The Comparative Legal Framework of Islamic and Conventional Banking Systems

Abstract

This research presents a comparative legal and practical study between Islamic banks and conventional banks, in light of the pivotal role played by the banking system in supporting and financing economic activity. The study is based on examining the underlying foundation of conventional banking, which relies primarily on the interest-based system, as opposed to Islamic banking, which adopts alternative financing mechanisms consistent with Islamic Sharia principles, such as profit and loss sharing, Mudarabah, and Murabaha, thereby achieving a balance between investment requirements and legal (Sharia) constraints. The research further highlights the key differences between the two systems in terms of legal nature, sources of funds, and methods of fund utilization. It also analyzes the concept of Riba (interest) and its economic and social implications, in addition to presenting the main arguments advanced by proponents of the interest-based system. Overall, the study aims to clarify the fundamental distinctions between the two banking models and to assess their effectiveness in achieving economic development, while providing a legal analytical perspective that contributes to a better understanding of the contemporary banking system.