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Conventional banking depends on interest rate system. If a person borrows from the bank, he needs to pay interest on the borrowed amount by a certain percentage each year. This is an obligatory interest payment. On the other hand, the depositors to a bank earns an interest gain by a certain rate, which is a financial obligation for the bank. On the other hand, Islamic banking depends on a variable rate of profit. The depositors to an Islamic bank will gain profit if the bank makes profit or loss, in case the bank makes a loss. Interest rate in conventional banking is fixed, whereas the rate of profit in Islamic banking system can vary.
In conventional banking interest amount is fixed and express before making any contract like10% after one year where as Islamic banking says10% of THE PROFIT after one year. Money on Money is prohibited in islamic banking rather profit earned through appreciated value of goods sold.
Conventional Banks consider money as a commodity so it can be sold at a higher price. Islamic Bank consider Money as a medium of exchange so it cannot be sold at a higher price than it face value.
