RHB Islamic Banking
ATIQAH BT NORDIN
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Date : 3 JULY 2013 ( _____________________) ATIQAH BT NORDIN 2010761395/ITM101210945
Islamic Banking is interest free banking, in which there is no fixed rate of return. Islamic banking is the banking system which is run in accordance with the Islamic laws and the Shari a’ board; that guides the institutions. This Shari a’ board authorizes the products that whether these are Shari a’ compliant or not. Islamic banking is the banking that is guided by Islamic law (Shari a’) principles and guided by Islamic economics. In particular, Islamic law prohibits usury, the collection and payment of interest, also commonly called Riba in Islamic discourse”. Islamic banking also finds its roots in Islamic finance and all type of transactions are interest free of risk sharing. The interest is probihited in Islamic ways of banking as it is also obvious from Quran. In Quran, in Sura Al-Iman, Allah said that; “O you who believe! Do not devour Riba multiplying it over and keep your duty to Allah that you may prosper” (3:130). Same kind of prohibition regard fixed interest is also lead in sura Al-Rum(39), Al-Nisa (160-161) and Al-Baqarah (275-281) of Quran. Riba and Gharar are illegal under Islamic law. Riba refers to fixed rate of interest. Gharar refers to fixed rate of interest. Gharar refers to speculation. Islamic banking shows dramatic improvements and developments in Pakistan. Islamic banking is taken as national policy and it is supported but there exist dual banking structure in the Muslim countries. Mostly the banks of conventional system are also opening their separate Islamic banking divisions and branches. The expectation of increase in growth of networking of Islamic banking system is increasing. The Islamic banking has increased in terms of branches, deposits, capital funds, sources. The ratio of income to expenses is high which indicates increasing profitability of the sector. Riba in Hadith
“Every loan that derives a benefit (to the creditor) is riba”. (Hazrat Ali Radi-AllahuAnhu). Abu said al Khudri Radi-AllahuAnhu narrated that Holy Prophet ( peace be upon him) said: “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt, like for like, payment made hand by hand. If anyone gives more or asks for more, he has dealt in Riba. The receiver and giver are equally guilty. If the creditor received a goat as mortgage from the debtor, the creditor may use its milk to the extent he has spent in providing fodder to the goat. However, if the milk is more than the price of the fodder, the excess is riba. “Usmani, para 99). For Usamah ibn Zayd : “There is no riba except in nasi’ah (waiting). “Bukhari, Kitab al-Buyu, Bab Bay al-dinari bi al-dinar nasa’an, ( : 386); also Muslim and Musnad Ahmad). There is no riba in hand-to-hand (spot) transactions.” (Muslim, Kitab al-Musaqat, Bab bay’I al-ta’ami mithlan bi mithin; also in Nasa’i). What is the significance of Islamic Banking in a post recession world?Islamic banking is gaining popularity in emerging markets after helping some financial institutions avoid the worst of the economic meltdown.Islamic banks have been less affected than many conventional banks in the current global recession. This is mainly because unlike conventional banks, the Islamic banks have not been exposed to losses from investment in toxic assets nor have they been dependent on wholesale funds since these practices are not in accordance with the principles set out in the Sharia...
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