The difference between banks and Islamic banks

Question:

Asalam alikum wa rahmato Allah

My question is in the most critical issue facing all Muslims in all Muslim countries, which is the banks and Islamic banks? Please, state the detailed difference between them and give us a perfect start answer, whether to deal with the Islamic ones or not?
Jazak Allah khir

Answer:

Wa`alaykum As-Salaamu Warahmatullahi Wabarakatuh.

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

The key to the answer is to understand a basic fact: Shari'ah does not prohibit financing, it only prohibits interest-based financing.
Financing is a very recognized business in Shari'ah. There is a myth that financing can either be interest loan or risk taking mudarabah. That is incorrect.
Islamic financing can be either on sale basis like murabahah or lease basis or venture capital basis such as musharakah or mudarabah.
Conventional banks give loan on interest. Islamic banks sell goods, lease assets or share in ventures. That is the difference. The rate may be fixed in Islamic banks because the Prophet, (PBUH) said that in leasing you must fix the rate at the time of contract. Also, in sale financing the rate of prophet of the Islamic banks must be fixed and determined at the time of contract. Some people think that if Islamic banks charge similar rates to interest rates then the contract is not Shari'ah compliant, this is incorrect. The rate can be exactly the same but the contract is sale based as in murabahah. For more details please make some reading or take a course.

Allah Almighty knows best.

Source: Islamonline.net