Islam is a very rigorous religion, The word Islam means 'submission to the will of God', this religion is consider one of the mayors of the world, the followers of Islam are called Muslims.
Explain what Islamic Banking is and its background
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For the Muslims the Islamic Financial system is considered ethical, because Islam has some premises of how people have to be to others, and they must act consequently with some principles.
The Islamic banking is a bank system that fulfills the Muslims principles and follows the rules of the Islam religion, that in some way it could be develop or done through the economics, the principles which emphasize moral and ethical values in all dealings have wide universal appeal. The bank system operates as any other but with the exception that will follows the rules implanted by the Islam religion. (Specially the ones on transactions and interests).
The Islamic finance was practiced in the Muslim world throughout the Middle Ages, fostering trade and business activities. Its origins data to the very beginning of Islam with the trading operations and the businesses done at that time, (the daily operations). The most important factor of productions are; labor capital and entrepreneurship, the capital-owner contributed the money and the partner managed the business, with each sharing profits and when losses the one that was damage was the capital provider.
What are the key principles of Islamic banking?
Principles are based on common sense, morality, ethics which are the background or the basis for many religions besides the Islam. The Islamic banking makes it different from others because their principles follows the principles of the religion, in order for the Muslims not to feel that they are doing something against their principles and beliefs. They do business in order to benefit the humanity. Trust, justice, honesty and respect, are some values of the Islam that are highly important when doing business.
Islamic economics is a complete system of social and economic justice. It deals with property rights, the incentive system, and the allocation of resources, economic freedom and decision-making and the proper role of government.
Islamic law forbids institutions from charging interests on loans. How do they make profits when lending money?
Some of the Islam beliefs is that there is no arguable reason for a person to increase in wealth from the use of his money by another, unless he is prepared to expose his wealth to the risk of loss also. Profit is seen as secondary when doing businesses it doesn’t reflect the efficiency.
Islam sees true profit as a return for effort and objects to money being placed on a pedestal above labor, the other factor in production.
As long as the owner of money is willing to become a shareholder in the enterprise and expose his money to the risk of loss, he is entitled to receive a just proportion of the profits and not merely a merely nominal share based on the prevailing interest rate.
The most remarkably difference between Islamic banking and other banking institutes which respects that the cost of capital in interest-based banking is a predetermined fixed rate, while in Islamic banking; it is expressed as a ratio of profit.
Money is an asset that tends to be viewed and used just as a medium of exchange. Interest are seen as they can make misunderstandings and to injustice and to the a damage in the society; There is no real 'lending' in Islam since all 'lenders' obtain ownership interests in the assets that they finance, or earn a profit-share or purely fee-based remuneration. In order for an Islamic bank to earn a return on money lent, it is necessary to obtain an equity, or ownership, interest in a non-monetary asset. This requires the lender to also participate in the sharing of risk.
Explain the concept of ethical investments under Islamic law. Who is to determine whether an activity is allowed or not?
The concept of ethical investment refers to the investment or the use of the banking system but following the principles of Islam, is the only way Muslims can operate in the system.
The important principles for Islamic financial instruments for participation and investments that require strict adherence, while providing good returns, are:
• Investments must be free of interest, speculation and gambling, all are considered as forms of exploitation
• Investments are made in permissible activities
• Investments must be separately approved by an independent Shari’ah supervisory board to ensure Shari’ah principles are strictly adhered to and deviations and wayward business practice penalised, for example in Islamic finance requires penalties to be paid to charity.
"The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service
Islamic financial institutions must adhere to the best practices of corporate governance however they have one extra layer of supervision in the form of religious boards. The religious boards have both supervisory and consultative functions. Since the Shari’h scholars on the religious boards carry great responsibility, it is important that only high calibre scholars are appointed to the religious boards.
How does Islamic banking influence the economy in the Middle East?
Islamic banks are evolving financial and investment instruments that are not only profitable but are also ethically motivated. It influence the economy by giving trust to all the participants of the operations, The Middle East region has seen exceptional growth in terms of both institutions providing Islamic financial services and assets under management. The Middle East is one of the most developed Islamic banking markets. The Islamic banking is the proper choice for all the muslins who wants to be active in the economy and wants also to follow their religion basically their principles.
What is the future of Islamic Banking in terms of global expansion and growth?
Nowadays the Islamic banking is growing rapidly, mostly where muslims are located or where the Islam is practice, for example in Europe there is now various islamic banking institutions in order to fulfill the needs of the muslims there and in order to them to participate in the economy. It will expand and growth because Muslims are now aware that they can invest and use the banks without dissappointing their beliefs and religion.
Information taken from:
http://www.islamic-banking.com/what_is_ibanking.aspx.
Image taken from:
www.keepnetflixprofiles.org/tag/conventional-bank
Some links related and useful to the topic: http://www.isdb.org/ and www.toutounchian.com
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