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What are the basic characteristics of Islamic banks?

Islamic Finance Banking Finance Islamic Banking Bank Operations
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Question added by Nadjib RABAHI , Freelancer , My own account
Date Posted: 2017/02/27
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Mahbubur Rahaman
by Mahbubur Rahaman , Lecturer , International Islamic University Chittagong

Free from all types of prohibited task

Sriran Subhramanyam
by Sriran Subhramanyam , Banking Consultant , Tata Consutancy Services

There is no cocept of loan or interst payment. All financial dealings are based on profit or loss arising out of purchase and sale of commodities

Umair Khalid
by Umair Khalid , MANAGER OPERATIONS , Zarai Taraqiati Bank Ltd

Risk sharing

Avoidance of riba (usury) 

Muhammad umar khan
by Muhammad umar khan , associate lawyer , Ali salman and associates

Islamic banking has the same purpose as conventional banking except that it operates inaccordance with the rules of Shariah, known as  Fiqh al-Muamalat  (Islamic rules ontransactions). The basic principle of Islamic banking is the sharing of profit and loss andthe prohibition of  riba (usury). Common terms used in Islamic banking include profitsharing ( Mudharabah ), safekeeping ( Wadiah ), joint venture ( Musharakah ), cost plus( Murabahah ), and leasing (  Ijarah ).In an Islamic mortgage transaction, instead of loaning the buyer money to purchase theitem, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit,while allowing the buyer to pay the bank in installments. However, the bank's profitcannot be made explicit and therefore there are no additional penalties for late payment.In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. Thisarrangement is called Murabaha . Another approach is  EIjara wa EIqtina , which issimilar to real estate leasing. Islamic banks handle loans for vehicles in a similar way(selling the vehicle at a higher-than-market price to the debtor and then retainingownership of the vehicle until the loan is paid).An innovative approach applied by some banks for home loans, called Musharaka al-Mutanaqisa , allows for a floating rate in the form of rental. The bank and borrower forma partnership entity, both providing capital at an agreed percentage to purchase the property. The partnership entity then rents out the property to the borrower and chargesrent. The bank and the borrower will then share the proceeds from this rent based on thecurrent equity share of the partnership. At the same time, the borrower in the partnershipentity also buys the bank's share of the property at agreed installments until the full equityis transferred to the borrower and the partnership is ended. If default occurs, both the bank and the borrower receive a proportion of the proceeds from the sale of the property based on each party's current equity. This method allows for floating rates according tothe current market rate such as the BLR (base lending rate), especially in a dual-bankingsystem like in Malaysia.There are several other approaches used in business transactions. Islamic banks lend their money to companies by issuing floating rate interest loans. The floating rate of interest is pegged to the company's individual rate of return. Thus the bank's profit on the loan isequal to a certain percentage of the company's profits. Once the principal amount of theloan is repaid, the profit-sharing arrangement is concluded. This practice is called Musharaka . Further, Mudaraba is venture capital funding of an entrepreneur who provides labor while financing is provided by the bank so that both profit and risk areshared. Such participatory arrangements between capital and labor reflect the Islamicview that the borrower must not bear all the risk/cost of a failure, resulting in a balanceddistribution of income and not allowing lender to monopolize the economy.                                     Islamic banking is restricted to islamically acceptable transactions, which exclude thoseinvolving alcohol, pork, gambling, etc. The aim of this is to engage in only ethicalinvesting, and moral purchasing.In theory, Islamic banking is an example of full-reserve banking, with banks achieving a100% reserve ratio. [15] However, in practice, this is not the case, and no examples of 100 per cent reserve banking are observed. [16] Islamic banks have grown recently in the Muslim world but are a very small share of theglobal banking system. Micro-lending institutions founded by Muslims, notably GrameenBank, use conventional lending practices and are popular in some Muslim nations,especially Bangladesh, but some do not consider them true Islamic banking. However,Muhammad Yunus, the founder of Grameen Bank and microfinance banking, and other supporters of microfinance, argue that the lack of collateral and lack of excessive interestin micro-lending is consistent with the Islamic prohibition of usury (riba

abdelkader benbahane
by abdelkader benbahane , caisse national des assurance social , cnas

Full compliance with the provisions of Islamic Sharia in all its banking transactions.

2 - Not to deal with the interest of banking taking and giving directly or backdoor as a riba haraam.

3. To establish the principle of participation in profit and loss through the mediation of the bank between the owners of funds and funding students with no risk cut and dumping on one party without another.

4. Creating real economic and social development in society.

5. Establish the principle of social solidarity, not only to collect Zakat and disbursement in its legitimate banks, but also to seek justice in the distribution of returns of invested funds and maximize the social return of investment.

Imtiyaz Qureshi
by Imtiyaz Qureshi , Director , INVESTERIA FINANCIAL SERVICES PRIVATE LIMITED

An Islamic bank is a financial institution whose status, rules and procedures expressly state commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations.

Islamic bank considers loan to be given or taken, free of charge, to meet contingency and that the creditor should not lake any advantage of the borrower.

Muhammad Rizwan Tariq
by Muhammad Rizwan Tariq , FINANCE OFFICER , M.K. SONS (PVT) LTD

Basically Islamic banking dealt with interest free banking on the basis of profit and loss sharing. No fix profit or interest  is pre decided and all the profit is distributed among investors by the ration of there invested amount.

Dr Emil Abil Gasimov
by Dr Emil Abil Gasimov , Legal Counsel , Islamic Development Bank Group

Assalamu Alaikum wa Rahmatullah dear brothers and sisters!

 

The main characteristics of an Islamic Bank are the following:

1. Shariah Supervisory Board

2. All activities and products should be in strict accordance with Shariah norms.

Ashraf E. Mahmoud (PhD)
by Ashraf E. Mahmoud (PhD) , University Lecturer, Freelancer Consultant and Trainer for Int'l Business & Banking TF. , FreeLancer

Thanks for invitation,

The Main characteristic of Islamic Banks can be precisely on " The Sharing Between the bank and their Clients", in all activities without determining any fixed "Pre- Rewards" or "Incomes / interest ", i.e sharing "in income" as well as "in loss" for any type of investment.

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