Name: Huzaifa Gulraiz

Registration number: 12615

Course: Islamic Banking and Finance
Instructor: Muhammad Shujaat Saleem
Date: 15/11/2023
Assignment#1
 Short Note
(Socioeconomic Impact of interest based model/conventional
banking model)
Socioeconomic is basically the society and economy as we can say
that in conventional banking or interest based banking system
impact in that way for example when a general public deposits his
or her money in conventional banks they have get interest in return
and bank give loans to business class or industrialists but in more
high rate and banking spread is in between these interest rates while
business class or industrialists are producing goods or rendering
services which reversely use by general public so if they get loans on
high rates so they will definitely charge or sell their goods on high
rates so this will make the purchasing power of consumers more low
and making gap by making poor poorer and rich richer also interest
makes tax reduction low.
Interest-based and conventional financial models have a significant
socioeconomic impact on communities all over the world. Interest on
loans from conventional banking drives economic growth, but it also
has the potential to widen the wealth gap. High interest rates can be
challenging for individuals with limited financial resources, even
though they allow the ability to borrow wealth.
However, Islamic banking provides an alternative since it is founded
on moral values and interest-free transactions. It promotes
economic justice and reduces inequality in income by encouraging
financial inclusion and discouraging speculative activity. On the
other hand, difficulties with global competitiveness could arrive.
By encouraging interest-driven investments, the traditional model
promotes economic activity and encourages innovation and
development. However, it can also result in stress related to debt for
both people and countries. Islamic banking aims to establish a fairer
financial environment by emphasizing fairness and risk-sharing.
In summary, interest-based and traditional banking models have
varied socioeconomic effects, each with pros and cons. For the
financial system to support the welfare of both individuals and
communities, a balance that addresses social inequality and
promotes economic growth must be established while Islamic
banking should also be beneficial if operate and spread knowledge
wisely and with firm belief.