About Islamic Banking
A need for Islamic financial institutions
In the recent economic scenario, the unbridled pursuit of wealth has become the most popular slogan of individuals and particularly of the corporate world, leaving the masses to misfortune. Money created out of nothing has become the recipe of the exploitation and widened the gap between the haves and the have-nots. This havoc economic scenario necessitates the evolution of a system that could lead to a balanced, sustainable and equitable economic order in the world at large for the benefit of individuals and societies. Which other system can be better than that presented by the Islam, therefore, at that point of the Islamic financial institutions were introduced.
What is Islamic banking?
“Islamic banking can be defined as a banking system which is in consonance with the sprit, ethos and value system of Islam and its operations are governed by the rules and principles laid down by Shari'a in this respect.”
From Interest-free Banking to Islamic Banking
In the 1980’s the term interest-free banking was used to describe the alternative solution of system of conventional banking, but the term “interest-free banking” is a narrow concept, denoting a number of banking instruments or operations which avoid interest. Islamic banking is expected not only to avoid interest-based transactions, but also to avoid gharar, and such other unethical practices which are prohibited in the Islamic Shari'a. Therefore, the pundits of this sector have termed it as “Islamic banking” which denotes the participation in achieving the goals and objectives of an Islamic economy.
Doing Business or Munificence
There has been a saga in some circles that Islamic banks need to work as social security centers, providing only return-free loans or charity to the needy mankind of the society. This myth has to be removed because business and munificence are two separate things. Individuals have the right to spend for charitable purposes out of their income, for which they will be rewarded in the hereafter.
Islamic banks do business just like their counterparts on the conventional side, with the difference of keeping in mind that all their operations and businesses shall be conducted in accordance with the rules and principles prescribed by the Shari'a.