IB are not money lending institutes but they work as a trading/ investment house.
IB work under the socio-religious guidelines that prohibit charging and paying interest and avoid all impermissible transactions like gambling, speculation, short selling & Sale of debts & receivables.
IB do not permit financing to industries that cause harm to the society such as alcohol, tobacco etc.
Conventional Interest based banks (CB) are in the business of lending & borrowing money based on interest.
In CB, we see no such restrictions. Interest is the back-bone of this system and short selling, sale of debts and speculative transactions are common.
In CB, all type of industries are financed, only businesses deemed illegal by the law of the land are not supported.
At Business Model & Governing Framework
IB business model is based on trade, thus IB need to actively participate in trade and production process and activities.
IB have a strong Shariah governing framework in terms of Shariah Advisor and/or Shariah Supervisory Board, which approves the transactions and product in the light of the Shariah rulings.
Generally CB do not involve themselves in trade and business as they act only as money lenders.
In CB, no such framework is present and actually it is a key litmus test to judge the claim of those who fails to see differences between IB and CB.
Product Level implementation
Islamic banking products are usually asset backed and involve trading of assets, renting of asset and participation on profit & loss basis.
IB recognize loan as non commercial and exclude it from the domain of commercial transactions. Any loan given by IB must be interest free.
CB treat money as a commodity and lend it against interest as its compensation.
In CB, almost all the financing and deposit side products are loan based.