Islamic Law | Assignment-1

Running head: ISLAMIC LAW 1
Islamic Law
Name
Institution

ISLAMIC LAW 2
1) The Islamic banking system functions according to Islamic law; therefore numerous
Islamic restrictions inhibit the operation of the banking system. The most important restriction is
the prohibition of interest=riba, this limit the freedom of most Islamic banks to establish suitable
financing instruments to help in supporting young, innovative businesses (Alharbi, 2015). Most
of the restrictions such as riba often enlarge the risks of the institution (bank); particularly when
financing most of the businesses, hence the bank either tries to assume the Islamic law or avoids
these businesses.
As for me, I would prefer the conventional banks to take and give riba. The prohibition of
riba indeed has some essential benefits both to the citizens and the institution, to me, I believe
that the give and take of interest can improve the performance of most banks. Currently, the
prohibition of riba in most Islamic banks means a ban of interests and not a ban of usury. From
an economic point of view, this system causes numerous problems (Hamzah, Ishak & Nor,
2015). The institution (bank) has to establish loans without interest that are profitable for the
institution. These concepts remain Islamic-conform Loss-Profit sharing concepts. For the letter,
the institution (bank) is only permitted to claim a service fee, which is often not linked to the
total amount of money provided as loans but solely to the service offered, so it may only cover
short-term loans which often has no value. IR (Interest rates) holds benefits for both lenders and
borrowers. FIRS (Fixed Interest Rate) remains attractive to people who want to have a good
understanding of the method of loan payments. On the other hand, if the IR decreases most of the
banks shall make more money from their consumers because they shall charge higher IR loans.
The profitability of the banking sector increases with the hikes of the interest rate. The take and
give of riba shall allow all conventional banks to have huge cash holdings because of consumer