Banking and issues related with it:
A bank is an institution which creates current demand deposits or in simple terms money. A refined banking solution is the core backbone of the monetary network of any country. However traditional banking tends to rely heavily on the interest generated from clients through lending money to different types of borrowers like consumers, SME, Corporates, etc. This contradicts Islamic laws as The Holy Prophet said “Islam is a comprehensive guide for all ages to come, till the Day of Judgment. Islam has strictly prohibited taking, giving and even writing down of interest” [Tirmizi: 1206]. Taking of interest is not just a burden on the economics of society, but is considered as war against Allah and His Apostle (PBUH), as mentioned in the Holy Quran: “O yee who believe, fear Allah and give up what remains of your demand for Riba, if you are indeed believers. If you do it not, take notice of war from Allah and His Messenger.” [2:278-279]
[vc_row][vc_column][vc_column_text]
What is Islamic Baking?
An Islamic bank is an interest free banking institution that relies on Islamic principles in order to perform the banking operations; hence it is halal (permissible) according to Islam and Shariah.
How Islamic banks work?
At deposit/liability side, Islamic banks work in one or more of the following ways:
[/vc_column_text][slzcore_item_list_sc array_content=”%5B%7B%22content%22%3A%22Mudarabah%3A%20The%20bank%20takes%20an%20account%20holder%E2%80%99s%20deposit%20on%20the%20basis%20of%20Mudarabah%20contract%20whereby%20the%20account%20holder%20provides%20capital%2Fdeposit%20and%20the%20other%20partner%20(bank)%20manages%20it%20in%20a%20Shariah%20compliant%20manner.%20The%20profit%20is%20shared%20as%20per%20pre%20agreed%20ratio%20between%20customer%20(rab%20ul%20mal)%20and%20bank%20(mudarib)%20whereas%20loss%20is%20shared%20by%20the%20customer%20%22%7D%2C%7B%22content%22%3A%22Wadiah%20(Safe%20keeping)%3A%20A%20non-profit%20and%20loss%20account%2C%20where%20the%20account%20holder%20basically%20gives%20an%20asset%20for%20safekeeping%20on%20basis%20of%20trust%20to%20the%20bank.%20Bank%20returns%20the%20asset%20on%20demand%20%2F%20maturity.%20Banks%20usually%20charge%20nominal%20fees%20as%20account%20maintenance%20fee.%20%22%7D%2C%7B%22content%22%3A%22Musharakah%20(joint%20venture)%3A%20Where%20bank%20and%20investor(s)%20mutually%20provide%20funds%20for%20a%20project%2Fbusiness%20and%20the%20profit%20or%20loss%20is%20distributed%20among%20all%20involved%20shareholders.%20%20At%20asset%20side%2C%20Islamic%20Banks%2C%20in%20addition%20to%20the%20above%20modes%2C%20uses%20the%20following%20transactions%20for%20profit%20generation%3A%22%7D%2C%7B%22content%22%3A%22Muraba%E1%B8%A5ah%20(Cost-plus)%3A%20The%20bank%20allows%20a%20person%20to%20buy%20an%20asset%20at%20an%20increased%20price%20from%20the%20bank%2C%20and%20the%20buyer%20can%20then%20pay%20back%20the%20amount%20in%20monthly%20installments.%20Since%20no%20interest%20is%20charged%20and%20a%20set%20price%20is%20taken%2C%20it%20is%20allowed%20in%20Shariah.%22%7D%2C%7B%22content%22%3A%22.%20Ijarah%20(leasing)%3A%20A%20leasing%20contract%20of%20an%20asset%20to%20a%20client%20for%20a%20stream%20of%20rentals.%20At%20the%20end%20of%20ijarah%20tenure%2C%20Islamic%20Bank%20gifts%20the%20leased%20asset%20or%20sells%20it%20against%20token%20money%20through%20independent%20contract.%22%7D%2C%7B%22content%22%3A%22Salam%3A%20In%20Salam%20transactions%2C%20Islamic%20Banks%20pay%20the%20price%20of%20the%20commodity%20in%20advance%20and%20assets%20are%20delivered%20on%20a%20deferred%20date%20after%20the%20delivery%2C%20Islamic%20Banks%20sell%20the%20commodity%20in%20the%20market%20against%20the%20increased%20price.%22%7D%2C%7B%22content%22%3A%22Istisna%3A%20%20Istisna%20contract%20delivery%20of%20assets%20is%20deferred%20like%20Salam%2C%20however%20price%20can%20be%20paid%20any%20time%20with%20mutual%20consent%20and%20the%20underlined%20asset%20must%20require%20manufacturing%20in%20Istisna%20transaction.%22%7D%5D”][vc_column_text]
Principles of Islamic banking:
[/vc_column_text][slzcore_item_list_sc array_content=”%5B%7B%22content%22%3A%22Profit%20and%20loss%20sharing%3A%20A%20Muslim%20is%20not%20allowed%20to%20earn%20interest%20on%20credit%20and%20moneylending%2C%20if%20someone%20wants%20to%20utilize%20his%20capital%2C%20he%20must%20have%20to%20bear%20the%20risk%20of%20his%20capital%20in%20case%20of%20loss%20in%20business.%20Similarly%20rate%20of%20return%20could%20not%20be%20guaranteed%20for%20capital%20provider%2Fdeposit%20holder.%20Instead%2C%20profit%20of%20the%20business%20will%20be%20shared%20in%20predetermined%20profit%20sharing%20ratio.%22%7D%2C%7B%22content%22%3A%22Interest-free%3A%20Interest%20or%20Riba%20will%20not%20be%20given%20or%20taken%20under%20any%20circumstances%20in%20the%20light%20of%20Quran%20and%20Sunnah%20%5C%22Ibn%20Mas’ud%20says%20that%20the%20Prophet%20(pbuh)%20cursed%20the%20consumer%20of%20riba%20and%20the%20’one%20who%20feeds%20it’%20and%20the%20one%20who%20witnesses%20it%20and%20the%20one%20who%20documents%20it.%5C%22%20%20%5BIbn%20Maja%3A%202277%5D%22%7D%2C%7B%22content%22%3A%22Shared%20risk%3A%20In%20Musharakahh%20contract%E2%80%99s%20risk%20is%20shared%20proportionately%20among%20all%20involved%20parties.%22%7D%2C%7B%22content%22%3A%22No%20investment%20or%20slightest%20involvement%20in%20prohibited%20businesses%20or%20activities%3A%20As%20mentioned%20in%20Holy%20Quran%20%5C%22And%2C%20O%20my%20people%2C%20give%20full%20measure%20and%20weight%20justly%2C%20and%20defraud%20not%20men%20of%20their%20things%2C%20and%20act%20not%20corruptly%20in%20the%20land%20making%20mischief.%20What%20remains%20with%20Allah%20is%20better%20for%20you%2C%20if%20you%20are%20believers%5C%22%20%5B11%3A%2085-86%5D%22%7D%2C%7B%22content%22%3A%22Gharar%3A%20According%20to%20Islamic%20laws%2C%20all%20parties%20involved%20should%20be%20completely%20aware%20of%20the%20transaction%20they%20are%20going%20to%20execute%20and%20there%20should%20not%20be%20any%20ambiguity%20with%20regard%20to%20any%20term%20of%20the%20contract%20or%20with%20regard%20to%20the%20capacity%20of%20any%20party%20in%20relation%20to%20execution%20of%20the%20contract%2C%20hence%20selling%20of%20goods%20without%20proper%20possession%20is%20forbidden%20by%20Allah%E2%80%99s%20Apostle%2C%20as%20mentioned%20in%20Sahih%20Muslim%20%E2%80%9CHe%20who%20buys%20food-grain%20should%20not%20sell%20it%20until%20he%20has%20taken%20possession%20of%20it.%E2%80%9D%20%5BBook%2010%3A%203640%5D%22%7D%2C%7B%22content%22%3A%22Takaful%3A%20Gambling%20and%20insurance%20is%20prohibited%20in%20Islam%2C%20Allah%20(SWT)%20says%2C%20%E2%80%9CO%20who%20you%20believe!%20Intoxicants%20(e.g.%20alcohol)%20and%20gambling%20and%20idols%20and%20(lottery%20by)%20arrows%20are%20an%20abomination%20of%20Satan’s%20work%2C%20so%20avoid%20them%20so%20that%20you%20may%20get%20salvation%E2%80%9D%20%5BQuran%202%3A219%5D%20hence%20Islamic%20banks%20instead%20of%20conventional%20insurance%2C%20take%20takaful%20cover%20that%20is%20free%20from%20interest%2C%20Gharar%2C%20and%20Gambling%2C%20it%20works%20on%20the%20basis%20of%20%E2%80%9CTabarru%E2%80%9D%20(Gift)%20and%20Ihsan.%20%22%7D%5D”][vc_column_text]
Global Islamic finances:
Global Islamic financial service industry is growing at a steady rate as more Muslims are getting involved in this Halal sector of interest free banking around the world. The industry’s total worth was estimated to be USD 2.05 trillion in 2017, showing a strong 8.3% growth. Whereas buying of Sukuk bonds, globally was raised by an astonishing 25.6% (closing at USD 399.9 billion at the end of 2017) as mentioned in the Global Islamic Finance Market 2019 Industry Research Report.
[/vc_column_text][/vc_column][/vc_row]
