As the world has recently passed through the global financial crisis that begun in 2008 in the USA with the banks’ collapsing, analysts are giving different opinions and making new economic hypothesizes about the origin of, as well as the process of different countries escaped from the crisis. Among all these new “theories”, the case of Islamic banks is interesting in terms of its nature and consequences. In my essay, I will try to highlight the basic principles of the Islamic finance, the reasons of the restriction of interest, the most important tools used by Islamic banks in economic activities and brief explanation of them, and finally my view point of the probable future improvement of the Islamic financial system.
First of all, let us outline how Islamic banks actually work and what their main differences are in comparison with conventional banks. In this banking system, banks are operated by Islamic laws (known as Sharia), so Islamic economic principles are considered as primary guidance. Two basic doctrines behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest . Hence unlike conventional commercial banks, Islamic banks do not pay or charge interest on lending or borrowing of money. This is because the Sharia’s strictly prohibits, among other things, the receipt and payment of riba (interest) /. The interpretations to clarify the meaning behind this restriction suggests that earning or charging extra amount of money from debtor has to be seen something as immoral behavior, because making pressure on your borrower is actually unfair from the view point of Islam. To make it clear, the religion of Islam basically promote the principle of justic...
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...ofit. Hence, in terms of risk management Islamic banks are more reliable. In addition, with the increasing population of Muslims all over the world, and the recent economic theories proving Islamic banks’ advantages over traditional banks especially during hard times, I believe that new financial system that are based on Islamic principles will play a very important role in the near future.
Works Cited
http://www.investopedia.com/terms/i/islamicbanking.asp (Accessed at Nov 10/10/2013)
R.A.A. Karim / The International Journal of Accounting 36 (2001) 169–193 (p.178)
Islamic Economic Studies Vol. 12, No. 1, August 2004, EFFICIENCY IN ISLAMIC BANKING:
AN EMPIRICAL ANALYSIS OF EIGHTEEN BANKS, p.1
Islamic Economic Studies, Vol. 8, No. 2, p.2
Mufti Muhammad Taqi Usmani, An Introduction to Islamic finance, p.31
Ibid., p. 31-33
Ibid., p.20
Ibid., p.65
It is adequate to note that the financial assets in banks for the rich Arabs, their amount is valued is more than 1190 ...
The non-interest income from annual fees, transaction fees, monthly account service fees and others also a kind of profit for the bank. For example, a bank will not collect only the interest from loan but it will assists customer to make the payments to the same beneficiaries such as money to their children studying overseas. The bank will only charge them a certain amount of service charges.
Encouragingly Jordan’s banking sector managed to weather the crisis better than other sector of the economy, and other banking sector in different countries. This was mainly supported by rather conservative policies and tight regulations. For instance banks in this country are pure universal. This implies there is no pure investment bank that relies entirely on investment income, a factor that majo...
The modern Islamic Finance industry is young, its timeline begin only a few decades ago. However, islamic finance is involving rapidly and continues to expend to serve a growing population of muslims as well as conventional.
Sharing is the literal meaning of Musharakah and it came from an Arabic word ‘Shirkah’ which means being a partner. The term ‘shirk’ is also used in the same context which bring the meaning partner of Allah. Under Islamic jurisprudence, Musharakah is defined as a partnership or enterprise structure with profit or loss which sharing implication that is used in Islamic banking rather than interest bearing loans. Basically, the nature of Musharakah is the allocation of profits must be determined and specified beforehand by a profit and loss sharing partnership. The evidence that shows the nature of Musharakah can be seen in Al-Quran which says “But if they are more than two, they share a third”. It also stated in Al-Quran that “Many partners oppress one another, except those who believe and do righteous deeds, and very few they are” . In hadith it is stated that the Prophet S.A.W said “Allah had said that: “I am the third of the partners, as long as any one of them does not betray the other. If he/she
In the post-colonial context , there is a desire to change the current currency system to improve the management of money and credit ; and to foster a favorable climate for the development of domestic enterprises in which the World Bank proposed the establishment of the National bank of each country . A National bank is seen as a tool of control of financial freedom , which no political independence would not be complete . Therefore, Sir Sydney Caine , former Vice Chancellor of University of Malaya , and Mr. GM Watson , an executive of the Bank of England , has been appointed to carry out a detailed investigation on problems of central banking and to provide advice on the establishment of a center in Malaya , including law rules.
Baitulmal means the Treasury, Baitulmal according to Fiqh is the exchequer of an Islamic state. Being public property, all the citizens of an Islamic state have some beneficial right over the Baitulmal, yet, nobody can claim to be its owner.
Dar, H., Harvey, D. and Presley, J. 2014. Size, Profitability, and Agency in Profit- and Loss-sharing in Islamic Banking and Finance. [report] Cambridge, Massachusetts: Proceedings of the Second Harvard University Forum on Islamic Finance.
1. The functions and operating modes of Islamic banks are based on the principles of IslamicShariah.
First effort of Islamic finance is in 1960’s. In 1963, Mit Ghamr Local Saving Bank was established in Eygpt. The operation is based on German Saving Bank. The purpose of the bank is to mobilize the idle saving of Musl...
As we know the financial service are of two types 1. The depository institutions 2. Non-depositary intuitions. In this let us consider depository intuitions and let discuss on it. The major example of financial depository institutions is banks. As banks accepts deposits from its customers. Banks play very virtual role in developed economy, like Oman. In this assignment let us take National bank of Oman as an example. National bank of Oman is very famous and busy bank in Oman majority of citizens of Oman bank with it.
Our group have been assinged to discuss on the topic above but in Islamic Banking perspectives. Therefore, before going any further, let us clarify definition of the Principles of Islamic Banking and clarify what are the elements involve in the Principles of Islamic Banking. Beside, we will also do some comparison of product or services offered by both banks which are conventional and Islamic banking. Apart from that, we will also clarify the problems or challenge faced by the agency which practices the Islamic banking in their agency.
The Traditional Theory of Banking In this paper author review the traditional theory of banking and attempt to examine the theoretical reasons for why banks exist. As a financial intermediation, the natures of the banks are to provide financial services and conduct the intermediary functions in the whole financial system by accepting deposits and making loans. The question raised here are how they conduct these roles and why the borrowers and lenders do not come together without the banks for the saving of intermediation costs, why both of the two parties are ready to pay for their services and what’s the value added by the banks? The paper proceeds as follows. Section 2 offers a traditional view of banks and describes the nature of them.
The study is primarily designed to find out the continuous issue of the banking system in
2. The justice and brotherhood of man; Islam aims to form a society in a 'solid-form'. Each individual is bounded by the brotherhood and affection as a family.