Skip Nav

Free Finance essays

Recommended articles

❶Medicine essays Miscellaneous essays Psychology essays Religious studies essays Science essays Sociology essays Essays menu.

How to cite this page

Not what you're looking for?
First page preview

The interest is probihited in Islamic ways of banking as it is also obvious from Quran. Riba and Gharar are illegal under Islamic law. Riba refers to fixed rate of interest. Gharar refers to fixed rate of interest. Gharar refers to speculation. Islamic banking shows dramatic improvements and developments in Pakistan.

Islamic banking is taken as national policy and it is supported but there exist dual banking structure in the Muslim countries. Mostly the banks of conventional system are also opening their separate Islamic banking divisions and branches. The expectation of increase in growth of networking of Islamic banking system is increasing. The Islamic banking has increased in terms of branches, deposits, capital funds, sources. The ratio of income to expenses is high which indicates increasing profitability of the sector.

If anyone gives more or asks for more, he has dealt in Riba. The receiver and giver are equally guilty. If the creditor received a goat as mortgage from the debtor, the creditor may use its milk to the extent he has spent in providing fodder to the goat.

However, if the milk is more than the price of the fodder, the excess is riba. For Usamah ibn Zayd: There is no riba in hand-to-hand spot transactions. What is the significance of Islamic Banking in a post recession world? Islamic banking is gaining popularity in emerging markets after helping some financial institutions avoid the worst of the economic meltdown.

Islamic banks have been less affected than many conventional banks in the current global recession. This is mainly because unlike conventional banks, the Islamic banks have not been exposed to losses from investment in toxic assets nor have they been dependent on wholesale funds since these practices are not in accordance with the principles set out in the Sharia Law.

Moreover, recent years have already indicated that there is an interest in Islamic banking beyond Islamic investors. And lastly, governments and regulators in a variety of countries have already recognized the importance of Islamic banking as a feasible alternative to conventional banking.

The global recession brought about by the collapse in credit supply saw many of the globally accepted models of investment disappeared almost overnight with the collapse of Lehman Brothers in September It is well accepted that the credit crunch was essentially caused by gambling and inadequate regulation.

Examples of such services include Mudarabah, Musharakah, and Ijarah. The profit is a part of its goals, it isn't the most important goal for Islamic banks, whereas the goal of conventional banks is to make as much profit as possible and at any means. Imam Ghazali as cited by Dusuki n. Whatever ensures the safety of these five serves public interest and is desirable'.

From these objectives of the Shari'ah, it can be understand the goal of an Islamic bank and gathered that the most important role of Islamic banks is to promote the betterment of the society in which they are set up by providing means by which members of the society can better themselves, particularly improving their posterity and wealth. Allah says in the Holy Quran, 'O you who believe, why do you say that which you do not do? Greviously odious is it in the sight of Allah that you say that you do not do.

This paper will be organized as follows: Islamic banking is banking based on Islamic law Shariah. It follows the Shariah, called 'qh muamalat Islamic rules on transactions.

The rules and practices of 'qh muamalat came from the Quran and the Sunnah, and other secondary sources of Islamic law such as opinions collectively agreed among Shariah scholars ijma' , analogy qiyas and personal reasoning ijtihad.

Islamic banking refers to a system of banking activity that is in conformance with the Islamic law Shari'ah in all aspects. The ultimate objective of conventional banks is profit maximization, which is in line with the Capitalist worldview on which these banks are founded upon. This situation is not so for Islamic banks as they are founded on the basis of the religion of Islam.

Although, banks are viewed as separate and legal entities unto themselves, in reality they are run by human beings. Islamic banks are thus run by Muslims, and the ultimate objective of a true Muslim is to be successful in this world and the Hereafter by pleasing Almighty Allah in all his affairs. With this reasoning, the Islamic banks also possess this as their ultimate objective. So unlike conventional banks, profit maximization is not the primary objectives of Islamic banks, as they 'have to incorporate both profit and morality into their objectives' Haron, b.

Social justice plays a vital role in developing a society as exemplified by the betterment of the whole society is a concept that is mandated for all Muslims. It is clearly said in Holy Quran as following: Eat not up your property among yourselves in vanities: But let there be amongst you Traffic and trade by mutual good-will: Nor kill or destroy yourselves: Islamic banks thus have to obtain a balance between earning and spending in order to achieve this noble target of betterment of the whole society.

As regards the concept of equity, in Islam it is understood that absolute ownership of everything belongs to Allah, and in His infinite wisdom he allocates resources to people in varying degrees. The following verse of the Holy Qur'an illustrates this absolute ownership of Allah:.

For this reason, it is expected that those apportioned with more resources than others understand that they have a responsibility of helping others less fortunate than them. The implication of the above verses for Islamic banks is that 'while making profit from business is allowable in Islam, the accumulation of profit without utilization for the betterment of the community is forbidden' Islamic banks are expected to be more sensitive to the needs of society, promote more social programs and activities, and make contributions towards the needy and poor families' Haron, a The Shari'ah prohibits the involvement with interest in very strong terms as is evidenced by the following verses of the Holy Quran:.

That is because they say: So whosoever receives an admonition from his Lord and stops eating Riba usury shall not be punished for the past; his case is for Allah to judge ; but whoever returns [to Riba usury ], such are the dwellers of the Fire - they will abide therein'.

But that which ye lay out for charity, seeking the countenance of Allah will increase: This prohibition forces Islamic banks to pursue other avenues of business transactions that are in line with the Shari'ah. Haron, a states can be classified into three principles:. Mudaraba and Musharaka are the two most common modes of financing under this principle currently in use by Islamic banks.

Mudaraba is an agreement between an investor or capital provider rabb al-mal and an agent or entrepreneur mudarib , where the mudarib invests the funds in a project. The profit is shared between the two parties based on a predetermined ratio, while all loses are borne by the rabb al-mal. Musharaka is an equity participation contract whereby the bank and its clients contribute funds to engage in a project.

Profits and losses are usually distributed based on proportion of funds contributed. These two principles of Mudaraba and Musharaka which permit risk-sharing between the banks and its clients are viewed as strongly Islamic in a consensus among Muslim scholars, as they conform to Islamic objectives in both form and substance Haron, a.

This principle refers to debt-based transactions, the most popular of which is the Murabaha. Murabaha which is the most widely used financing method used by Islamic banks today, involves a bank purchasing a good required by a customer and then re-selling the good to the customer at a pre-determined profit. To be truly in line with Islamic principles, the bank must take actual ownership of the good before reselling it to the client.

This is why some scholars refer to debt-based principles as weakly Islamic as actual practice is Islamic in form but not in substance Haron, a. The SSB usually comprises eminent scholars of the area, and although they are hired by the bank management, they are considered to be independent and possess the authority to sanction or reject any proposals made by the bank management in light of Islamic law Dar, Usually contained along with an Islamic Bank's annual report, the SSB are required to confirm the discharge of the functions by providing a Shari'ah report.

This report provides the bank's stakeholders with an assurance on whether or not the bank complied with the Shari'ah in all its dealings, and in instances of noncompliance, discloses where the noncompliance occurred, why it occurred, and what steps are taken to make sure it never occurs again.

Proponents of social reporting also argue 'that organizational transparency through social reporting is the key to meaningful stakeholder engagement' Hess, The SR literature provides various theories propounded to explain the motivation for disclosing social information by firms and the particular set of stakeholders for whom such social information is provided for.

The more prominent theories are as follows:. This approach dictates that firms disclose voluntary information because they are useful for stakeholders. This theory was adopted to explain the motivations for companies' disclosure of voluntary social information. For example, Campbell et al. Their findings suggested that community disclosure was positively associated with public profile.

These findings were consistent with 'reporting behavior found in other categories of voluntary disclosure, where disclosure has being found to be associated with the presumed information demands of specific stakeholders' Campbell et al. Stakeholder Theory A stakeholder is defined by some researchers as any group or individual who can affect or is affected by the corporation Freeman, A stakeholders' list extends to include, in addition to traditional groups i.

And even society at large. Applying this theory to social reporting, it implies that a firm will disclose social information as part of a dialogue between itself and its stakeholders Maali et al.

In other words, stakeholder theory views social disclosure as a response to significant pressures from a firm's external environment. Fundamental to an Islamic perspective on social reporting is an understanding of the concepts of accountability, social justice and ownership that are central to social relations' Maali et al. A wider accountability dictates that the company should be accountable to a wide range of different interest groups i.

The Western concept of accountability is usually restricted to organization's stakeholders as can be seen in the following definition of this concept: This concept is restricted to the human realm when envisioned from the Western viewpoint; however, from the Islamic viewpoint the concept is much broader and transcends the human realm.

In Islam, accountability is first and foremost to Almighty Allah. Then shall anyone who has done an atom's weight of good, see it! And anyone who has done an atom's weight of evil, shall see it' Az-Zalzalah: The verse of the Holy Quran above captures in a nutshell the concept of accountability in Islam.

Allah has provided for mankind various resources and blessings, too numerous to count. Man is expected to use these blessings in the service of Allah, and on the Day of Resurrection, each man shall have to give an account on how he used these blessings. He who used these blessings in the service of Allah is rewarded with Paradise and he who does otherwise is doomed to Hellfire. This awareness is supposed to drive the action of each and every Muslim at all times in all aspects of life, be it personal or business, and in his or her dealings with others as well.


Main Topics

Privacy Policy

Islamic Banking. After fourteen centuries of Islam appearance the Western culture and values dominated for many centuries on the financial and economic aspects, there has been a revival of Islamic principles and values in Muslim countries. This revival was a result of a growing dissatisfaction among the Muslims with the values of the West.

Privacy FAQs

Islamic Economics Essay. The idea of Islamic banking was initiated and brought up by some economists who were conscious about socio economic development of Muslim nations based on Islamic principles. It was based on noble vision and objective of Islamic banking base on profit and loses sharing principle.

About Our Ads

Banking: Bank and Online Banking Essay there are some terrific benefits to online banking. Some of the best online banking services are FlagStar Direct, iGoBanking and E-Trade. Keywords: islamic banking essay, islamic banking malaysia. Chapter 1 Introduction. Background of Studies. Islamic Banking is a banking system that based on Islamic Law (Shariah). It follows the Shariah, called fiqh muamalat (Islamic rules on transactions).

Cookie Info

Before bank is setting the price, bank has calculate overhead cost and related cost during the period payment. In determining the profit, bank should compare to the interest rate in conventional bank to give competitive advantage to the customer. The calculations are below: FV=PV(1+i)n ,,=,,(1+i)3 =(1+i)3 i = % Based on Kontan news in , BCA finance . Islamic Banking. Paper instructions: 1) Discuss Basel II guidelines. Explain capital adequacy and capital adequacy ratio. Essays and paper writing. ME Software Advanced Excel, Lesson 1 – Advanced Functions. Cloud Computing. Unlike most other websites we deliver what we promise;.