Question

Please provide a comparative discussion of the differences between Western finance and Islamic finance and provide at least 2 examples of how certain transactions in the western system would be reconfigured to comply with the restrictions governing the Islamic system.

Answer 1

There is a difference between western financing and Islamic financing as Islamic financing is fundamentally based upon the principles of Islam and Sharia law and they are not doing anything against the law of Sharia as law of saria will be prescribing various principles and acceptance of various elements as halal and haram in Islamic Financing.

Islamic financing does not support the principle of interest and they will be advocating that accepting or paying interest is haram in Islam because that is not in accordance with the Sharia law as interest is not considered in Islam whereas in western financing interest is the main principle according to which lending and borrowing is based upon so it is the major difference between western financing and Islamic financing.

Islamic financing also based upon the principle of risk sharing where the money is provided with the banks and banks will be sharing the risk with the customers whereas in the Western financing, risk sharing is no concept as risk is completely transferred to the commercial banks and there is no sharing of the risk so so this is another difference relating to Western financing and Islamic financing.

there could be certain transactions in the commercial world of Western financing that could be re figured in order to get in accordance with Islamic finance by eliminating the component of interest completely from the loan and they could also be entering into a risk sharing agreement rather than payment of interest.