Understanding the Practices Islamic Banks of Bahrain

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Recommended: Literature Review of Islamic Banking

Introduction
“Allah has made trade lawful and interest unlawful” (Albaqarah, 1: 275)
Islamic banking is a banking system that performs its operations in accordance with the defined laws and principals or Sharia. Sharia is the ruling or Islamic jurisprudence of Allah that has been passed to humans through Muhammad (PBUH). In this regard, Islamic Banking system is also referred as Sharia Compliant Financal System.Murahabah is one of the most practiced modes of actions in the Islamic banking system where banks and are promoting a riba-free culture. The paper tries to get a better understanding of the Murahabah concept, Shariah laws complient with it, controversies and practices of Murahabah in Islamic Banks of Bahrain.
The concept of Murabaha
Murabaha financing is a most widely used concept practiced in the contemporary Islamic banking and finance in cases where customer is looking to buy some commodity. Murabaha is an agreement of sale between the seller and buyer in which seller discloses the real cost and his added profit margin to the buyer. The profit margin is mutually agreed between seller and buyer that make this process quite close to the implications of the prescribed shari’a laws. Many authors do not consider the system as an ideal system of selling (bay) as per shari’a laws and claim that the process seeks to circumvent the prohibition of riba in Islamic jurisprudence and should be limited only to equity-based arrangements where mudaraba and musharaka cannot be implemented (Ahmad, 2013). As a result, there are various controversies in practicing the Murahabah concept in trade financing. These contentions are not against the Murahabah as a concept rather the way it is implemented in the context of different terms and c...

... middle of paper ...

...purchaser then undertakes the receipt of the item in his possession as legal representation and asks the bank to execute the proxy.

8. Finally, the both the parties sign the Murabaha sale contract as per agreed terms to purchase the item.

Conclusion
Murabaha as discussed is the most well practiced financial service in banks in Bahrain which are being well monitored by various rating agencies working under Central bank of Bahrain. A close eye on the whole procedure and fare auditing and legislation of the banking system and services they provide have increased the Islamic banking excellence of practice not only in the Islamic world but also in international world. However, there is a need of benchmarking the Islamic ruling over profit-margin to create a fare competition in the market among Islamic banks and not to follow the riba or interest rating in the market

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