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Concept of Islamic Banking

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Added on  2020-06-04

Concept of Islamic Banking

   Added on 2020-06-04

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ISLAMIC BANKING
Concept of Islamic Banking_1
Table of ContentsLiterature Review.............................................................................................................................1Meaning and concept of Islamic banking...............................................................................1Comparison between the Islamic banking with conventional banks......................................2Analysing the Principles and Scope of Islamic finance.........................................................4REFERENCES................................................................................................................................7
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Literature ReviewMeaning and concept of Islamic bankingAs per the view of Arshad, Yusoff and Tahir, (2016) Islamic banking is also known asSharia complaint finance and it is a kind of banking activity which implies with Islamic law. Itaids in practical application of the development of Islamic economics. It includes some modelsabout the finance like mudarabah, wadiah, musharaka, murabahah and ijar. In a simple word itcan be said that Islamic banking is a system which refereed by the Islamic law and sharih. It hasmain aim is to provide an effective financial services to the people and it does not take anyinterest along with banking and financial services. On the contradicting view of Hassan, (2010)Islamic banking is a banking activities under which Gulf Cooperation council have big marketedshare. This banking is consisted with principles of Islamic law that is called as Shariah compliantfinance. Lebdaoui and Wild, (2016) stated that Islamic banking and financing assist inpreventing re-occurrence of economic downturn and depression that is known as global financialcrisis. This financing is occurred in the historical year in 2007 and 2008. The leading variationbetween the conventional banking and Islamic banking is that profit sharing investment accountholders share return any pre guaranteed without risk and return in the Islamic banking. On theother hand, in the conventional banking, there is a guarantees specified return for the depositorsand take risk. Furthermore, in the Islamic banking, Mudharabah and musharakah conduct salescontract and share risk in order to discussing utilisation and financial resources. In theconventional banking, it is great responsibility of the borrowers to pay the interest as monetaryreward to investors. As per the view of Hassan, (2010) Islamic banking are closely related withproductive and financial flow. Islamic baking is very important financing and banking whichprovides great financing services to customers. It has great role in the baking industries as it doesnot take any interest for its customer who take loan under Islamic baking services. The principleof Islamic banking adopt shariah law through which quran and hadith involved. The majorobjective of Islamic financial products is investors who wants to follow and adopt the Sharia thatis Islamic low. In the view of Khorshid, (2012) The major aim of the financial system which is toaccomplish the precept of Holy Quran which implies to collect an effective interest along withfinancial assets. The basic principles in this Islamic law is that exploitative contracts based onRiba or unfair contracts that included risk which is unenforceable. The major difference betweenthe conventional banking and Islamic banking is that profit sharing investment account holders1
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share return any pre guaranteed without risk and return in the Islamic banking. On the otherhand, in the conventional banking, there is a guarantees specified return for the depositors andtake risk.As per the view of Arshad, Yusoff and Tahir, (2016) there are major two kinds ofprinciples under the Islamic banking. First is that Islamic law represent and reflected the totalityof Allah orders which includes all principles and aspect of the life of Muslim. One anotherprinciple under the Islamic banking is that Islamic finance represent and involved in the socialjustice and spiritual value. stated that Islamic law prohibited Muslims people about to paying orreceiving any interest rate which incurred in attractive out security interest, pickings balances oncredit card, finance any income like T-Bills, T-bounds that promises guaranteed return. Thus, inthe Islamic banking it can be said that all parties who involved in the financial transaction sharesthe risk and profit or loss of a venture. In addition to this, under this no party is liable to getsspecified return under the financial contract.As per the view of Beck, Demirgüç-Kunt and Merrouche, (2013) the principles of Islamicbanking have major objective is to welfare of the whole society. It is no ;longer confined toconcepts and idea only. It started in 1963 while Mit Ghambr saving bank began offering interestfree banking in Egypt. In the initial time in 1980, there are various Islamic banks and Islamicfinancial institution have begun their operation in various Islamic countries. When in the Iranand Pakistan Islamic banking is implemented the Islamic banking system and practices in theentire banking sector then at that timeIslamic banking operates in the other countries anddelivers an effective banking and financial services to its customers.Comparison between the Islamic banking with conventional banksAs per the view of Islamic banking is refereed as fastest growing market and in thepresent time Islamic banks are organised in the various countries and according to the reserch ithas been founded that its annual growth rate is about the 10% to 15%. As per the investigation ithas been analysed that Islamic banks are established in more than sixty countries and itsestimated value is about $166 billion. In the opinion of Morrison, (2015) in the Islamic banking,money is not a thing or item though it can be used as a medium of exchange and store of value.Hence, it can not sell at a price higher than its face value or rented out. On the other hand in theconventional banking, there is used money for the exchanging among the community. There are2
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