The document compares Islamic financial institutions (IFIs) and conventional financial institutions (CFIs). [1] IFIs must operate according to Islamic principles from the Quran and Sunnah, prohibiting interest and ensuring compliance with sharia. [2] IFIs use profit-sharing models like murabaha instead of interest for financing, and invest only in real assets, while CFIs use interest-based models. [3] IFIs aim to achieve socio-economic goals and serve all members of society, guided by sharia scholars, unlike the solely economic focus of CFIs.

1. PRESENTED BY
MOHD YUNUS HAJI MOHD YASSIN
M.A , ISLAMIC FINANCE
THE NATIONALITY OF UNIVERSITY
MALAYSIA
(CANDIDATE)

2. • IFI ( )must operate within the
framework of the religion, based on Quran and Sunnah.
• The most important is the prohibition of interest. IFI activity must
comply with Syariah principles and avoid prohibited activities such
as gharar (excessive uncertainty). For example, instead of lending with
interest, Islamic banks provide financing based on various different
types of Shariah principles.
• This compliance Syariah covers not only religious worship but also
business practices. Obviously ambition in order to please Allah (SWT)

3. • Islamic Financial System is based on Syariah
laws. Syariah scholars ensure adhenrence to
Islamic laws and provide guidance
VS
• Conventional Financial System is based only
on man-made laws and no religious laws or
guidelines

4. • Riba in Islam is forbidden. Instead of interest, the IFI earns
profit (mark – up) and fees on financing facilities it extends
to customers.
• IFI must trade in real assets or services.
VS
• Whereas CFI “trade” in money (buying money from
depositors and selling money in the form of loans
• Most of the CFI activities are interest-based financing

5. • IFI must encourage and develop the application of Islamic
principles.
• Only HALAL activities are allowed which is unlawful in Islam or
harmful to mankind. e.g Does not finance liquor
manufacturing, transportation, storage or distribution companies.
• Syariah scholars screen the suitability of investments on an
ongoing basis and provide guidance.

6. IFI : any contract base on a future uncertain event is not allowable
e.g hedging, dealing in derivatives
VS
CFI : allows trading and dealing in derivatives of various form is
allowed

7. Contractual relationship in IFI depends upon the nature
of transaction e.g :
Seller-buyer relationship(Murabaha)
lessor-lessee relationship(Ijara)
Partnership(Musharaka)
Creditor-debtor relationship(Qard Hassan)
VS
CFI only a creditor-debtor relationship

8. Staff IFI must behave act within the framework of Islamic
teachings. Any person approaching an IFI they will get
distinguished in the way the customer TCW (treated-with care)
respect and the eagerness to help them.

9. IFI offer investor / depositor participation in risk sharing rather
than fixed interest on deposits. Any risk-bearing instruments
reflecting a real asset and earning a variable rate of return tied to
the performance.
The Islamic System is based on equity
VS (whereas)
The Conventional System is loan based.

10. IFI : contribute to achieving the major socio-economic goals
VS
CFI : focuses solely on economic transactions and markets
Different IFI :
• Stresses the ethical, social and moral
• Socially responsible towards the poor and needy with
creating social funds.
• Usually, providing education scholarships to students.
• Remind his customers of Zakat payments on the client
assets.

11. IFI abides by the accounting standards of
Accounting and Auditing Organization for Islamic
Financial.
VS
CFI follows the accounting standards of the British
Practices, American Financial accounting
Standards and International Accounting Standards

12. The equity capital base of IFI may be larger than
that of a Conventional depositor institution.
Different IFI:
• The balance sheet of Islamic Banking will not
show the interest earning assets and Interest
bearing liabilities.
• More detailed than of the Conventional banks
e.g Investments in Murabaha, Istina’ etc VS
Loans and Advances.

13. The transaction structured and supporting documetation
approved by a SSB with their FATWA. There is no existence
of such Board in the CFI which aiming to attain profit without
considering Shariah precepts.