Fatwa: # 31169
Category: Business Matters
Country: United Kingdom
Date: 6th November 2014


Difference between Islamic Banking and Conventional Banking


I have a question, sorry if it its daft thing to ask but im confused...The end result of Islamic Banking and Conventional Banking is the same ..thats what i think so how come they appear similar? 


In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

We understand your question as, “If the end result of Islamic Banking and Conventional Banking is the same, what is the difference between the two?”

Please take note of the following points/comments:

1). The “end result” of every Islamic Banking product/model is not the same, let alone (each product) being similar to Conventional Banking models. Hence, your statement is too general.

2). Many products are being advertised in today’s market as “Islamic,” yet, they are not in conformity to the laws of Shariah. We also condemn such advertisement and oppose such practices.

3). The mere fact that the end result of two things is the same, does not necessitate that both should be given the same ruling. Consider the following hadith to understand this principle clearly:

[1]A Sahabi brought high quality dates from Khaibar to Nabi salla Allahu ‘alaihi wa sallam. Nabi salla Allahu ‘alaihi wa sallam asked, “Are all the dates of Khaibar like these?” The Sahabi replied in the negative and said, “We take one saa’ (a measurement for dry items) of high quality dates for two saa’ of inferior dates. Nabi salla Allahu ‘alaihi wa sallam said, “Don’t do this. Rather, sell your two saa’ of inferior dates for a few silver coins. Then buy the high quality dates with the same coins.”

Apparently, there is no difference between the two transactions; the end result is the same. The Sahabi would still end up with one saa’ of high quality dates and the other with two saa’ of inferior dates. However, in the first transaction, the Sahabi was involved in interest (Like-items which are weighed or measured in volume cannot be sold in excess). Nabi salla Allahu ‘alaihi wa sallam saved the Sahabi from interest by proposing two separate purchase/sale agreements. Excess in a purchase/sale agreement is called profit. Whereas, excess in like-items which are weighed or measured in volume is interest. Using end results to justify the method(s) adopted was the philosophy of the polytheist of Makkah. They said,

الَّذِينَ يَأْكُلُونَ الرِّبَا لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ الَّذِي يَتَخَبَّطُهُ الشَّيْطَانُ مِنَ الْمَسِّ ذَلِكَ بِأَنَّهُمْ قَالُوا إِنَّمَا الْبَيْعُ مِثْلُ الرِّبَا وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا (البقرة: ٢٧٥)

Those who are involved in interest will not stand-on the Day of Judgment- except like the one who the Devil has driven crazy by his touch. That is because they said, “Sale is just like interest.” Whereas, Allah has made sale permissible and prohibited interest (Al Baqarah: 275)  

It is clear from the above, the kuffār use to deal in interest and justify it by saying the excess in interest is just like profit in sale. As Muslims, we cannot accept interest to be like profit.

If present-day Islamic Banks are able to save the public from interest by structuring contracts which are in conformity to the laws of Shariah, then whether or not their end results are the same as Conventional Banks, their efforts will be noteworthy and acceptable. Of course, the contracts must not have ribā’, gharar, and other non-Islamic elements hidden behind a string of words. Furthermore, the contracts must not be a mere theory, but should be implemented appropriately as well.      

If you have doubts on a specific product, you may send us details of that product for our observation.

And Allah Ta’āla Knows Best

Hisham Dawood

Student Darul Iftaa
Chicago, USA 

Checked and Approved by,
Mufti Ebrahim Desai.







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