Nowadays, principle, ethical and fair practice and transparent

Nowadays,
it seems that a lot of people have been confused and unaware about Islamic
financial. Some people thought that Islamic product is only can be used for
muslims. So, people need to change their perception about Islamic product which
can only be used by muslim. The truth is, it can be used by variety of people.
When we talk about Islam, we know that Islam is not just about religion. Islam
is more than people think about. Islam is principle of life that deals with
various aspect which are social, political and economic manner. In term of
finance, the Islamic product that contributed is Islamic finance. Islamic
finance is a financial system that operates according to Islamic law that based
Syariah complaint which is Al-Quran and Hadis (source) while conventional
finance is business activities for receiving, lending, exchanging and
safeguarding money in order to earn profit. There are several major differences
between Islamic finance and conventional finance which makes it different
between each other.

            Firstly, Islamic finance and
conventional finance are different in term of the function and operating modes.
The system of conventional bank that we used now is fully man-made principle while
Islamic bank system is operated based on the principles of Islamic Syariah. In
addition, the perception of Islamic product were following the Syariah
principle, ethical and fair practice and transparent in terms. In Islamic
finance, they strictly follow the laws and regulations because the key for
imposing these laws and ethics are to promote justice which is in Islam are
justice is important. Therefore, in order to protect the social justice is a
key of Islamic finance industry grows and develops well in order to compete
with other products. On the other hand, conventional finance is essentially
based on debtor and creditor relationship between depositors. By the same
token, lenders lend to borrowers to make a profit from the interest charged on
the principle amount. These show that both, Islamic finance and conventional
are different in term of the function and operating modes.

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            Secondly, we can see the difference
between Islamic finance and conventional finance in term of is risk sharing.
People can make an evaluation through this step what are the differences and it
teach us about risk sharing in financial market. In conventional financing, the
customer bear all the risk of paying bank the loan from the amount of money
they borrowed. While in Islamic finance, they are types of contract in risk sharing. Each type of
contract specifies how risk is shared between the enterprise and the supplier
of finance. One of the contract is   mudarabah. In this contract, the profits
are shared in the predetermined ratio, so the financier’s return fluctuates
according to business profitability. While losses, are to be borne entirely by
the financier, except those caused by the entrepreneur’s fraud or negligence.
We can see here, in Islamic finance, they promote risk sharing between provider
of capital and the user of fund which between investor and entrepreneur. In
conclusion, Islamic finance are contrast with conventional finance because in
risk sharing, conventional finance shows that the financier has a contractual
right to receive interest (capital repayment) irrespective of the condition of
the borrower’s business. This shows that Islamic finance and
conventional have a big difference between each other. 

Thirdly,
the different between Islamic finance and conventional is in term of interest.
In conventional finance, bank charge additional money as a penalty or compound
interest in case of defaulters. While, in Islamic finance, the bank consider
interest they charged on loan or usury as riba
and it does not mean in Islam. In term of riba,,
it has been subjected to various
forms of regulations and restrictions. Islamic finance system is very concerned
and strictly prohibit of taking interest on loans. Otherwise, interest has
given a burden to borrower to pay back because the amount of money borrowed has
increase so high which is including their interest. For example, in Islamic
finance, they prohibit no usury or unlawful (interest) in term of riba, no certainty or trickery in term
of gharar and no compounding of
interest and unfair fees. In Islam, it has shariah principle applied such as Akad Mudarabah (buy-sell), Musharakah Mustanaqishah (capital
sharing) and Ijarah Wa’istina
(leasing with the option of ownership) instead of interest.

 

As
a conclusion, we can see that both Islamic and conventional finance gives shows
a lot of differences. Therefore, we need to be wise in managing our finance and
wealth according to Allah’s commands which promoting justice and prohibit
certain activities. It is important to acknowledge the several major
differences between Islamic finance and conventional finance which are in term
of the function and operation mode, risk sharing and interest. After all, as a
consumer of financial product we need to be wise in managing our financial well
and choose the most beneficial one to use as customer. It is no use crying over
split milk if we fail in managing our finance well.