Islamic banking/financial system

[Der Fragende]

:salam2:

My question:

Can anybody describe the financial system in Islam?
How does it work?
Do you have any article describing this?

Nowadays you hear that the islamic world survived the economic crisis, collapse etc.
But why?
What is(/are) the concept(s) of islamic banking?

 

[yameenahmed]

but i dont understand one thing what about income? How will they get income?

 

[Asja]

Assalamu Alaicum

Islamic (halal) banking and its importance




In the lately time are growing informations about Islamic banking and Islamic finansial sevrices which are practing trough models of Islamic banking,Islamic insurance,Islamic investment fonds and emision of halal share(part)


Islamic banking is based on Sharia(islamic low),not existing of interests ,devision of risk trough banking betwen Bank and its clients,services by Shariah Low,and its influence on Economy,bank like partner in all bussiness actions and importance those princips for Muslims and islam and garating of keeping halal properies.




-Not existing of interests




Islamic banks,like all other banks have their role of agency betwen thrifty cliant and investor.


Thier principal role is to take and keep propeties of cliants trough giving diffrents kind of services for thrifty clients and investing and on that way creating of property which will after be used for diffrent kind of investment enterprises.


Than in what is diffrence betwnen Islamic and other banks???


That difference could be desribed in diffrente levels whcih mean diffrence in the basic princip of bussines,clients,the way of taking and keeping properties,so as in way investing those properies in diffrente bussines projects.


In Islamic banking the money is not cosider like goods,so like that it can not be offer.Other banks are offering money like principal good and the prise of that good is interest who is paying the cliente of that bank.


Islamic abnks are offering the goods like principal way of satisfaing the necesery of thier cliants trough models which are permisible with Shraih Low.


Those models are based on:


-mudareb(partnership)


-Musharek(common bussiness project)


-marabeh(baying-selling models)


-selem(baying in advance)


-ijara wa iktina(leasing)


-qard al-hasen(kredits without interest




The most of services which Islamic banks are offering is based on partnership betwen Bank and her clients,where bank is sharing the resolt of bussines project and it is sharing risk with her clients.


Islamic banks are offering the equel rights to all cleints which shws and pruve that thier idea is valuable for ivesting.no metter do they have property with they could get back money in the way of mortgage on his property.




-Our halal alternative




On of the most importante thing for every Muslim is his property because he will be responable in front of Allah Subane we teal for the way on which he acquire thar property,the way how he spend it and the way how he multiply that property.


Shariah statment is very clear:"It is forbiden to give or to take interest" And on thart princip are based all Islamic banks.


Neither one bank is garanting to you that money which you are keeping on your account will not be used for production of alcohol,for gambling.....etc,but in onother side Islamic bank is garanting you that.


All other which is above mentioned is showing to us that Islamic banking is our halal alternative,which is also giving us oportunity to keep and multiply our property on halal way.

I hope Inshallah it witll be useful for you

 

[Saidsaad]

Selam, I don't know too deeply about banking but I know that the Islamic Bank of Britian is owned by RBS (Royal Bank of Scotland) and RBS is part owned by a group of Americian Banks.

 

[AlQurtubi]

This is guide by a well know islamic bank of pakistan which is under super vision of Mufti Taqi Usmani.
http://www.meezanbank.com/guide_islamicbanking.aspx

This might also help
http://www.albalagh.net/Islamic_economics/

 

[Der Fragende]

:salam2:

Thank you brothers and sister!
This helps me a lot!
Thank you very much!

If anybody has some other links etc., please don't hesitate to post.
Thank you.

 

[sazk]

aoa,

cool! a thread about my field! i m a student of islamic banking and we (the people involved) are starting to work step by step towards a fully islamic banking system. it goes step by step becoz we have to work around the global idea of interest on loans. its challenging but we are getting good results Alhamdulillah . more and more people want to prefer islamic banking because interest is strictly forbidden.

unfortunately we don't have any centralised governing body as yet. i think egypt has one but in reality no one is present to check the islamic banking system of places like the carribean or russia etc. Allah knows best if its really islamic or just in name.

an introduction to islamic banking by mufti taqi usmani is the best guide available. its taught in many universities. you can find an online version of the book on meezan bank's website. my colleagues and i have also done some work on the islamic index fund but i don't know how to upload it (????) its in document form. anyways the first step is an introduction to islamic banking. it covers pretty much of what islamic banking should be.

salam alaikum

 

[Der Fragende]

:salam2:

Thank you for the answer.

I have a question:
Normally, banks get the money from interests.
When they aren't interests, where does the money come from?

Sorry, I am a complete loser in this area.

 

[sazk]

very good question brother.

if u look at a balance sheet of a bank u'll see that banks also invest in securities and car insurance etc. but most of the income comes from interest.

the reason why interest is haraam as explained in taqi usmani's book is that its money earned without hard work.. i mean ofcourse the bank's employees work, but the bank as a whole gets money sitting down, without moving a finger (figuratively speaking).

how to go around this process? the bank must work for the money it will receive. instead of just giving a loan blindly to a businessman and sitting back n receiving interest on it, it must be actively involved with the businessman or company.

for example, a company comes n says to give them a loan because they want to buy a machinery. in the case of Murabaha, a bank will purchase the machinery and then sell it to the buyer at a cost plus profit. the client buys the commodity on deferred payment basis. this way the bank gets its income on the item is bought and sold and the client gets what he wants

 

[Saidsaad]

Selam,,
I think some banks charge a small fee for banking (one or two %). And some banks make their money from (halal) investments etc..

 

[sazk]

what made it different from conventional banking?

firstly the bank undertook the responsibility for buying the machinery at the best possible price. so it had to look through various quotations from sellers. it had to choose the best one at the lowest possible price to them. so there was work involved. next it sold it to their client at a cost plus profit basis.

by the way, a client can back out of buying the machinery after the bank already bought it for him. so the bank has a risk of loss. this is shariah regulations.

also during the deferred payments made, if the client's business does not prosper due to the Will of Allah and he cannot pay the bank, then the bank also suffers the risk of loss. again this is shariah compliant. whereas in conventional banking, a person has to pay the interest on the loan no matter if his business succeeds or fails. so here is one difference

 

[Der Fragende]

:salam2:

Just to check whether I understood:
A comes to a bank and wants a loan to buy a machine.
The bank buys the machine and gives A the machine.
But the bank takes some extra money, so it has earned a bit.
Is this correct?

 

[sazk]

:salam2:

Just to check whether I understood:
A comes to a bank and wants a loan to buy a machine.
The bank buys the machine and gives A the machine.
But the bank takes some extra money, so it has earned a bit.
Is this correct?

yes, sale at cost plus profit, sale at cost plus profit.but don't forget it also has a risk of incurring a loss in the business it is doing.

 

[Der Fragende]

:salam2:

Thank you for the answer.

1. Is this the only way to get their money or what else islamic banks do?
2. If i have money in the bank, but there are interests ,what do I do with the money earned by doing nothing?

 

[sazk]

hahahahaha. there is

Musharakah

Murabaha

Mudaraba

Istisna

Ijarah

Salam (not to be confused with salaam. this is salam with a short a)

istijrar

but if you really want me to go over all of this with you, your head is gonna spin. first you need to go step by step. an introduction to all these modes of financing so that you can understand what these terms are.

after that you will be able to understand better what are the terms and clauses set in each of these modes and which mode works best for which situation.

this is where i started from (actually this is where everybody starts from). click on the link below brother:

http://www.meezanbank.com/gib_toc.aspx

dont worry. each chapter in the book is only a page long (mostly) so it is very easy and fun to read.

2 - that money is gotten by unlawful means because you did not work for that money therefore you didnot earn it. anything you eat or have a luxury with that will become fuel for the hellfire. but i dont mean to scare you brother. as to what you should do with it? this falls beyond my study of islamic banking and its best to ask a scholar or imam in person about this. since u r an EU national u can travel freely to britain and ask Sheikh Khalid Yasin or someone else in your vicinity about this.

 

[Der Fragende]

:salam2:

Thank you very much brothers!
I think I have no choice but to read the articles with care.

 

[sazk]

dont worry brother. they're very short articles in the book. i read thru most of them in one night while i was in university doing projects on islamic banking with my group

walaikum as salaam

 

[sazk]

aoa,

That answer did not satisfy the visitor. Those Muslims, he said, were paying or earning interest.

“So what?” Mr. Ranzini said. Wasn’t interest sort of the whole point of what banks did?

nice line. a roman catholic in charge of an "islamic" bank. my professors and I talked about this before when we were discussing the introduction of islamic banking in the carribean. my professors said "yes its a good thing, but who's there to check?"

 

[upuaut]

You have to be careful about Islamic banks. Attaching the word 'Islamic' to a bank does not make it Islamic. You'd have to find out how exactly they operate concerning loans, interest, deposits, etc.

The main point is that, to be a bank in the Western nations, the bank has to abide by strict decrees that involve haram (usury, etc).

 

[Zafran]

salaam

that is true - i think there is a lot of work need to be done in Islamic banking - things like buying a house, loans are big issues yet there is little information on it.

peace