ISLAMIC BANKING AND RIBA

Islamic Banking and Riba



Table of Contents

Chapter 1: INTRODUCTION3

Aims and Objectives4

Significance4

Research Questions4

CHAPTER 2: LITERATURE REVIEW5

Functions of Islamic Bank5

Current Definition of Riba7

Riba in Qura'n8

Riba in the Early Jurists' Outlook9

Controversies over Riba in Current Age11

A Critique of Today's Process of Ijtihad13

Bank Interest and the Problem of Riba14

CHAPTER 3: METHODOLOGY17

References19

Islamic Banking and Riba

Chapter 1: INTRODUCTION

Financial intermediaries facilitate the investors to provide finance according to their requirements by considering the risks and returns attached to different projects. Banks pool the funds by accepting deposits from the savers and provide these funds to entrepreneurs for productive ventures to generate profits. An efficient inter-mediation increases the productivity and return of investment for long-term benefits. Islam has provisions for innovative products and practices by using the Ijtihad according to the holy Quran and Sunnah as the origin for all deeds. Islamic bank works as Mudarib to invest savers' funds in general investment fund, specific investment fund or accept demand deposits on interest-free basis. It can also perform the function of investment manager (Wakalah) and generate revenue as service charges. While in conventional banking investors are guaranteed a predetermined rate of interest and it aims to maximize the return even at the cost of society or other stakeholder (Rahman and Faridi 2006).

In conventional banking, excessive use of credit and debt financing can lead to financial problems and promote materialistic attitude that leads to exploitation, which is fatal for society. It is reported that Islamic banking is more desirable than conventional banking due to a higher level of customer satisfaction and better service quality (Ahmad, Rehman & Saif, 2010). Al-Jarhi & Iqbal (2001) defined Islamic bank as a banking institution conducting all known banking activities including borrowing and lending without interest. It mobilizes funds on the basis of Mudarbah or Wakalah and may accept demand deposits as interest-free loan. It deploys funds on profit and loss basis or may advances on debt creating basis according to the principles of Sharia'h being an investment manager. It is evident that Islamic banks are more focused towards just and equitable distribution of resources as compared to conventional banks.

This research focuses on the functions of Islamic banks and the Riba-free system in Islam.

Aims and Objectives

The study of the Islamic Banking system would provide information about this new system and facilitate us with the new ideas.

The research about the Islamic banking would highlight the facts about Riba and the teachings of Islam.

The research study on the Islamic banking system would provide differences that exist in the Islamic and Conventional banking system.

Significance

The significance of the research study will be evaluated by providing different perspectives related to the Islamic Banking. The research study will underline different definitions and perceptions about Riba in Islam. The study will provide main differences between the Islamic banking and the Conventional banking so that the problems in any of the system would be highlighted.

Research Questions

Will the Islamic banking system be able to solve the current financial problems existing in most of the economies?

What are the implications of Riba-free system ...