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Islamic Banking: Features And Interesting Facts

The concept of the Islamic financial system appeared in the 80s of the last century. And over the past ten years, it has become common in the lexicon of financiers in many countries, not only Muslim. This financial institution plays an increasingly important role in the modern world. After all, the number of citizens in different countries, including the United States and Great Britain, who profess Islam and refuse to use the services of traditional banks, has grown significantly. Therefore, the study of Islamic banking is a very relevant topic in the global economy. 

Characteristics of the Islamic financial system

Many people have heard about the key feature and discipline of Islamic banking – the prohibition of charging interest. Nevertheless, the principles of Islamic finance use to be much broader. They comply with Sharia law – these are rules and laws concerning both the management of the economy and the social, political, cultural aspects of the Islamic society. Understand the Widad college Islamic financial system well at their official page. 

1. Prohibition of interest rates. Indeed, in the Islamic financial system, riba is primarily prohibited. This is any predetermined rate that depends on the terms and size of the loan. This prohibition is explained by Muslim laws on social justice and equality. Islam encourages profit, but condemns the use of interest for profit. After all, such an activity does not lead to the creation of a product and does not increase the welfare of society.

2. Sharing risk. Since the bank does not charge interest for lending money, it becomes, in effect, an investor, not a lender. Thus, the owner of the capital and the entrepreneur share the risks associated with the implementation of the project.

3. Money is potential capital. They become real capital when they are invested in production activities.

4. Prohibition of speculative behavior. In this regard, any gambling is prohibited, as well as work with derivative financial instruments (derivatives), since transactions with them are characterized by significant risk.

5. The principle of inviolability of contracts. According to the rules of Islamic banking, the fulfillment of contractual obligations is the most important for the parties to the transaction. This reduces the risks for all participants.

Currently, Islamic banking is in demand, first of all, in Muslim countries. The majority of potential clients of these banks are concentrated in South, Southeast and Central Asia and Africa. In addition, such organizations can be found in Europe, the USA and Australia.

In Iran, Pakistan, and Sudan, the financial system is completely subject to Islamic norms, and all banks in these countries are Islamic. In such Muslim countries as Malaysia, Indonesia, the United Arab Emirates, Saudi Arabia, Brunei, there are banks of both types, and the number of ordinary banks is also quite large. If you are looking to become a financer and owner in your business or a private bank look at these kursus usahawan di Malaysia for some insight!