Nowadays, that deals with various aspect which

Nowadays,
it seems that a lot of people have been confused and unaware about Islamic
financial. Some people thought that Islamic product is only can be used for
muslims. So, people need to change their perception about Islamic product which
can only be used by muslim. The truth is, it can be used by variety of people.
When we talk about Islam, we know that Islam is not just about laws and
religion. Islam is more than people think about. Islam is principle of life
that deals with various aspect which are social, ethic, culture and economic
manner. In term of finance, the Islamic product that contributed is Islamic
finance. Islamic finance is a financial system that operates according to
Islamic law that based Syariah complaint which is Al-Quran and Hadis (source)
while conventional finance is that we used now1
(Islamic Finance for Dummies by Faleel Jamaldeen). There are several major
differences between Islamic finance and conventional finance which are the
function, risk sharing and interest.

            Firstly, the difference between Islamic finance and conventional
finance is the function. The system of conventional bank that we used now that operated
based on the principle while Islamic bank system that operated based on the
principles of Islamic Syariah. In addition, the perception of Islamic product
were following the Syariah principle, ethical and fair practice and transparent
in terms. In Islamic finance, they strictly follow the laws and regulations
because the key for imposing these laws and ethics are to promote justice. In Islam,
justice is important to all people to protect the right of people and giving
others equal treatment. Islam is promoted justice to all people is because to
show the moral virtue. Therefore, in order to protect the people right justice
is a key of Islamic finance industry grows and develops well in order to
compete with other products. On the other hand, conventional finance is essentially
based on debtor and creditor relationship between depositors2.
By the same token, in bank conventional systems they lend money to borrowers to
make a profit from the higher interest charged on the principle amount which is
give burden to borrower to pay back. By knowing with these different type of
bank functioning, people will learn a lot and aware in managing their wealth.

            Secondly, the different between
Islamic finance and conventional is risk sharing. People can make an evaluation
through this step what are the differences and it teach us about risk sharing
in financial market. In conventional financing, the customer bear all the risk
of paying to bank the loan from the amount of money they borrowed while in
Islamic financing promotes risk sharing between provider of capital and the
user of fund which are between investor and intrepreneur. For example, if the
customer used conventional in finance had loss or bankcruptcy so they need to
bear all the risk of paying back the loan or their name will be blacklisted. However,
Islamic finance operates on the principle of profit and loss sharing because
Islam hand encourage risk sharing in financing transaction. As we know, Islam
is promoted justice so thebank will bear the half
of the risk that inherent by the customer. For example, when a risk shared among
two or more parties, the burden faced by each party is reduced based on made of
finance used “Mudarabah” and “Musharakah” (Islamic Finance for Dummies by
Faleel Jamaldeen)2. Other example of Islamic product which is “Takaful”
which they will bear the all risk that happened to their Takaful member or if
nothing happen they will give the profit of contribution amongst Takaful member.
There will have something beneficial if we choose the right system that guarantee
our future.Thirdly,
the different between Islamic finance and conventional is interest. In
conventional finance, bank will charge additional money which is the amout
borrowed as a compound interest or penalty to customer if customer make loan in
case of defaulters. While, in Islamic finance, the bank consider interest they
charged on loan or usury as “riba” and it does not mean in Islam. In term of
“riba” has been subjected to various forms of regulations and restrictions.
Islamic finance system is very concerned and strictly prohibit of taking
interest on loans. Otherwise, interest has given a burden to borrower to pay
back because the amount of money borrowed has increase so high which is
including their interest. For example, in Islamic finance, they prohibit no
usury or unlawful (interest) in term of “riba”, no certainty or trickery in
term of “gharar” and no compounding of interest and unfair fees. In Islam, it
has syariah principkle applied such as Akad Mudarabah (buy-sell), Musharakah
Mustanaqishah (capital sharing) and Ijarah Wa’iqtina (leasing with the option
of ownership) instead of interest (Islamic Finance for Dummies by Faleel Jamaldeen)2.

As
a conclusion, in order to be good person an responsibility as a Muslim person
we know that Islam is prohibited against transaction that involve gambling,
fraud and oppression toward people. Therefore, we need to be wise in managing
our finance and wealth according to Allah’s commands which promoting justice
and prohibited certain activities. It is important to acknowledge the several
major differences between Islamic finance and conventional finance which are the
function, risk sharing and interest. After all, as a consumer of financial
product we need to be wise in managing our financial well and the most
beneficial. It is no use crying over split milk if we have loss in managing our
finance.