Functions and operating
modes are based on Syariah modes are based on
law. secular principles and not
based on any religious
Banks have to ensure that all
laws or guidelines.
business activities are in
compliance with Syariah
requirements.
Financing is interest-
Prohibition of Riba' in Financing Financing is not interest-
oriented and is based on the oriented and a fixed/
principle of buying and selling floating interest is charged
of assets, whereby the selling for the use of money.
price includes a profit margin
and is fixed from the
beginning.
Zakat (Religious Tax) E.g. Banks cannot finance Do not deal in zakat.
businesses involving pork,
alcohol, etc.
In the modern Islamic banking
system, it has become one of
the functions to collect and
distribute zakat.