Islamic banking is a system of banking that is coherent with the principles of Islamic laws known as Sharia. Islamic banking is interest free banking. Islamic banking is playing major role in the progress of Islamic society. Islamic principles of banking have proven foundation for a prosperous economy. This term paper on Islamic banking will reveal the real concept of Islamic banking system.
Conventionally the Islamic banks were established on the principle of profit sharing. In this type of banking, instead of giving interest to customers the profits are shared according to their investments. Later on a banking system on the principle of Mudarabha- profit and loss sharing was established. The first experiment of modern banking was implemented in Egypt and now Malaysia and Bahrain have attained prosperous economy due to Islamic Banking.
In this term paper on Islamic banking I want to state that Islamic banks have features that can really help to boost economy. Islamic banks deal with equity rather than debts. So instead of providing credit card facility most of the Islamic bank provide debit card. Profit and loss sharing feature of Islamic banks make this banking completely interest free. According to Islamic scholars any kind of money without any risk is simply interest and that money cannot be considered as profit. Order your custom research papers and term papers now
Islam has drawn a clear distinction line between profit and interest. Commercial banking system follows capitalist theory. In this theory capital and entrepreneurs are considered as two separate identities. In which capital is permitted to take interest and entrepreneur have to pay that amount. However in Islamic monetary system capital and entrepreneur are not separate identity. Following this theory, in Islamic monetary system an individual who invest his money has to share both profit and loss.
That capitalist theory has been responsible for the recession in economy and accumulation of wealth. Due to interest rates of loans and credit cards individuals are stuck in debt cycles for years. Following Islamic banking system economy of a country can easily prosper. Profit is distributed evenly among individuals and accumulation of wealth is avoided.
Thus Islamic banking system can really reap best results for our economy.