Conventional Banks: Definition, Types, and Differences with Islamic Banks

Conventional banks are the best way to save your money. It's safe there, and they offer a lot of different services.

You can arrange direct deposit, check writing, and even credit cards through your bank. However, banks also charge a fee for this service, which can add up over time.

Conventional banks play an important role in the economy by providing financial services to individuals and businesses, and by supporting economic growth through lending and investment activities.

The following is a further explanation regarding conventional banks.

Definition of Conventional Banks

Conventional banks are financial institutions that provide a variety of services to customers, including deposit accounts, loans and other financial products. Usually, they are regulated by government agencies and operate within a legal and regulatory framework.

Conventional banks usually have physical branches and offices where customers can make transactions and interact with bank staff. They also offer online banking services to customers, enabling them to manage their account and make transactions from their computer or mobile device.

Conventional banks make their money by charging fees for various services, such as charging fees and transfers, and by earning interest on deposits and loans. They also invest in various financial products, such as securities and bonds, to generate additional income.

Examples of conventional banks are BRI, Mandiri, BNI, BTN, and many more.

Types of Conventional Banks

conventional types of banks can depend on the services and products they specialize in, as well as the customers they serve. The following are several types of conventional banks, including:

Retail Banks

These are banks that offer services to individuals and small businesses, such as savings and checking accounts, loans, mortgages, credit cards, and other financial products.

Commercial Banks

These are banks that provide services to businesses, including loans, lines of credit, and other financing options. They may also offer financial management services, such as cash and foreign exchange management.

Investment Bank

These are banks that specialize in underwriting securities and facilitating capital market activities, such as mergers and acquisitions, and corporate restructuring.

Private Banks

It is a bank that offers wealth management services to high-income individuals and families. They can provide customized investment advice, estate planning, and other financial services.

Cooperative Bank

These are banks owned by their members, who are usually customers or employees of the bank. They may serve retail banks, but are structured differently and may have different priorities.

Differences between Conventional Banks and Islamic Banks

The main difference between conventional banks and Islamic banks is the way they approach money.

Conventional banks view money as a commodity, a medium of exchange, and a store of value, and as such, they can trade money at a higher price than its face value, rent money and receive interest when borrowers pay it back, and invest in high-risk ventures to make a profit.

On the other hand, Islamic banks view money as a medium of exchange and a store of value only, and are not involved in activities such as interest-based loans, speculation and gambling. In contrast, Islamic banks offer products such as profit and loss sharing, mudharabah, and musyarakah, which are based on the principles of risk sharing and mutual benefit.

In addition, Islamic banks are subject to Islamic law, which prohibits certain activities such as usury and investment in industries such as alcohol and gambling.

Thus a complete explanation of Conventional Banks, I hope this is useful.