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According to Emirates Islamic Bank, Islamic banking is the type of banking or banking activity that has its mode of operation in consistence with the shariah laws. This type of banking is also guided by Islamic economics (para, 2). Shariah law bars the collection of and payment of interest also referred to as usury or commonly known as Riba. Islamic laws regard trading in financial risk as a form of gambling and therefore prohibit it. Investing in businesses that are considered as unlawful is also prohibited. The last few years have seen an increase in the emergence of Islamic banks. One of the facts that may be attributed to the emergence of Islamic banks is the observance of their faith.  Nowadays Islamic banking is preferred by both the Muslims and non-Muslims due to the benefits associated with it. Islamic banking and finance has shown in the last almost three decades, development into a full fledged scheme and discipline that has been reported growing at a rate of about 15 per year (Zaharuddin, para 3). Islamic financial institutions have spread to almost every part of the world. Today, over 75 countries are known to have embraced these institutions. Many countries are also developing strategies to implement Islamic banking on a national wide base rather than on individual basis (Gafoor para7).

Commercial banking on the other hand is the type of banking whereby a wide range of banking products and services are offered by a particular bank. These deposits include cheques, credit cards, savings, time deposits and also loans to businesses and also individuals.  Full brokerage and financial development services are offered by good number of commercial banks. Commercial banks also sell some investments.  Banks obtain revenue by issuing primary loans from its collection of deposits. By holding a collection of security deposits, commercial banks are able to generate proprietary income (Emirates Islamic Bank Commercial, para 14).

Comparison between the Islamic and commercial banking systems

Monetary intermediation
There are some major differences that are noticed between these two types f banking systems. For example, the nature of monetary intermediation for Islamic banks is very different from that of the commercial banks. This is the primary aspect in the understanding of the characteristic of the risks in commercial and Islamic banks. The base of monetary intermediation and banking in Islamic banking is the mudarabah contract (Emirates Islamic Bank Commercial, para 13). The primary concept is that both the mobilization and the use of money are based on the sharing of profit among the depositors, the bank and the capitalists. With the only difference being that there are several selections on the asset side, the monetary intermediation is simply a pass through arrangement which is the same as fund management. While the commercial banks can charge extra cash to defaulters, the Islamic banks do not have the authority to carry out such an act on its defaulters (Zaharuddin, para 17).

Balance sheet risk outline
According to Institute of Islamic Banking and Insurance, the balance sheet risk outline of Islamic banking system is very different from that of the commercial banking system. The balance sheet has the pass through nature as the principle feature. This pass through feature eliminates the characteristic asset liability mismatch exposure of commercial banks, because the returns of the Islamic bank depositors returns is connected to the returns on the banks assets. All the practices of the commercial banks are aimed at eliminating the risks while Islamic institutions bear them (para, 6).

Nature of assets
Commercial banks prefer staying with very low credit risk debts fixed income securities while Islamic banks assets are concentrated on the asset based savings which has credit risk but also backed by real assets due to the fact that the lending capacity of Islamic financial institutions is bound by the availability of actual assets in the financial system. According to Gafoor, the possessions of Islamic financial institutions contain financing possessions where real goods are bought and sold to the clients (p, 16). In the case of commercial banking institutions, the assets are financed by a loan from the bank to the client whereas in Islamic financial institutions, the possessions and the financing are joined together. As a financier, the Islamic financial institutions are not limited to exposure but additional exposures can be developed resulting from dealing with physical possessions. The risk of an Islamic bank is very different from that of a commercial bank because it lacks liquid security on the side of possessions (Zaharuddin, para 14).

Financing of assets
    Emirates Islamic Bank claims that Islamic financial institutions do not have the capability to finance the possessions due to its inclination on shariah law which prohibits generation of interest as this discourages creation of leverage (para, 1). During the times of economic crisis, the Islamic financial institutions can be considered less risky due to lack of leverage. Aggarwal claims that financial intermediary is closely linked to the assets and therefore the Islamic banks are able to carry out an enhanced watch over the possessions as well as the obligor (p, 14). These characteristics greatly improve the stability of the Islamic financial systems. Due to the principal of Islamic banking which is profit and loss sharing, these institutions pay greater consideration to developing projects assessment and evaluation.

Liability
    Zaharuddin claims that commercial banks do not take any liability when they involve in any kind of transaction with clients. Therefore, they benefit from the transaction yet they do not take any liability. This is regarded as unlawful by shariah (para, 10). All commercial banks generate profits by charging interest to its clients whereas the Islamic institutions prohibit charging of interests. While the commercial banks are aimed at maximizing profits with minimal restrictions, the Islamic banks aims at maximizing profits based on shariah. Commercial banks carry out transactions that result in its interest becoming outstanding yet it makes no efforts aimed at ensuring growth with equity. Islamic banking system on the other hand aims at ensuring growth with equity (Zaharuddin, para 12).

Accessibility
    Commercial banks are the most spread type of banks in the world as compared to the Islamic banks. These commercial banks sail smoothly as regards to complying with the central   banks rules of their various countries (Gafoor, para 12). These rules are a very big hurdle to the Islamic banks. Islamic banks do not guarantee a fixed rate of return on deposits like the commercial banks as it bases its working on the principle of profit and loss sharing.  Capital is also not guaranteed by Islamic banks because if a loss occurs, it will have to be deducted from the capital.

While commercial banking sector is seen to be currently struggling with its own critical burden and increased in loss of jobs, Islamic banking has been expanding day and night.  The Islamic financial institutions have been venturing into areas that are underserved. As a way of saving themselves and spreading the risk, the commercial banks are expanding into emerging markets. Some commercial banks are even adopting the Islamic principles of banking and incorporating them into their systems.
Islamic banking is an upcoming idea. This idea has found acceptance in many of the Muslim countries and also in some non-Muslim countries. Were the Islamic banks to implement some changes in their banking system, they would eliminate problems and doubts associated with the issuance interest free loans. This would put them at the fore front in the race for market competition with the commercial markets. Another exceptional characteristic of the Islamic banks is the participatory financing. This can greatly offer accountable financing to cultural and economically significant development schemes. This service has been shown to put Islamic banking system ahead of the customary commercial banking system.