Islamic Banking

Introduction

As far as commercial banking is referred, there are two main differences from the traditional approaches (conventional or Islamic), and these are very significant evolutions. One is that this method believes commercial banks as serving providers, rather of like “money lenders” (conventional) or “investing-collaborators” (Islamic). Interest-free banking is inferred as a sub-model; the conventional banking is considered as an “inflation-free” sub-example of the common model. These differences make possible one to wipe out riba from the method without recurring to radical evaluations, and still have an entirely executable method attuned with the conventional one. Successively, this characteristic creates the new method easy to empathize and to explicate, and hence easy to enforce in all countries. The philosophic re-orientation, technical adaptations, and the re-training of staff needed for the transformation above from the conventional to the anticipated method are also least. More significantly, the new perspective produces commercial banking translucent, interest-free or not.

 

Discussion

Muslims are disallowed by their religion to conduct in interest (riba) in whatsoever means. Contributing and getting as well as observation are all banned. Therefore an Islamic banking method cannot give any interest to its investors; neither can it require or obtain any interest from the receivers. Nor could the banks observe or hold accounts of these dealings. Simply the lender is permitted to the return of his funds fully. This is a Qur'anic enjoining. The suggested method abides by with these central Islamic essentials.

A fundamental dogma of commercial banking is funds assurance. The funds trusted to the bank by an investor must be brought back to him fully. The anticipated method totally follows with this necessity. Islamic banking as exercised today does not supply funds guarantee in all its deposit accounts. In many countries, this is one of the two most important expostulations to allowing the organization of Islamic banks. There is no opposition to giving zero interest on deposits (Karsten 2002).

Consequently, by giving zero interest and guaranteeing funds, the proposed method meets both the riba-forbiddance rule of Islam and the funds guarantee necessity of conventional Banking rules. In Islam, there is an obvious difference between lending and investment — lending can be exercised only on the foundation of zero interest and funds guarantee, and investment only on the basis of mudaraba (profit-and-loss-communion).

Conventional banking does not and require not construct this distinction. Simply an Islamic bank has to assume this into contemplation in inventing a method to provide to the Muslims (Abdullah 2006). Hence such a method has to provide for two sub-methods — one to cater to those who would “lend” and another for those who wish to invest. In conventional banking those who like to get an income employing their savings do and then by framing their funds in savings investments or time (fixed) deposits and get an interest defrayment. Hence the suggested method should appeal no opposition from any banking power, thereby facilitating interest-free (or Islamic) banks to be arrange in all countries of the world.

A model is built where the “interest” appointed by the ...