Differences between Islamic Financing Methods and Conventional Financing Methods - Research Paper Example

The purpose of this study is to highlight the differences between the conventional financing methods and Islamic financing methods. The growing stature of Islamic financing methods in different parts of the world has offered different options to customers. It needs to be mentioned that Islamic financing methods are different from the conventional financing methods in terms of interest and profit elements. However, very few people are aware of that and often consider Islamic financing methods as similar to conventional financing methods.

The study aims at highlighting the basic difference between these two financing methods along with analysing the overall importance and significance in the economic environment. The research also highlights the significance of the study in the current business and social environment. There is no doubt that Islamic financing methods are driven by religious teachings and preaching while conventional financing methods are based on modern and practical elements of the economic environment like earning profit for every investment.

The research encompasses a thorough analysis of differences between Islamic and conventional financing methods, assessment of advantages and disadvantages in the economic environment and preference of customers driven by religious issues and personal proclivity towards the financing methods. Financial institutions are often considered as the heart beat of any nation and smooth operation of these institutions often flourishes the perfect balance between the demand and supply of funds. There are a number of banks having different styles and perceptions of operating in a particular business and social environment.

Islamic capitalism was based on Islamic principles where interest was prohibited in every sense. Islamic capitalism can be traced way back in 8-12th century but this has very little significance to this study. The primary purpose of this study is to highlight the differences between the conventional financing methods and Islamic financing methods. The growing stature of Islamic financing methods in different parts of the world has offered different options to customers. It needs to be mentioned that Islamic financing methods are different from the conventional financing methods in terms of interest and profit elements (Hassan, Kabir, Lewis, (2007).

However, very few people are aware of that and often consider Islamic financing methods as similar to conventional financing methods. The study aims at highlighting the basic difference between these two