A Comparative Analysis of Islamic and Conventional Banking

Abstract

   The performance of banks across different countries exhibits varying outcomes. These disparities can be attributed to the efficiency of banks in mobilizing and allocating resources, as well as the absence of various regulatory constraints between banks and the public. The prohibition of interest in Islam, coupled with its pivotal role in economic discourse as a linchpin connecting goods and services markets, the money market, and the balance of payments, has posed a significant challenge to Islamic societies and Muslims. As a potential solution to this dilemma, Islamic banking has been introduced in numerous Islamic countries and even in some non-Islamic nations, either on a nationwide or regional scale. Despite its inherent challenges, limitations, and shortcomings, Islamic banking offers distinct advantages compared to conventional banking.This research adopts an analytical-descriptive approach and employs a library research methodology. By drawing on various sources, the study delves into a comparative analysis of Islamic and conventional banking systems. Islamic banking, fundamentally rooted in Islamic culture and knowledge, is an integral component of a broader framework. The findings suggest that a comparative analysis of resource mobilization and allocation methods in conventional and Islamic banking reveals a greater diversity of resource mobilization methods and incentive tools within the Islamic banking system. However, the incentive tools employed in the conventional banking system are generally more robust and stable.