Is Islamic banking better than conventional banking? This has been an age long question, sitting at the back of the heads of people in the banking industry and even the ordinary laymen. Islamic banking has rapidly increased in the past decade and rightly so—the number of Muslims has been significantly increasing. This can be seen in the United States of America, welcoming as many as 20,000 Muslims every year.
Furthermore, these new Muslims will be turning to banks that provide Islamic banking services. Islam is significantly growing and Muslims will always have the need to consume Sharia compliant services, causing more and more banks to eventually adopt the Islamic banking system. Although Islamic and conventional banking share several similarities, they share a larger amount of differences that drastically set them apart and these differences are what determine their client count.
The Islamic banking system has proven to erase the possible loopholes found in the conventional banking system. Besides being Sharia compliant, the Islamic banking system has four main principles that are; prohibiting usury, avoiding speculation, avoiding gambling and investing ethically. These principles provide efficiency for the parties involved in Islamic banking systems and ensure the rights of clients. In Islamic banking, money is treated as a mere medium of exchange—it is not looked at for its value’s worth.
A main advantage of Islamic banking is that the asset that is being invested in, must be specified to its investors. This is a major perk as it alleviates any possibilities of unknown risks. An investor is clearly informed on what they are investing in, making it easier to determine the success of said investment. This way, investors are confident walking into an investment and have no speculation. It’s also worth noting that Islamic financing does not allow investments that deal with prohibited material such as alcohol, pork any form of trade that produces haram (unlawful) money. Furthermore, there is a lower probability of failure in Islamic banks because the banks are extremely concerned with the choices their customers make and ensure that their clients choose wisely when it comes to investments.
In addition to that, Islamic banking contributes to the general health of the economy. As a result of Non-Sharia compliant systems that conventional banks provide, Muslims often take the route of abstaining from banking all-together. With Islamic banking, Muslims around the world contribute to the monetary ecosystem, ensuring a balanced overall economy with contributions from all religious demographics.
All-in-all, the Islamic banking system fares better than the conventional banking system that most of the current world uses. With the increasing number of Muslims, surely there will be a need to adopt Sharia compliant banking in potentially all banks around the globe. The Islamic system is a stable, strict and standardised system that is reliable and works in ways where the conventional system may not be able to deliver in. The fate of Islamic banking looks promising and we’re curious to see what the future holds.