Comparison between Islamic and conventional finance in Malaysia: a brief view

This paper provides a comparative study of Islamic and conventional financial systems, focusing on their distinct philosophies, instruments, and demographic impact. While conventional finance relies on the time value of money and interest-based lending, Islamic finance is governed by Shariah principles, which prohibit Riba (interest) and Gharar (uncertainty). It emphasizes risk-sharing and asset-backed transactions through instruments like Sukuk, Murabahah, and Ijarah. The analysis highlights the sector’s growth, now exceeding $4 trillion in assets, driven by a global Muslim population of two billion and a rising demand for ethical, ESG-aligned investments. Furthermore, it examines the evolution of the industry in Malaysia, explaining the transition from "Islamic Windows" to independent subsidiaries and full-fledged Islamic banks. By contrasting the risk-transfer model of conventional banking with the risk-sharing framework of Islamic finance, the study concludes that the latter offers a stable, transparent, and ethically grounded alternative. This paradigm not only meets religious obligations but also contributes to global financial resilience and social justice through mechanisms like Zakat and Waqaf.