In other words the…, Both types of institutions (Islamic and Conventional) are providing financing to productive channels for reward. This principle is applicable both to labor and capital. Islamic banking is an instrument for the development of an Islamic economic order. Money in Islam is considered a medium of exchange that represents the purchasing power of individuals and has no value on itself. Islamic Banking for Development: Islamic banking is claimed to be more development- oriented than its conventional counterpart. The common features of Allied Islamic Saving Accounts are: Saving Accounts will be operated based on the mode of Mudaraba with No Minimum balance requirement. It is asset based financing, in which trade of elements prohibited by Islam are not allowed. It plays the role of an investment manager for the owners of time deposits, usually called investment deposits. Common terms used in Islamic banking … It is revealed in Quran (Al-Baqarah, 2:275) “Allah has permitted trade and has forbidden riba“. Interest in completely prohibited in Islamic banking. Another important objective of Islamic banking is the optimum allocation resources. Islamic banks can also accept demand deposits, which are treated as interest-free loans from the clients to the bank with guarantee. Required fields are marked *. Thus, an Islamic bank is a deposit-taking banking institution whose scope of activities includes all currently known banking activities as indicated in the introduction, which excludes borrowing and lending on the basis of interest. Riba refers to any predetermined payment above the actual amount of the loan principal. While permitting the individual the right to seek economic well-being, Islam makes a clear distinction between what is halal (lawful) and what is haram (forbidden or unlawful) in pursuit of such economic activity. 9,204 already enrolled! Swiss banking system . Several theorists suggest that commercial banking in an interest-free system should be organized on the principle of profit and loss sharing. Enter your email address to get our best stories delivered to you directly. In broad terms, Islam forbids all forms of economic activity, which are morally or socially injurious. Provides bank IT staff with open development tools to support the changing needs of Islamic banking Service-oriented architecture (SOA) with a browser-based user interface Combines a robust … It is noteworthy to discuss in brevity the concept of Islamic banking and its salient features as this will be of great benefit and has a correlation to the main body of this research. Islamic banking 1. The institution of interest is thus replaced by a principle of participation in profit and loss. ISLAMIC BANKING CONCEPT, OBJECTIVES & BASIC FEATURES, Islamic banking has been defined in a number of ways. A contract under which an Islamic bank finances equipment, building or other assets to the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the … … The second principle regarding financial transactions in Islam is that there should not be any reward without risk-taking. An Islamic bank has several distinctive features as compared to its conventional counterpart. The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba (usury). Islamic Banking Concept Objectives and Basic Features, Overall Banking System of Al-Arafah Islami Bank Limited, Report on General Banking Activities of Al Arafah Islami Bank, Operational Activities of Shahjalal Islami Bank, General Banking Operation of IFIC Bank Limited, Performance Evaluation of Uttara Bank Ltd, Annual Report 2014 of Delta Brac Housing Finance Corporation Limited, Presentation on Capital Structure and Profitability Analysis, Cover Letter Format for the Post of Stenographer. What is Islamic Banking? At its head - National Bank of Switzerland (Swiss National Bank - SNB ) , carrying out all functions inherent in the central banks.However, he shares control powers with the Federal Banking Commission and the Swiss Banking … Under the Islamic banking system, all their objectives and operations are based on focal Sharia’a principles. Theoretical Basis of the Concept of Islamic Banking: Conventional banking is essentially based on debtor-creditor relationship between depositors and the bank in the one hand and between the borrowers and the bank on the interest is considered as the price of credit, reflecting the opportunity cost of money. The components of Islamic finance 5 2.1 Banking and interest (Riba) 5 2.1.1 Islamic banking – the relationship between the user and the supplier of funds 6 2.2 Takaful – Islamic insurance 6 2.3 Islamic capital markets 6 3. 2. 2. 2. Hence, most argue that, it only becomes capital generating when it is invested in a productive business. Defining features of Islamic banking system Under the Islamic banking system, all their objectives and operations are based on focal Sharia’a principles. Contact us to contribute with your writings. Risks and rewards of financing / investments some of the formula used for sharing the net earnings with the will! 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