Non-interest banking transactions are based on tangible assets and real services. The table below shows some of the principles and practical differences between non-interest and conventional banking.
|Conventional Banking||Non-interest Banking|
|Money is a commodity besides being a medium of exchange and store of value.||Money is not a commodity; though it is used as a medium of exchange and store of value.|
|Time value of money is the basis for charging interest on capital.||Profit on trade of goods or rent charged for asset use is the main basis for earning profit.|
|Interest is charged on loans typically with a security taken by the bank and no further risk is assumed.||Bank takes asset risk by acquiring the asset before renting, selling or sharing in its returns.|
|With asset financing (e.g. car, home financing), the bank lends you money on interest and you purchase the asset.||Non-interest banks must first take ownership of the asset and then either rent the asset or sell it on to the customer (on a cost plus basis with deferred payment).|
|Conventional banking recognises and applies the principle of compounding interest.||Profit charged or rent charged do not compound.|