Comparison of Islamic and Conventional Financial Systems: Advantages, Disadvantages and Integration Prospects

Nurul Azizah Surury; Nurwahidin; Isra Afra Nafisah

doi:10.59890/ijir.v3i2.319

Authors

Nurul Azizah Surury Universitas Indonesia
Nurwahidin Universitas Indonesia
Isra Afra Nafisah Universitas Indonesia

DOI:

https://doi.org/10.59890/ijir.v3i2.319

Keywords:

Islamic Finance, Conventional Finance, Financial Integration, Risk-Sharing, Ethical Finance

Abstract

This study compares the Islamic and conventional financial systems, highlighting their advantages, disadvantages, and prospects for integration. While conventional finance offers flexibility, product diversity, and accessibility, it is prone to financial instability and may contribute to socioeconomic inequalities. In contrast, Islamic finance emphasizes ethics, fairness, and stability through risk-sharing and asset-backed transactions, but faces limited product availability and regulatory challenges. Integrating both systems can enhance financial inclusion, promote ethical finance, and foster economic sustainability. This study suggests that regulatory support, infrastructure development, and public awareness are key to successful integration

References

Abdullah, D., Zabidi, N. H., Zulzamzuri, D. N., Bakar, A. R. A., Tumin, S. A., & Zaeimoedin, T. Z. (2024). Unpacking the Inflation Basket: A Systematic Literature Review of Key Determinants of Rising Food Prices and their Global Impact. International Journal of Research and Innovation in Social Science, 8(9), 706-713.

Ahmed, H. (2011). Product Development in Islamic Banks. Edinburgh University Press.

Anindita, N., Sukmaningrum, P. S., & Rusmita, S. A. (2024). Impact of Islamic Financial Literacy, Money Attitude, and Social Environment on Young Muslim Couples' Financial Planning.

Archer, S., & Karim, R. A. A. (2002). Islamic Finance: Innovation and Growth. Euromoney Books and AAOIFI.

Askari, H., Iqbal, Z., & Mirakhor, A. (2011). New Issues in Islamic Finance and Economics: Progress and Challenges. John Wiley & Sons.

Beck, T., Demirguc-Kunt, A., & Merrouche, O. (2010). Islamic Vs. Conventional Banking: Business Model, Efficiency and Stability. Journal of Banking & Finance, 37(2). doi:10.1016/j.jbankfin.2012.09.016

Bidin, R., Razak, M. N. F., Mohamad, B., Osman, M. N., Bakar, M. S. A., Tham, J. S., ... & Utaberta, N. (2021). Halal Industry's Organizational Performance Factors: A Systematic Literature Review. Pertanika Journal of Social Sciences & Humanities, 29(4).

Billah, M. M., Hassan, R., Haron, R., & Zain, N. R. M. (2024). Islamic Sustainable Finance. Routledge. https://doi. org/10.4324/9781003395447.

Budhijana, R. B. The Influenceof Internal dan External Factors Toward Profit Growth of Islamic Bank in Indonesia. The Influenceof Internal dan External Factors Toward Profit Growth of Islamic Bank in Indonesia.

Chapra, M. U. (1992). Islam and the Economic Challenge. International Institute of Islamic Thought (IIIT).

Chapra, M. U. (2008). The Global Financial Crisis: Can Islamic Finance Help Minimize the Severity and Frequency of Such A Crisis in the Future? Islam and Civilisational Renewal (ICR), 1.

Daoulhadj, B., & Hussin, N. (2023). Islamic green finance, ecosystem and prospects in scaling up sustainable investments. Islamic Finance, 21.

Daud, H. S., & Sharif, S. (2024). Exploring the feasibility of Muzara’ah based Islamic running finance model as an alternative for agriculture credit. Journal of Islamic Accounting and Business Research.

Dusuki, A. W., & Abdullah, N. I. (2007). Why do Malaysian customers patronise Islamic banks? International Journal of Bank Marketing, 25(3). http://dx.doi.org/10.1108/02652320710739850

El-Gamal, M. A. (2006). Islamic Finance: Law, Economics, and Practice. Cambridge University Press.

El-Hawary, D., Grais, W., & Iqbal, Z. (2007). Diversity in the regulation of Islamic Financial Institutions. The Quarterly Review of Economics and Finance, 46(5), 778–800. doi:10.1016/j.qref.2006.08.010

Fabozzi, F. J. (2002). The Handbook of Financial Instruments. Wiley.

Firda, Kurniati, Abd Rahman R, & Muh Tabran. (2023). Perbandingan Kinerja Bank Syariah dan Bank Konvensional dalam Melaksanakan Transaksi. Al-Ubudiyah: Jurnal Pendidikan Dan Studi Islam, 4(2), 20–29. https://doi.org/10.55623/au.v4i2.216

Haniffa, R., & Hudaib, M. (2007). Exploring the Ethical Identity of Islamic Banks via Communication in Annual Reports. Journal of Business Ethics, 76(1), 97–116. doi:10.1007/s10551-006-9272-5

Hidayat, S. E., & Musari, K. (2023). Comparative Analysis of Digitally-Enabled Community in Supporting the Halal Industry in Muslim Majority Countries in the ASEAN, Central Asia, and Maghreb Region. In Digitalization in Halal Management (pp. 151-165). Singapore: Springer Nature Singapore.

Hull, J. C. (2018). Options, Futures, and Other Derivatives. Pearson.

Iqbal, Z., & Mirakhor, A. (2011). An Introduction to Islamic Finance: Theory and Practice (1st ed.). Wiley.

Kamal, S. S. L. A., Masnan, A. H., & Hashim, N. H. (2023). A systematic literature review on levels and effects of parental involvement in children’s learning. International Journal of Evaluation and Research in Education, 12(3), 1253-1261.

Kasri, N. S., & Harun, H. (2022). Maqasid al-Shariah vis-à-vis Islamic and green finance: the Malaysian leadership. IF HUB, (4), 10-16.

Khan, M. M., & Bhatti, M. I. (2008). Development in Islamic banking: a financial risk-allocation approach. The Journal of Risk Finance, 9(1), 40–51. http://dx.doi.org/10.1108/15265940810842401

Korobtsova, D., Fursa, V., & Dobrovinskyi, A. (2023). Cryptocurrencies as a new form of money: prospects for use and impact on the financial system in the future. Futurity Economics&Law, 3(3), 49-66.

Kuran, T. (2004). Islam and Mammon: The Economic Predicaments of Islamism. Princeton University Press.

Lannoo, K., Thomadakis, A., & Arnal, J. (2024). Staying ahead of the curve: Shaping EU financial sector policy under von der Leyen II. Task Force Report, Centre for European Policy Studies, European Capital Markets Institute and European Credit Research Institute, Brussels.

Masood, A., Rahim, N., & Lee, U. H. M. S. (2024). Driving Green Sukuk Development to Meet ESGs and Society 5.0 Aspirations Through Innovative Technology. In Strategic Islamic Business and Management: Solutions for Sustainability (pp. 1-18). Cham: Springer Nature Switzerland.

Migdad, A. M., & Babangida, H. A. (2022). The Malaysian Political Economy: Economic Transformation & the Expansion of Islamic Economics. Islamic Economics Journal, 8(2), 146-171.

Mirza, M., Dordi, T., Alguindigue, P., Johnson, R., & Weber, O. (2023). Sustainability in Private Capital Investing: A Systematic Literature Review. J. Mgmt. & Sustainability, 13, 119.

Myeong, S., Park, J., & Lee, M. (2022). Research models and methodologies on the smart city: A systematic literature review. Sustainability, 14(3), 1687.

Ojha, A., & Hasan, F. Q. FINANCIAL INNOVATION AND ITS IMPACT ON TRADITIONAL BANKING.

Petrukha, S., Petrukha, N., & Miakota, R. (2024). Debt Policy of Ukraine in the Conditions of Modernization of Public Finances. Baltic Journal of Economic Studies, 10(3), 276-288.

Pradini, A. Y., & Faozan, A. (2023). Sharia Financial Literacy and Inclusion: Opportunities and Challenges. Al-Mustashfa: Jurnal Penelitian Hukum Ekonomi Syariah, 8(2), 205-214.

Robins, N., Dikau, S., & Volz, U. (2021). Net-zero central banking: A new phase in greening the financial system.

Sakuntala, D., Abd Majid, M. S., Aliasuddin, A., & Suriani, S. (2025). The Role of Islamic Stock Market in Filling the Green Finance Gap in Indonesia. In Islamic Finance and Sustainability (pp. 315-337). Routledge.

Sarif, S. M., Ismail, Y., Zainudin, D., Yahya, R., & Firmansah, Y. ROLE OF TAQWA AND ENTREPRENEURSHIP NATIONAL POLICIES IN ENHANCING ENTREPRENEURSHIP EDUCATION AT HIGHER EDUCATION INSTITUTIONS IN MALAYSIA.

Shaikh, S. A. (2025). Market development of Islamic banking in Pakistan and its economic impact. Journal of Islamic Accounting and Business Research, 16(1), 53-74.

Shala, A., & Berisha, V. (2024). Green Finance: Trends and Regulation. In Green Management: A New Paradigm in the World of Business (pp. 1-21). Emerald Publishing Limited.

Shirai, S. (2023). Green central banking and regulation to foster sustainable finance (No. 1361). ADBI Working Paper.

Warde, I. (2010). Islamic Finance in the Global Economy. Islamic Finance in the Global Economy.

Yorio, G., del Carmen Bonilla, M., Espinosa, P., & Mendizabal, O. (2022, March). A road to efficiency in emerging local debt markets: The Mexican experience.