Islamic Banking is a banking system that is in consonance with the ethos and value system of Islam. Islamic Shariah clearly defines what is necessary when it comes to the banking sector; the objective is to promote the application of Islamic principles, law and tradition for financial and banking related business affairs and to promote investment companies.
Islamic Banks accept
deposits when they can either commit to investment or general deposits. Banks engage in investment activities based on Musharakah (equity participation), Mudarabah or Qirad (agencies), Murabaha, Bai Salam (Post delivery sale ) and /or leasing engagements.
On the lending side Islamic Banks have issued a number of new lending investments such as Almuqarada profit bonds and Almudarabah certificates. Also these banks practice conventional short term financing on profit loss basis.
The prohibition of interest by Islam is the basis of the development of Islamic banking. Islam does not prohibit gain on capital only interest so banking is very much possible in Islam. Islamic principles requires that performance capital should be considered while rewarding capital. Islam deems profit rather than interest to be closer to its sense of morality and equity because earning profits involves sharing risks and rewards.
Islamic Banks need to perform harder and better to generate stable stream of halal income so that depositors may also receive halal income.
Islamic finance allows for better discipline in conductive fiscal and monetary policies. Indeed this was the hop of Quaid-e-Azam Muhammad Ali Jinnah. At the inauguration of State Bank of Pakistan he said that economic system of west has created insoluble problems for humanity and the adoption of western economic practices will not help us. Thus we must present the world an economic system based on true Islamic concept of equality and social justice. The Quaid-e-Azam was absolutely correct in his assessment, we as Muslims must set an example for the world.
Islamic Banking is a concept that can be translated into our daily lives easily. It not only allows for equity but according to Shariah law is helpful for mobilization of funds.
Islamic Banking is a success, it shows that banking can not only survive without interest but also could be helpful in achieving the objective of development with distributive justice by increasing the supply of risk capital in the economy, facilitating capital formation and growth of fixed assets and real sector business activities. By following Shariah we can make or lives easier and better in all aspects of life including banking.