Islamic Banking

Islamic Banking is a Financing Format, as an association of capital owners, as shareholders, and investors, as depositors, who are initiating the path to cure the financing ills in the areas of Investment, Banking, Insurance and Economic Development.

Islamic banking system consistent of Islamic law (Sharia) principles and guided by Islamic economics. In particular, Islamic law prohibits interest (usury). Islamic law also prohibits investing in businesses that are considered unlawful, or haraam.

Islam permits the interest free banking and believe on the profit sharing both for the depositors and as well as borrowers. Especially in case of mortgages the bank create joint ownership of the property with the buyer and convert the bank’s finance amount into units by dividing the contribution of finance amount over the total months. And give the opportunity to the borrower to purchase these units within a specified period of time and against this service it charges the rent on the units which are held by the financial institution. In the other words (Islamic term) ‘Murabaha’ is the sale on profit, means cost plus profit. If a person has no funds to purchase a home or property it comes in financial institution and requests it then after checking his credit worthiness and credibility the bank and the borrower jointly purchase the property and financial institution gives the right to further purchase the units of the property into different part within specified period of time. On the other hand it is observed in the conventional banking the bank grant the loan to the borrower and he solely purchase the property and he paid the principal amount and the interest thereon.

Many Islamic Banks have sprung up over the last few years. These changes are occurring both in Muslim and in western countries, and are driven by a global trend amongst Muslims to become more observant of their faith. It might have been the reason why Islamic Banking emerged; however, today Islamic Banking is sought by Muslims and non-Muslims due to the benefits it offers.