Islamic Banking system is banking system that guided by principles of Islamic laws (Sharia). In Islamic banking system, the most important feature is prohibited of interest (Riba), no matter what type of form or source it is.
Riba is the fixed increase on the capital, collected against a fixed period. According to Qur’an, in all type of transactions, both receipts and payment of interest is prohibited. People who dealing of lending money in three conditions which are addition in the principal amount or capital, increment to the additional amount fixed in advance and the dealing made conditional to the two mentioned clauses are consider dealing of Riba. It is regardless of its usage whether it is a personal need or for a useful purpose or either the borrower is poor or rich. However, mark-up for delayed payments and trade-financing commissions are allowed. The prohibited of Riba is to avoid the unbalanced distribution of income in society if interest is involved in credit system.
Risk sharing is another principle for Islamic banking system. Although interest is prohibited in Islamic banking system, they still can operate by the concept of profit and loss sharing which is utilizing the funds at risk. When there is no guarantee of return, people will be encouraged to involve in maximize their exertion to contribute justify into production process. Mudarabah and Musharakah are two types of forms which are most desirable in profit and loss sharing concept. Under these two forms, financier makes the funds available as an investor instead of as a lender. The funds they invest do not guarantee will bring them income, they might need to share the loss in proportion to his share. Under Mudharabah, that will be two parties involve who are ...
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...s creditor and debtor. However, no matter what type of dealing a client with an Islamic bank, their relationship will never be debtor and creditor. For example, under Mudharabah basic, the relationship between a bank and a client is investor and entrepreneur only. Moreover, when doing investments in conventional banks for example doing an savings in conventional bank for a certain period, the bank has to guarantee all its deposits when maturity, regardless the bank is loss money in an unexpected business failure. However, for Islamic bank, if based on al-wadiah principle, Islamic bank will only guarantee deposits for all deposit accounts but if under mudharabah principle, client have to share the loss if loss exist. Therefore, both Islamic and conventional banks have a totally different way in their operation although the service they provide is almost the same.
“And whatever riba you give so that it may increase in the wealth of the people, it does not increase with Allah.” [Ar-Rum 30:39]
Islamic finance is a financial system that operates according to Islamic law (which is called sharia) and is, therefore, sharia-compliant. Just like conventional financial systems, Islamic finance features banks, capital markets, fund managers, investment firms, and insurance companies. However, these entities are governed both by Islamic law and the finance industry rules and regulations that apply to their conventional counterparts. Therefore, islamic finance is to be assets based as oppose to the currency based whereby investment structured on exchange or ownership of assets, and money is simply mechanism for transaction process. It would based on two sources which are Al-Quran and As-Sunnah.
Islamic finance is a term that reflects financial business that is not contradictory to the principles of Sharia. Conventional finance, particularly conventional banking business, relies on taking deposits from, and providing loans to, the public. Therefore, the banker‑customer relationship is always a debtor‑creditor relationship. A key aspect of conventional banking is the giving or receiving of interest, which is specifically prohibited by Sharia. For example a conventional bank’s fixed deposit product
Based on the concept of usury and gharar under the wisdom of the prohibition of usury and gharar can say that is forbidden in the Islamic concept requires that the damages should exceed the interest and usury, reflects this clearly. Gharar illustrates the flexibility of Islamic law in terms of it being permissible when its benefits outweigh the harms. Through these findings we see a question emerge that deserves to be the focus of a discussion: are all contracts in Islamic banks completely free of usury?
With the massive development of modern society, people’s income statement has become better and better. The bank has played the important role in many different kinds of areas such as loan contracts, interest and reserves as well. Bank has become more and more significant in people’s life and no one can live without it. Due to the significant status the banks have, the question has come out that does any bank have the ethical dilemma and how ethical have recent banking practices been. In this assignment, the main target is to answer the question and making the analysis and discussion in the same time, including the definition of the bank, what kind of role the bank plays in the society, some typical examples, which are deeply associated with the modern society and the discussion of the examples. In the same time, the fractional reserves as well as maturity transformation are analyzed and discussed. Through the discussion of these two parts, the result can be got that banking system is ethical and positive to the modern society.
The term Musharakah comes from Arabic origin of word which literally means sharing. According to Ibn Arfa (1984), Musharakah is defined as: “An agreement between two or more persons to carry out a particular business with the view of sharing profits by joint investment”. Meanwhile, The Mejella (1329) defines it as an “Agreement for association on the condition that the capital and its benefit be common between two or more persons”. Another Muslim jurist, Mohammad Akram Khan (1990) defines a partnership or musharakah as: “A contract between two persons who launch a business of financial enterprise to make profit”. Based on the latest BNM parameter on musharakah contract, the parameter covers capital, management, profit sharing, loss sharing and joint ventures. An article written by Noraziah Che Arshad and Abdul Ghafar Ismail on October 2010 had discussing on several comment on the Musharakah shariah parameter. The discussion of each parameter in focusing on the capital contribution by all partners, management of musharakah venture, profit sharing rights, loss sharing, and partnership ...
4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to be a Zakat Collection Centre and they also pay out their Zakat.
In Islamic banking, there are still five main concepts which are profit and sharing, Wadiah, Musharakah, Murabaha and Ijarah. Profit and loss principle is actually based on mudarabah principle. Under this principle, profits will be shared between owner of capital (financier) and the entrepreneur on the basis of contractual agreement. However, financier will lost it money invest if the business fail. This means that, income from the money invest by financier is not guarantee. For wadiah, refund of the principal is guarantee by the bank. Depositor under this principle might receive a share on profit of the bank’s business. Wadiah is safekeeping as their principal is guarantee in full of demand although the profit of investment by bank is not guarantee. Musharakah is a joint enterprise or partnership business which both parties will manage the business together. Under this principle, ratio of profit or loss pre-determined basic. After a certain periods, a party can terminate the joint venture gradually. Murabaha is another principle of Islamic ban...
Mudharabah have two types. There are mudharabah muthlaqah and mudharabah muqayyadah. Mudharabah muthlaqah means the purpose is to form collaborations between capital owners and managers of capital coverage is very broad and not limited by the specifications of the effort, time and the business district. In the discussion of fiqh scholars forbearers sholih often exemplified by expression if'al ma syi'ta (please do as you please) of the owners of capital to capital manager that gives enormous power. Mudharabah muqayyadah means it is type of the opposite of mudharabah muthlaqah. That is capital constrained by the limitations of governors of effort, time or place of business. The difference between them lies in the restriction of the use of capital in accordance with the will of the owners of capital.
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...
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.
In Islamic Fiqh the term Riba has a special meaning that is an unjustified increment in borrowing or lending money, paid in kind or in money above the amount of loan, as a condition imposed by the lender or voluntarily by the borrower.
Muslim state has its perfectly written constitution, in which rights and duties of everyone are clearly mentioned. Islamic Shariah refers to rules and regulations have to lead their lives. In the Shariah, duties of state, citizen’s role, and their rights are commanded. It covers each and every aspect of life and that will last forever. As Allah Say:
The study is primarily designed to find out the continuous issue of the banking system in