Islamic Banking Progressing in Modern World

Worldwide, the number of Muslims is estimated at 1,61 billion, which makes Islamic banking one of the fastest developing financial sectors. 

Banks in favour of Islamic people need, if they want to maintain current clients and draw new ones, to comply with some very basic rules of Islamic law. 

Banks must be prepared for specialised goods or services in order to exist on this competitive market, and should implement programmes to train their employees to provide these products and services. 

Islamic bank accounts are different from conventional bank accounts in many ways. Many Islamic banks offer online bank account opening in UAE for the customers convenience. 

Principle of Islamic Banking

The fundamental theory of Islamic banking is in accordance with the legislation of Sharia law, Fiqh al-Muamalat. The term is synonymous with “compliant reserve banking” and “compliant sharia banking.”

Usury – prohibition of paying or receiving interest on funds is the most important aspect of such legislation. Riba or ribaa is the Islamic terminology. 

Sharia law also prohibites investments in goods that are contrary to Islamically accepted law, such as beer, pork, gossip or pornography, that involve unknowns, such as the acquisition and marketing of potential products and businesses which are haraam. Both people, corporations and governments are subject to these values.

Interest is Prohibited

The charging of interest or late payment charges is prohibited to Islamic banks, which is also called a form of riba. Banks also need large discounts on products and property or require large collaterals in order to reduce risk. 

The Bank is entitled to charge a higher price for the goods if payments are delayed or received on a later date, since it is not regarded as collecting interests but an exchange for goods. 

Mudharabah, Wadiah Musharakah, Murabah and Iyarah belong to Sharia Compliant banking brands. Another way banks operate under Islamic law in an effort to make a profit is to purchase a product the consumer needs and then to market the product to the customer at a higher price.

Explanation of Islamic Banking Terminology

  • The Mudharabah is an enterprising-bank relationship. The bank is known as the rabbit and the businessman as the mudarib. The Bank supplies all the funds required to establish a company, and the businessman manages the company. Until the initial funds of the rabal-maal are paid off, the profits are divided at a negotiated rate.
  • Musharakah is like Mudharabah, where a businessman finds funds for an enterprise and pays the bank back for a benefit ratio. However, more than two individuals also donate funds and become affiliate companies that can control the enterprise according to the amount of money spent.
  • Wadiah is a way of depositing money in a islamic bank account and receiving a “gift” from the bank. At the request of the depositor, the bank is the holder of funds and reimburses the whole sum. The fund pays off a hibah or a donation that is not promised for the period of time the depositor has to hold money on the bank. In accordance with Islamic legislation, the hibah is close to interests.

Conclusion

The metropolitan and suburban communities with large middle class still use traditional banking and thus give Islamic banks plenty of opportunities. It is important to remember that people choose their services for the safety of the religious and political character of Islamic banks. The proof is clear: Islamic banks are a major business, and they rise daily.

James Mason

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