The Differences Between Shariah and Conventional Business

Islamic banking is a banking system that implemented Islamic law. The system was set up because there is prohibition in Islam to pay or receive interest (riba). Islam also prohibits investing in businesses with restricted category (haram). In contrast to conventional banking can't guarantee these things in investments. It is because Islamic banking based on Islamic economic principles, such as ensure community ownership and usage, resist the accumulation of wealth controlled by a few people, and prohibit riba in all forms

This article will explain the slight differences between Islamic and conventional business systems.
What is the difference??

In general, there are some fundamental differences between Islamic system with a conventional system.

• First, the existence of the contract in the Islamic system is a must in every transaction and contract in accordance with the provisions and regulations applicable to the Islamic system.
• Second, the treatment of the consideration given to the customer. In the conventional financial system, the amount of rent or interest promised in advance to be treated as a cost to be paid by the bank to the owner of the funds. While in the Islamic system, the rewards made ​​on the basis of profit sharing which is determined by an agreement between the bank and the owner of the funds.
• Third, is the funding target of choice. In the conventional financial system, the lenders tend not to care about where funding allocations made ​​by banks or other financial institutions without regard to principles of halal-haram. While in the Islamic system, lending to customers should not be reserved for business activities that lead to the entry in the category of haram Islamic principles, such as gambling, food or alcoholic beverages, pornography, and prostitution.

Islamic system has the same purpose as conventional system, that financial institutions can generate profits by lending capital, deposit funds, to finance business activities, or other activities as appropriate. Principles of Islamic law forbids the elements below in banking transactions :

1. Commerce on the prohibited goods
2. Interests (riba)
3. Intentional gambling and speculation
4. Ambiguity and manipulative

Comparison between Islamic and conventional business are:
Islamic Business

• Doing only halal investments according to Islamic law
• Using the principle of sharing, sale, and lease
• For profit and Falah (happiness of the world and the hereafter according to the teachings of Islam)
• Relationships with customers in the form of partnership
• Collection and disbursement of funds according to the Sharia Supervisory Board fatwas

Conventional Business

• Invest whether lawful or unlawful according to Islamic law
• Using the interest rate
• For profit
• Relationships with customers in the form of creditor-debtor
• Collection and distribution of funds is not governed by a board of similar

The principles of Islamic business aims to bring benefits for customers, because it promises justice in accordance with the Islamic economic system.

References :
- Buku Saku Lembaga Bisnis Syariah yang diterbitkan oleh Pusat Komunikasi Ekonomi Syariah.
- Islamic Doctrine on Banking and Insurance (1980)
- Khursid Ahmad, Islamic Finance and Banking: The Challenge of the 21st Century, dalam Imtiyazuddin Ahmad (ed.) Islamic Banking and Finance: The Concept, The Practice and The Challenge (Plainfield: The Islamic Society of North America, 1999).