Islami vs Conventional Banking
Chapter- 1.0
Introduction
Banking plays an important role in the economy of any country. In Bangladesh Muslims constitute more than 80% of its population. These people possess strong faith on Allah and they want to lead their lives as per the constructions given in the holy Quran and the way shown by the prophet Hazrat Muhammad (Sm). Naturally, it remains a deep cru in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. But no Islamic banking system was developed here up to 1983. The Traditional banking is fully based on interest it is commonly meant as commercial banks. But interest is absolutely prohibited by Islam. As a result the people of Bangladesh have been experiencing such a non-Islamic and prohibited banking system against their normal values and faith.
The present world especially the third world is affected by unemployment socioeconomic injustice, inflation, inequitable distribution of income and wealth etc. The main aim of traditional banking is to earn profit by borrowing and lending money in exchange of interest. As a result there is an unfair competition among the bankers and among the customers.
Under conventional framework a bank borrows to lend and it mobilizes savings/deposits by borrowing from savers and lends those deposits to productive interest on deposits and advances respectively. The banks generally maintain a difference is known as interest-spread which is the main income of an interest-based bank. In the Islamic banking system the bank receives no interest. In this case IBBL receives its entire deposits from the investment of the clients on the basis of profit-sharing places it to the actual entrepreneurs on the basis of the profit sharing. So, it is clear that in case of the traditional banking systems, a fixed percentage of interest, irrespective of income earned is paid to the depositors. The depositors of IBBL are never deprived of excess income, which the bank may make at
Introduction
Banking plays an important role in the economy of any country. In Bangladesh Muslims constitute more than 80% of its population. These people possess strong faith on Allah and they want to lead their lives as per the constructions given in the holy Quran and the way shown by the prophet Hazrat Muhammad (Sm). Naturally, it remains a deep cru in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. But no Islamic banking system was developed here up to 1983. The Traditional banking is fully based on interest it is commonly meant as commercial banks. But interest is absolutely prohibited by Islam. As a result the people of Bangladesh have been experiencing such a non-Islamic and prohibited banking system against their normal values and faith.
The present world especially the third world is affected by unemployment socioeconomic injustice, inflation, inequitable distribution of income and wealth etc. The main aim of traditional banking is to earn profit by borrowing and lending money in exchange of interest. As a result there is an unfair competition among the bankers and among the customers.
Under conventional framework a bank borrows to lend and it mobilizes savings/deposits by borrowing from savers and lends those deposits to productive interest on deposits and advances respectively. The banks generally maintain a difference is known as interest-spread which is the main income of an interest-based bank. In the Islamic banking system the bank receives no interest. In this case IBBL receives its entire deposits from the investment of the clients on the basis of profit-sharing places it to the actual entrepreneurs on the basis of the profit sharing. So, it is clear that in case of the traditional banking systems, a fixed percentage of interest, irrespective of income earned is paid to the depositors. The depositors of IBBL are never deprived of excess income, which the bank may make at