ISLAMIC BANKING

Tuesday, March 8, 2011

                   Now a days, humans mainly depend on banks for fulfill their economic needs. The banking system become a part of our day today life .There are lot of  services that provided by bank ; like safe guard of money, agency for money transaction , money lender etc.

                    Almost all modern banks are works on a system that based on interest. That means  a depositor will get a price increment without doing any work or taking any risk only just keep the money for some period. And bank lend the money with an agreement that he should return the money within a period  along with some percent more as interest.




A different Kind of Banking Concept:
                      Normally when we heard about bank we have a concept of interest. But now world is discussing about a different kind of banking mechanism which is not based on interest,but can give profit to the depositors. The banking concept based on Shari'a (Islamic Rule). That kind of  bank known with name as ISLAMIC BANKING.

                       As we saw above paragraph the Islamic Banks are work strictly under  Shari'a .So they use the money of depositors to give some industries and a portion of the profit distribute among depositors. Now we are going to see wot is the function of Islamic bank in detail.  


Sharia Concept of  Islamic Banking:
           In Islamic Banking System we must go under sharia concept . so first we are discuss about sharia concept of Banking. There some words that come under banking concept in Islam they are,
         1.Wadiah(safekeeping) :
               Wadiah is an Arabic word which means safe keeping. Islam says that we are all  safe-keepers of Allah's  fortune and  we should expense the fortune as Allah's wish. Now in Islamic Banking safe-keeping is one of the most considering feature, here there some quotes in holy qura'an ,

· “Those who are faithfully true to their trusts (amanah) and to their covenants” 23:8
· “Verily, Allah commands that you should render back the trusts to those, to whom they are due” 4:58

     


now we can consider how it is work in an Islamic banking, system,

1. if you place or deposit your money into the bank, then the bank ensure return of your money
2. you can withdraw your money when ever you wands it.
3. bank may some charges for their services or may get gifts as pay increase.
4. bank is only a custodian of your money.   

      2. Mudarabah(Profit Sharing):

             In Islamic concept the profit through Riba(interest)  is prohibited. But profit through busniess is allowed because   the risk is held to the depositor. This business concept is implemented in Islamic Banking. 

    This concept works in two ways, First on between you and Bank And between Bank and business 

      1. you deposit your money into the bank agreeing some terms and conditions.

      2. The bank invests your money into some industry or business.

      3. Business may  be profit or loss.

      4. Some portion of profit is given to you according to the above terms  and condition.

      5. The losses of business may be reduce your deposit amount.

   3.Bai' Bithaman Ajil (Deffered payment sale):

             IT is a differed payment system according to sharia concept.If you have not budget for buying a thing or constructing a building , then Islamic Bank is there for your help without violating sharia concepts. the bank will buy that thing or construct building for you and for temporarily the owner ship will go to the bank . you want to pay the cost with an agreed profit margin to the bank then you get the ownership. This is the concept of Bai' Bithaman Ajil. Now wee can see how the processes.

         1. you want an asset  form some other person .

         2.Then you request to the bank to buy that asset. with some agreed profit margin.

         3.Bank buy the asset from the owner for you.

         4. The owner will give the ownership to the bank.

         5. Then the bank give that asset to you for use but the actual ownership is to the bank.

         6. When you paid the amount along with agreed profit within a period of time then bank will handover 

             the ownership to you.  

        4.Murabahah (Cost plus):

          Murabaha is a particular kind of sale where Seller expressly mentions the cost it has incurred on purchase of the Asset to be sold and sells it to another person by adding some profit, which is known to Buyer. That means the owner of a product will take some additional cost as profit which acceptable by buyer who buys the product.    

   

         5.Musyarakah (Joint venture):

            Musyarakah means joint work or partnership for making profit. here profit will share among the partners with an agreeable ratio. and loss is also suffered in the same ratio. 

         6.Ijarah Thumma Bai’ (Hire purchase):

                 Ijarah Thumma Bai’ is normally used in financing consumer goods especially motor vehicles. There are two separate contracts involved: Ijarah contract (leasing/renting) and Bai’ contract (purchase).

    1) You pick a car you would like to have.
2) You ask the bank for Ijarah of the car, pay the deposit for the car and promise to lease the car from the
bank after the bank has bought the car.
3) Bank pays the seller for the car.
4) Seller passes ownership of the car to the bank.
5) Bank leases the car to you.
6) You pay Ijarah rentals over a period.
7) At end of the leasing period, the bank sells the car to you at the agreed sale price.


6.Wakalah (Agency):
         Islamic  bank  is also cna used as an agency of money transfer. It is possible through credit cards and  cheques.
    


7.Qard (Interest-free loan):
               In Islamic bank the most attracting feature is Interest-free loans. The bank will lend money with an agreement  over a fixed period. After that period is over he only want to repay the exact amount which he got from the bank. if he wishes to pay some extra it will be accepted by the bank.


8.Hibah (Gift):
                 Hibah refers to the additional amount who willingly give to the bank. the hibah may given for any services provided by bank.


                             These are the main features of an Islamic bank. Naturally it is have some sharia board to control all the activities of bank. So there will not any cheating  in it. these bank is also a great helpto people  who are  muslims as well as non-muslims.