Final Report-Ethics in Islamic Banking

of 6
All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
Document Description
The good, the bad and the ugly in Islamic banking The begin: Islamic Banking is a type of Banking system which is following Islamic rules and regulations in their Banking system. They don't believe in interest and their Banking system is totally out of interest. In 1978 a conference of OIC (Organization of the Islamic Conference) was held in Senegal and that conference a definition of Islamic Banking is selected and accepted by OIC. Which is Islamic Bank is a financial Institution whose statu
Document Share
Document Tags
Document Transcript
   The good, the bad and the ugly in Islamic banking   The begin:Islamic Banking is a type of Banking system which is following Islamic rules andregulations in their Banking system. They don't believe in interest and their Bankingsystem is totally out of interest. In 1978 a conference of OIC (Organization of theIslamic Conference) was held in Senegal and that conference a definition of IslamicBanking is selected and accepted by OIC. Which is Islamic Bank is a financial Institution whose statutes, rules and procedures expressly state itscommitment to the principals of Islamic Shariah and to the burning of thereceipt and payment of riba on any of its operations . Islam forbids Muslimsfrom usury, receiving or paying interest on loans. Muslim, whose religion prohibitsearning or paying interests, Islamic banking makes it possible to operate interest-freebusiness. Bangladesh entered the Islamic banking system only in 1983, with theestablishment of Islami Bank Bangladesh. Islamic banks and finance institutionscannot receive or provide funds for anything involving alcohol, gambling,pornography, tobacco, weapons or pork. Islamic banks render almost similar servicesto their customers conventional banks do. However, differences exist in administeringincentives for deposits and charging for capital investments, in so far as techniques of calculating the incentive or the cost of the capital are concerned. Like a conventionalbank, the Islamic bank also accepts deposits from customers and advances loans. Thebank invests its funds for short as well as long term deposits. The Islamic bank alsoacts as a custodian of its customers and performs all foreign transactions on behalf of them. The Islamic bank performs mainly three different types of functions Bankingservices, Investment, and Foreign exchange services. Banking services comprisethree regular types of operations related to acceptance of deposits in the differentcustomer’s accounts as mentioned earlier, as well as, different transactional servicesto the customers, safekeeping of personal valuables and securities, collection of bills,agency services, etc. The bank lends its funds for the rapid growth and developmentof industrial sectors and the promotion of trade and commerce in the country. Thebank also invests its funds in various socio-economic schemes such as, RuralInvestment Scheme, Small Traders Investment Scheme, Doctors Investment Scheme,Small Transport Scheme, Small and Cottage Industry Project, Hawker’s InvestmentScheme, Household Durable Scheme and Low Cost Housing Scheme. The thirdimportant function of the bank is to render services to customers regarding foreignexchange transactions plus services to its customers for import and export of different industrial, commercial, agricultural and other items. It is important toappreciate that Islamic finance is more than just financial contracts. In principle, agreat deal of emphasis is placed on responsible investments; client relationships;capitalism with a moral focus; and eliminating excessive uncertainty within themarkets. These ideals are clearly stipulated within Islamic law.  The Story:  There is a complete way Islam tells about doing business. The Quran strictlycondemns the interest in the business. It is called the Riba in the Arabic language.Islamic banking all over the world is becoming famous. The history of Islamic bankingis very old the first Islamic bank was established in Dubai. But some conventionalbank has also introduced some Islamic instrument to attract Muslims. The Islamicbanking term is very vast. The reason behind its popularity is riba.The riba meansinterest. As a Muslim it is prohibited to take or pay interest. In Islam money is notconsidered as a commodity. Therefore, we cannot sell this commodity to earninterest. In west also the Islamic banking is flourishing. To avoid interest or riba,Islamic banks has introduced instrument such as Mudaharba,   Musharaka,   Murabaha,Ijara, Salam and Istisna.   Mudarabah is derived from the Arabic root word: darbunmeaning journey, seeking (trade or work). Mudaharba means that bank as a rab-ul-mal will provide the funds to entrepreneur to do business. But bank has no right tointerfere in the business. The entrepreneur has responsibility to run business andprovide whole information to bank. In this kind of contract the bank will share theprofit of business according to percentage fixed in contract. In case of loss the bankwill bear all lost. In Arabic, the srcin of the word Musharaka means to share and inthe context of business and commerce, we can classify Musharaka contract as apartnership contract. In Musharka, the both will share loss and profit and capital inputcomes from all partners.    The Murabaha contact is a sales contract where the sellerreveals the costs of the good or service and a mark-up to the buyer. For example, thecustomer identifies a house, which the bank purchases at a certain price. The bankwill then sell the house to the customer at the price it purchased the house plus amark-up, which can be paid back in installments. The Qur’anic verse that Almightyhas permitted trade and forbidden riba indicates that the sales contract is thedefinitive permissible contract.    The literal meaning of  Ijara is to provide something onrent. It is a commonly used product within the Islamic banking industry, mainly due toits added flexibility. The contract involves selling usage (usufruct) for a specifiedlength of time, with the lessor retaining ownership of the underlying asset. The rentalpayment can be either fixed or vary for the life of the lease. It is not permissible tohave a lease on certain items, namely food, money and fuel. Salam contract is wherean advanced payment is made for deferred delivery of goods. Generally a validcontract needs to meet the following conditions: the object needs to be in existence;and sellers must have ownership of the object. Salam and Istisna (discussed below)are exempt from these two conditions. As a result many of the leading scholars haveplaced some important restrictions on the use of  Salam. For example, it is stipulatedthat the length of a Salam must be longer than 30 days. An Istisna contract is anorder for a manufacturer to manufacture or construct a particular commodity for thepurchaser. Out of all products and instruments in Islamic banking, it is Istisna which isthe most flexible. For example, under Istisna the price can be paid up front, according  to progress, at completion or installments after completion. There is a huge potentialmarket in Bangladesh for Islamic banking products. The good, the bad and the ugly of Ethics in Islamic Banking: Ethics is the integrity measure, which evaluates the values, norms and rules thatconstitute the base for individual and social relationships, from a moral perspective.Ethics in business means trying to be a good corporate citizen; trying as anorganization to adhere to certain ethical values; and trying to do the right thing by allthe various stakeholders’ customers, employees, suppliers and shareholders that anybusiness organization has. It means choosing the good over the bad, the right overthe wrong, the fair over the unfair .Among the social goals of the Islamic banks, the reduction of inequality between therich and the poor, the establishment of justice and transparency in all transactions,and the allocation of society’s resources to the needy and unfortunate. The concernover ethical investment is also relevant to Islamic banks. As a business entityestablished within the respect of the Islamic Law (Shariah), which emphasize, amongother, on the principle of social justice and wellbeing. The several prohibitions such asinterest, gambling, excessive risks, etc aim to provide a level of protection of theinterests and benefits of all parties involved in market transactions and to promotesocial harmony. Islamic banking strives for a just, fair and balanced society asenvisioned by the Islamic law. Islamic banking perform in accordance with their ethicsand social responsibility commitment as being more enduring since they areultimately based on divine revelations.One way of manifesting the social role of Islamic banks is the improvement of povertyby providing finance (through Zakat distribution) to the poor to increase their incomeand wealth, or by offering Qard-al-Hasan. The Islamic banks could play an importantrole in promoting socially desirable investment through its strong emphasis on theethical and moral dimensions of doing the business and selecting the activities/commodities to be financed. Islamic banks have involves various values such ascommitment to the social interest, promotion of human welfare, care for theenvironment and concerns for economic and social justice. Financial services directedtowards helping the poor still limited and do not have significant contribution topoverty alleviation. This can be improved by expanding the Islamic banking activitiesinto rural areas and small communities and increasing financial resourcesmobilization through the collection of Muslims' Zakah and Sadaqah which have to bedirecting to the poor. The Islamic banks could also maintain close contacts with thepoor directly and/or indirectly, through its cooperation with other governmental andnon-governmental institutions.As regards to partnership by Islamic banks in a firm, the bank has to make sure thatthe manager does not avoid his responsibilities or obtain other non-pecuniary benefitsat the expense of non-participating partners and ensure the veracity of the profit
We Need Your Support
Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

Thanks to everyone for your continued support.

No, Thanks

We need your sign to support Project to invent "SMART AND CONTROLLABLE REFLECTIVE BALLOONS" to cover the Sun and Save Our Earth.

More details...

Sign Now!

We are very appreciated for your Prompt Action!