The Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic laws (Sharia) and its practical application through the development of Islamic economics.
These are the views of a leading economist, Umer Chapra while addressing at a conference on the topic “Islamic Banking-A Myth of A Reality” at ICAP. Umer was of the view that Sharia prohibits the payment or acceptance of interest fees for the lending and accepting of money respectively, (Riba, usury) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam, forbidden).
While these principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to apply these principles to private or semi-private commercial institutions within the Muslim community.
He further elaborate that banking is a basic need of human since the beginning of the civilisation. Banking Concept existed before Islam and in early days it called ‘Saraaf’ who took deposits from investors and offer to trade people. When Islam arrived it gave guidance for trade, finance & banking and hence Islamic banking come in existence. Islamic financing is not myth it is a reality from hundreds of years.
Though Islamic banking launched on commercials basis very late, in modern world Dubai Islamic Bank was the first Islamic Banking bank, which was developed in the Islamic World. It is very unfortunate that total global assets of Islamic banks are just $1 billion as compared to conventional banks that have trillions of dollars. Despite this fact, we consider it a positive sign as Islamic banking are in growing stage and growing day-by-day and country-by-country. Islamic financing and banking are not only existing in the Islamic world but also practicing and teaching in the western countries.
Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shariah. Hence the Islamic system caters to all the needs that a Modern banking does. The conventional products offered such as Working capital requirement, Leasing, Running Finance, Export Refinance Scheme and Auto finance have Islamic Finance Alternatives such as Murabeha, Ijarah and Diminishing Musharakah, Running Musharakah, Islamic Export Financing Scheme and Car Ijarah/ Medium term car Murabaha/ Car DM respectively.
Islamic Banking has the similar rate of return for consumers, the rates are based on the same benchmark and risks have been reduced comparatively to conventional banking. The facilities provided by the Islamic banks are similar to any modern banking such as ATMs, Debit Card and branch network.
source : dailytimes