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The similarities between Islamic and the conventional banking system
Similarities between conventional banking and Islamic banking
Similarities conventional and Islamic Banking
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In the Islamic Law (the Charia), you cannot pay a fix interest rate, named “Riba”, as a remuneration for the capital. Indeed, the money should not “work” alone but nothing in the Charia forbid the remuneration of the assets bought thanks to the capital lent. The inner principle the many interdictions concerning the money lending in the Islamic Law is that money has no inherent value in itself, only the human work should be rewarded.
Islamic financial contracts are conceived to facilitate the financing according to Islamic standards.
The Islamic finance appeared at the beginning of 1960s with the aim of developing alternative financial contracts conform to the Sharia. Before the 60’s Islamic Finance existed but without solid institution it could not expend itself. The creation of the first Islamic social bank, Mit Ghamr Islamic Bank in Egypt in 1963, and the first Islamic commercial bank, Dubai Islamic Bank in 1975 set up this problem. This financing system remained quite unknown until a few years ago, when the risks taken in the classical global finance led into a global crisis.
In a first part we will study why the Islamic finance is really different from classical finance, then why it could be one alternative for the classical finance, and finally we will see that this financing model is not a panacea for all the problems in our current financing system.
I) In what Islamic Finance is so different from the current global finance?
The sociologists agree to say that the process of the modernization of the society is due to the separation of the different spheres (economical, artistic, legal…) from the religion. This process called secularization is the foundation of our society: “saeculum” in Latin means “century” and what i...
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... finance won’t overcome the current model but only be a part of it. Indeed, the classical finance has a big propensity to consider alternatives model like a niche market. The Islamic finance I still young, and lot of experimentations and researches will be necessary before it can play an important part in the worldwide finance. The risk is that the Islamic Finance loses a part of its ethics principles as developing itself. Indeed, even if the gambling is theorically forbidden by the Sharia, one can always build a system avoiding the rule, like it is actually the case with the Salam contract: a short term contract allowed by the Sharia, where the seller realizes a profit from a decline in value of the asset.
Works Cited
:” It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest.
The secularization paradigm Bruce argues ‘is a set of associated explanations rather than a single theory’ (Pg.43). To build on this argument Bruce provides us with a diagram of the secularization paradigm with 22 key contributing factors; some showing the religiosity of societies i.e. the protestant reformation and monotheism, some exploring other factors which have contributed towards secularization such as Industrial Capitalism, Technological Consciousness and Social Differentiation and he provides an explanation of these concepts in order to provide the reader with an analysis of these themes. This can however be problematic in the sense that the terminology of the paradigm may well be understood by individuals studying or in the field of sociology but for individuals who are looking to develop their knowledge on the debate of secularization and religion can make this difficult. Bruce argues that modernization is one of the main causes of secularization. ‘‘Modernization brought with it increased cultural diversity in three different ways. First populations moved and brought their language, religion and social mores with them in a new setting. Secondly, the expansion of the increasingly expansive nation state meant that new groups were brought into the state. But thirdly…modernization created cultural pluralism through the proliferation of classes and class fragmentation with increasingly diverse
Some sociologists claim that what changes primarily is the social system and religious change is an effect of the change in the former. It is not religion but, to a larger extent, the economy that is supposed to legitimize reality. From this perspective it is the social system that changes and this change in relation to religion means secularization, which generally speaking means the diminishing impact of religion on social life at various levels, degrees and intensities. Theories such as Luckmann’s privatization thesis or Hervieu-Le´ger’s emotional theory of religion may be categorized as giving priority to changes within the individual. The fundamental thought is that in contemporary society it is primarily the individual who changes. It is the individual that seeks direct contact with the sacral sphere, is driven by emotion, feeling, a personal and individualized need. The third current of theoretical solutions to the question of what predominates in modern and post-modern changes is the one that points to religion itself as the sphere of these changes. It is neither the society nor the individual, but rather religion that is pushed to the forefront of the phenomenon. Religion in confrontation with modernity takes on new forms which function well in the modern
Moreover, he does not explore Islamic capital regulations institutions, such as betulmal, which is a centralized financial institution that manages tax administration in Islamic states., And despite his global and transhistorical approach, Frieden pays little mind to economics in the early Islamic Caliphates.
The Islamic revival is the renewed passion and effort to return to the basis of Islam to address the failure to serve it citizens as a modern nation state. This revival is prevalent across all over the world not just in the middle East. There are attributes to the revival that make it unique such as its pervasiveness, its polycentrism, and its persistence. It is speculated and supported with ample evidence that the Islamic revival has occurred in response to the lack of political, economic, and military development across Muslim majority country 's as well as its complete absence for Muslim minorities in other parts of the world.
Rahman, Fazlur. Islam & Modernity: Transformation of an Intellectual Tradition. Chicago: U of Chicago, 1982. Print.
That being said, I hope that this research will open new horizons of thought for the fellow readers and bring about the hidden aspects. Not only this, but this research will also provide ample arguments to fellow readers that shall help them in any debate whatsoever on the topic and will ensure that no one who has read this article is not able to answer an argument that questions Islamic credibility and its stance over the ever changing world that has now turned into a global village.
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.
...e life and times of secularization theory will be turned over to historians, who might just see it as yet another example of the glaring flaw of the social sciences. Furthermore, the secularization theory emerged at roughly the same time as the field of sociology, which was, at root, preoccupied with the meaning of modernization and fashion the theory of modernization. Along with bureaucratization, rationalization, and urbanization, secularization constituted a basic part of what it meant to be modern. Is it too far fetched to think that sociology, modernity, and secularization all need each other to survive? If secularization is tossed aside as an unreliable component of what it means to be modern, what might fall away next? And if rationalization, bureaucratization, and urbanization prove unreliable what will happen? It is still ongoing, so let’s wait and see.
The attempt to understand the origins and evolution of Islamic law can be daunting. As has been indicated, this matter is largely fraught with complexities and inconsistencies. Some clarity has been added as a study was done of the Islamic tradition and contemporary sources. As the history and resources from scholars has shown, the true history and development of Islamic law into the Sharia that exists today is still an on going debate. Yet, despite its suspect and complex origins, Islam has remained an ever-pervasive topic in contemporary religious discussions. The true sources of Islamic law continue to be an expanding field of study and will probably remain as such for some time.
Secularization is a controversial form of social change in modern day society. Secularization is a concept derived from a Latin word meaning “the present age,” the term is generally associated with modern, technologically, and advanced societies. “Secularism is a political tradition that has been evolving for eighteenth centuries. It shares important relationships with other traditions, sustaining complex ties with Judeo-Christianity, and maintaining a long-standing relationship with Islam” ( Hurd, 2004). The term secular has taken on many different meaning through history. The earliest references can be traced to the 13th century, when the notion of the saeculum arose in reference to a binary opposition within Christianity. Priests who withdrew from the world (saeculum) formed the religious clergy, while those living in the world formed the secular clergy (Casanova, 1994). The notion of the ‘secular’ has taken on a range of different meanings over the past eighteen centuries. In today society, the world secular is used to describe a world thought to be in motion, the moving away from religious influence in everyday life.
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...
...ation, for the whole idea is a myth and cannot be introduced in a country where normal banking exists, and which claims to be secular. To create a legislation which allows no interest to be paid or received would mean subjecting ordinary savers to enormous risks - which surely cannot be the intention of Islamic banking. If Islamic banks cannot invest in bonds, T-bills, and commercial paper, or lend to finance inventory or projects for interest, it defeats the whole purpose of banking. Even in Muslim countries, what is called Islamic banking is - to put it in the dismissive words of one western critic - "normal banking sprinkled with holy water." At best, Islamic banking is a way to deny the existence of interest and make it easier for Muslims to accept the idea of banking since the Qur’an includes strong injunctions against the giving or taking of "riba" - interest.
...ctices. Thus, in order to counter this challenges, better awareness should be create among the customers that Islamic banking is not only valid to Muslims only. It can be widely use by other religion.
Islamic nation. As examples given earlier about modernization which includes nations such as Turkey and on the other side of the spectrum the practice of Islamic Shariah. As a final note, my main objective from this book review is to see Islam from the eye of Muslims and Non-Muslims alike.
...ot achieved , contractors are not allowed to operate freely . And they expect that the government will take resources from the rich and give it to the poor. Therefore, the moral aspects are an essential element of the difference between the market economy and Islamic concepts .