What are the characteristics of the Islamic banks?

Islamic banks are charateristicaly different from conventional banks in the following main ways:

 

1. Prohibition of Interest based lending. 

2. Prohibition of speculating based trading 

3. Profit and Risk sharing models or Agency type models. 

4. All financial structures must have underlying Shariah compliant assets. 

 

1- Sharing the profits based on sharing the resources

2- Low risk because investment covered by actual assets

3- Fair and equity of deals

4-Dealing in present and owned assets

5- low cost on the customers since no interest on loan or delay in repayment

6-Stability and consistency in market

7- Low effect in financial crises

8- Best instrument in developing the small business

9- Helping in increasing the national income

10- Encourage the individual as well as giant project

 

 

 

 

 

 

Sharing in profit and loss is one of the basic characteristics of Islamic Banks.
Distribution of profit is in proportion to the percentage of the actual profit of the business and not a lump sum amount while Loss is shared in exact proportion of the investment of the respective partners.
They use partnership basis and asset backing in the process of financing.
By backing each investment with an asset (that is not just paper money) they eliminate the chances of pushing an economy into depression like the conventional Interest based system does.
They eliminate the perils of Interest (Riba) and uncertainty (Gharar) and promote real economic activity by taking projects on Partnership basis (Musharaka and Mudaraba).

Islamic banks can be characterised based on their roles. They can be a trader, agent, partner but not a normal conventional intermediary institution.