Modern Rules Of Islamic Banking

Islamic Banking

All of us have heard many types of banking systems prevailing in the banking sector and many of us are involved in many of those systems. But, very few of us are aware of this banking system – the Islamic Banking system. Islamic banking is also known as non-interest banking.

Islamic banking is based on the principles of Islam or Sharia law. According to this law, money does not have any intrinsic value. Thus, in accordance with that, no profit can be earned or interest should not be taken or simply, money can’t be sold. This is the principle on the basis of which Islamic banking was founded!

What does this law say?

Islamic law or Sharia prohibits the collection of payments of interest – known as RIBA in Islam, by lenders and investors i.e. neither banks can charge interest, nor they have to pay the interest to investors who invest their money in the bank.
Also, investors cannot invest in any business which is considered to be haram in the preaching of Islam i.e. they can invest only in those things which are sharia compliant. Thus, it is largely believed that these principles have been derived from the holy Quran.

Factoids about Modern Islamic Banking:

The very first successful implementation of such a bank was done in Malaysia. In the year 1963, Tabung Haji this bank came into existence with a total of 1281 depositors. Over the years this number has increased to 8,67,220 depositors accounting for almost 1 billion Malaysian dollars.

Why did this bank gain such enormous popularity?

As this bank gave interest-free money, many pilgrims used this interest-free money to complete their pilgrimage to Hajj – A must in this religion. Also, there was a lot of demand for interest-free money, back then. Thus, the success of this bank led to the formation of another such bank – Naseer Social Bank, in Cairo, in the year 1972, and from this year onwards various such banks were opened in various countries.

Now, one might ask how can a bank function without taking an interest? Well, an investor should not make an undue profit from the hard work of some other person, but they can follow a system of reasonable profit and return from investment where investors take risks i.e. they see profit and loss on any investment and not the interest rate. This is the reason that these banks do not keep a record of interest rates rather they have the record stating profit or loss.

Seeing the rise of Islamic Banking, the Dow Jones Islamic Market Index was formed, in the year 1999, in the United States. This was mainly used by investors willing to invest in sharia-compliant projects.

Thus, this banking system has immensely contributed in increasing the investments in healthcare, education, and humanitarian sectors which are the basic needs of any human being.

You may be interested

ARTIFICIAL INTELLIGENCE-How it is Affecting Us
Techies
shares69 views
Techies
shares69 views

ARTIFICIAL INTELLIGENCE-How it is Affecting Us

Divya Sen - Nov 28, 2020

The 21st century doesn't need an introduction to machine intelligence, people around us are already aware of the term that what is Artificial Intelligence by seeing or…

ONLINE INTERNSHIP: A Learning Platform Like No Other
Career
shares121 views
Career
shares121 views

ONLINE INTERNSHIP: A Learning Platform Like No Other

Manas Thakker - Nov 27, 2020

An internship can be considered as a job training program for Undergraduates or any beginner, in other words, an official program offered by an employer to potential…

Innovations That Can Make Our Devices Completely Wireless
Techies
shares78 views
Techies
shares78 views

Innovations That Can Make Our Devices Completely Wireless

Aditya Mahesh - Nov 26, 2020

It is often seen that people get irritated when they see a clumsy set of wires looped up around each other in our homes and workspace. Whether…

Most from this category

SmartPhone- How It Effecting Us
Techies
shares108 views
shares108 views

SmartPhone- How It Effecting Us

Divya Sen - Nov 26, 2020
Cashless Society: Post COVID-19 World
News
shares127 views
shares127 views

Cashless Society: Post COVID-19 World

Manas Thakker - Nov 26, 2020
What will Cars In The Future Look Like
Techies
shares92 views
shares92 views

What will Cars In The Future Look Like

Aditya Mahesh - Nov 25, 2020