ISLAMIC BANKING: for all the people of the world

When people hear about Islamic Banking they assume to be religious and limited to people of that religion only. Islamic banking often recognised by many as the ethical banking system. Although it has the word “Islamic” and is derived from principles of Islam but the practices are something every bank should adopt or at least take under scrutiny.

Islamic Banking is governed by Shariah law and guided by Islamic Economics.

There are two basic principles of Islamic Banking:

1.Prohibition of collection and payment of interest

2.Sharing profits and loss

Aside from these basic principles they prevent banks from investing involving alcohol, gambling etc. Such policies are quite rare in most conventional banks.Another policy that I have found to be quite attractive is “No rewards without risk bearing”. in Islam simply lending out money and charging huge rate of interest or riba is prohibited.However they are allowed to do legitimate trade and be involved in profit sharing, safekeeping, joint ventures, cost plus and leasing.Legitimate modes include financing trade ,industry or budget deficit deficit through domestic or foreign resources.They design a diversified portfolio and instruments that generate profits with required liquidity.

Islamic banks have the same objectives as any conventional bank i.e. to make profit for the banking institution but adhering to some strict laws . When the lenders lend the money to borrowers. They might simply return the amount borrowed or may pay them certain extra amount as gratuity

For example.If A goes to a Islamic bank and apply for a loan for a house instead of lending you the money to purchase the house it will be purchased by the bank but re-sold to him at a profit while allowing the buyer to pay in installments .The house will be in your name,there are no penalties of late payment but for protection against default a strict collateral is required, Wouldn’t it be wonderful? Some times due to some genuine reason people get behind their payments to make their worse condition worst the banks takes fine which increases the pressure and makes life difficult.

After studying hard Ranjit and Raushan want to open a new company and hence approach a Islamic Bank for a loan.When it comes to any companies or businesses the bank issues floating interest rate which is is a predetermined and agreed rate of the profit of the company.When the company runs under losses they need not worry about the interest that they would have had to payed even losses

In comparison of conventional banks the default rate has been a quite low among st Islamic banks and the growth rate of 16-17% globally was great.

Really hopeful that at last certain aspects are adopted so that both banks and customers can live is symbiosis.

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