Islamic Banking System

Write my Essay

Islamic Banking System

Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law (Shariah) principles and guided by Islamic economics. In particular Islamic law prohibits usury, the collection and payment of interest also commonly called riba in Islamic discourse. Generally, Islamic law also prohibits trading in financial risk (Which is seen as form of gambling) Now in the last 20th century as number of Islamic banks were created to cater to this particular banking market.rp

Islamic banking has the some puose like other banking the only difference is that it claims interest free banking and operate in accordance with the rules of shariah known as Fiqh al-Muamalat (Islamic rules on transactions). The basic principle of Islamic banking is the sharing of profit and loss.

Islamic banking is basically against the interest. While other banks all over the world does business on interest. Islam forbids both the taking and giving of interest. Modern economists too have slowly begun to realize the futility of interest. Which Islam has realized thousand years back. A number of modern economists have evolved the maintenance of a banking system without interest. A large number of failures in industrial and commercial enterprises in modern times is due to the high rate of interest charged on the money invested in them. A Time comes when the borrower crumbling under heavy interest cannot borrow more money which results in the failure of his enterprise.

Further the depression and crisis in trade mostly result from  the payment of high rate of interest. The socialists have worngly attributed such crises to capitalism. In fact interest is the greatest evil of capitalism and it is rather the worst from of capitalism, the Islamic economy which accepts a form of capitalism without interest has almost eliminated its harmful aspects. The Holy prophet of Islam has advised Muslims to avoid seven harmful things and the third among there is interest. He stated; although interest brings increase yet its end tends to scarcity, the Holy Quran says That which ye given in interest in order that it may increase other people, wealth hath no increase with God, but that which ye give in growth tax, seeking God's countenance hath increases manifold''

Finally, Islamic banking is restricted to Islamic ally acceptable deals, which exclude those involving alcohols pork, gambling etc. Thus ethical investing is the only acceptable form of investment and moral purchasing is encouraged.

Islamic banks have grown recently in the Muslims world but are a very small share of the global banking system. In theory, Islamic banking should be synonymous with full reserve banking, with banks achieving a 100% reserve ratio.

Many Muslims and non-Muslims alike have opposed these Islamic banks claming that they do deal in interest but merely conceal it through legal tricks. However Islamic banking system should be established in Islamic state. Interest free banking is useful formal aspects.