Objective

What is Islamic Bank?

Islamic banking refers to a system of banking or banking activity that is consistent with the
principles of Islamic law (Sharia) and its practical application through the development of
Islamic economics. Sharia prohibits the payment or acceptance of interest fees for the lending
and accepting of money respectively, (Riba, usury) for specific terms, as well as investing in
businesses that provide goods or services considered contrary to its principles (Haraam,
forbidden). While these principles were used as the basis for a flourishing economy in earlier
times, it is only in the late 20th century that a number of Islamic banks were formed to apply
these principles to private or semi-private commercial institutions within the Muslim community.

What is Islamic banking and why was it established?
Since the beginning of the 18th century, banking has been conducted on an interest-based system
of lending money to those in need. With no other alternative available, people had no choice but
to borrow money at often high interest rates. This lead to the formation of an unfair system that
brought unnecessary hardship on people.
It was this need for a fair financial system that brought about the birth of Islamic banking in the
mid 1970s.


Its objective was to provide a financial alternative that was fair, transparent and
above all, a source of economic upliftment for all those in need.
Islamic banking, enlightened with the guidance of Islamic Sharia principles,
emerged as an alternative financial system that neither gave nor took interest,
thereby introducing a fair system of social justice and equality, while fulfilling the
financial needs of people and maintaining high standards of ethics, transparency
and a sense of responsibility.


No interest! Is that the only interesting thing about Islamic Banking?
If you thought that Islamic banking and conventional banking are two sides of the same coin or if
you believed there can be no banking without interest, we welcome you to the amazing world of
Islamic banking, where interest does not play any role.
A banking system in which millions around the world, irrespective of religious beliefs, are
putting their faith in.
A banking system to which even the worlds leading conventional banks are turning to.
A banking system which is governed by a resilient code of ethics in all its practices and
functions.
And, a banking system where no interest is just one of the many aspects youll find interesting
to follow for your own benefit.




What makes Islamic banking unique?
Rather than opting for interest as a way of generating wealth, Islamic banking is unique in the
way that it helps individuals as well as businesses build tangible and appreciating assets for
themselves.

This not only leads to prosperity founded on a solid economic base, but also encourages the spirit
of entrepreneurship amongst its customers. Islamic banks are based on the unique concept of
profit and loss sharing with the customers by way of various Sharia-compliant financing and
investment tools.

Islamic banks provide an opportunity to the individuals and the businesses to build various assets
which contribute to the development of the economy.

Apart from this, the Islamic banks encourage the investment process through adopting
innovative Sharia structures in all spheres of the economy, except in a few activities which are
considered unethical.

Due to their very nature of complying with the Sharia principles, the Islamic banks are forbidden
from indulging in any such practice, which may prove harmful to a customer.

Islamic banking is also the first where a customer, whether individual or corporate, isn't just a
customer, but is a partner with the bank or owner of goods or assets.
This means they share the risks, as well as the profits of such a partnership or ownership. And
this unique arrangement is done in accordance with the laws of Sharia, which ensures complete
transparency at all times.

Islamic banking therefore offers a portfolio of innovative, Sharia-compliant financial models that
formalize this unique arrangement between customers and the bank. These are Murabaha,
Musharaka, Mudaraba, Istisna, Salam and Ijara, to name a few.


Another unique aspect of Islamic banking is the special status it accords to female customers. It
was the first banking system to provide women with separate and specialized banking facilities
for them to conduct their financial transactions in utmost privacy and comfort.

And last but not least, Islamic banking is perhaps the only financial system to forbid the use of
its finances or services for misleading, dishonorable, immoral and other purposes that would be
harmful to society.

List similarities and differences between
Islamic banking and conventional banking?
Answer There are two major difference between Islamic Banking and Conventional Banking:
1. Conventional banking practices are concerned with "elimination of
risk" where as Islamic banks "bear the risk" when involve in any
transaction.
2. When Conventional banks involve in transaction with consumer they
do not take the liability only get the benefit from consumer in form of
interest whereas Islamic banks bear all the liability when involve in
transaction with consumer. Getting out any benefit without bearing its
liability is declared Haram in Islam.