Question

Is there any advantage of making partnership contract in Islamic finance compared to conventional one?

Answer 1

1. Fair Wealth Management System :

Islamic Finance is for the well being of the society as a whole and achieves a good life. On other hand Conventional Banking focuses mainly on economic transactions and market.

2. Profit and Risk Sharing Partnership

Islamic Finance encourages risk sharing in economic transaction.This provide a strong incentive for the bank to reduce risk and allocate resources. Two or more parties involved in an economic activity share the risk. This reduce the burden of the risk faced by each party. Whereas in Conventional Banks, where borrowers bear the full risk of paying back the loan.

3 Assets-backed Financing:

It is a more solid assets-backed financing and transactions set the base for the system. Islamic Banks lend funds based on trade that involves actual goods and services. Only assets with intrinsic value may be sold for profit.

4. No Interest:

In Islamic Banking you do not have to worry about increasing interest rates. Islamic bank determine a profit from the vary beginning even for floating profit rates, there is a limit that it cannot exceed.in Conventional systems the person receiving the loan assumes all the risk and bears it.