Islamic banking is banking or banking activity that is
consistent with the principles of sharia and its practical
application through the development of Islamic economics.
Sharia prohibits the fixed or floating payment or acceptance
of specific interest or fees (known as riba or usury) for loans
Investing in businesses that provide goods or services
considered contrary to Islamic principles is
also haraam ("sinful and prohibited").
Islamic financial transaction
Bai' al 'inah (sale and buy-back agreement)
Bai' al inah is a financing facility with the underlying buy and
sell transactions between the financier and the customer.
Bai' bithaman ajil (deferred payment sale)
This concept refers to the sale of goods on a deferred
payment basis at a price, which includes a profit margin
agreed to by both parties.
"Mudarabah" is a special kind of partnership where one
partner gives money to another for investing it in a
This concept refers to the sale of goods at a price, which
includes a profit margin agreed to by both parties.
Bai Salam means a contract in which advance payment is
made for goods to be delivered later on
This is a token given voluntarily by a debtor to a debtor in
return for a loan.
Ijarah means lease, rent or wage.
Musharakah (joint venture)
Musharakah is a relationship between two parties or more
that contribute capital to a business and divide the net profit
and loss pro rata
Qard Hassan / Qardul Hassan (good loan/benevolent loan)
This is a loan extended on a goodwill basis, and the debtor is
only required to repay the amount borrowed.
Sukuk (Islamic bonds)
Sukuk, plural of Sakk, is the Arabic name for financial
certificates that are the Islamic equivalent of bonds.
The word "Riba" means interest, usury, excess, increase or
According to Shariah terminology, implies any excess
compensation without due consideration (consideration does
not include time value of money).
The definition of riba in classical Islamic jurisprudence was
"surplus value without counterpart", or "to ensure equivalency
in real value", and that "numerical value was immaterial."
How do you perceive the recent Kerala High Court order
regarding Islamic banking?
What is the future of Islamic banking in India?
In simple terms what is Islamic banking and how it
can be beneficial for common man?
Is the term Islamic the main obstacle for the popularity of
Islamic Banking, if so how can you convince others?
How a business man will get assistance from
Islamic banking for fund raising?
The main difference between Islamic and conventional:-
Banking is that Islamic teaching says that money itself has no
intrinsic value, and forbids people from profiting by lending
it, without accepting a level of risk –
In other words, interest (known as "riba") cannot be charged.
To make money from money is prohibited – wealth can only be
generated through legitimate trade and investment.
Any gain relating to this trading is shared between the person
providing the capital and the person providing the expertise.
Progress of Islamic Banking Themes in India
There is a growing awareness about the benefits of Islamic
Banking concepts among Indian financial sector also.
It is being increasing felt that there is an enormous potential
market for Islamic banking products in India.
As we know Islamic banking prohibits use of money for
activities related to gambling and wine as well as prohibits
Islamic Banking can help India by providing long term funds
for infrastructure development.
Islamic banking will provide financial alternatives to 170
million Indian Muslims who are second largest population
after Indonesian Muslims, of which 70% to 80% who do not
deposit money in banks because of religious beliefs.
Finance Minister P. Chidambaram and welcomed this new
idea after meeting a delegation of Bankers.
Palami Manickam said that Islamic banking addresses the
concerns of the poor and helps in building a „more just
adaptable socio-economic order‟.
The Life Insurance Corporation of India (LIC) started a new
international joint Venture company in the name of „Indo-
Saudi Insurance Company‟ which will be the first insurance
company to Introduce Islamic Insurance.
The preceding discussion makes it clear that Islamic banking
is not a negligible or merely temporary phenomenon.
Islamic banks are here to stay and there are signs that they
will continue to grow and expand.
It is especially in this sense that Islamic banks can play a
catalytic role in stimulating economic development.
In many developing countries, of course, development banks
are supposed to perform this function.