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Islamic Banking

Updated on March 21, 2010

A Brief Discription

What is Islamic Banking?

This is common question usually asked.The monetized economy brought with it the problem of savings, investment and interest. The World Economy treats Money as a commodity, which can be bought and sold. Islam rejects this notion and treats Money and commodity as two different things. Money is a measure of value and acts as a media of exchange. Commodities are purchased using the Money. Islam totally rejects the present day banking system involving interest on the money which is paid by the bank to its clients as loan. In Islam loan is paid to someone with the intention of helping him. Money is Kept with someone for safety, be it a person or an institution.

In Islamic Banking System, if a person deposits his or her money in a bank, this deposit is treated as an investment from the depositor. The Bank in turn will use this deposit to invest in some business and will share the profit with the depositor. There is no form of Interest. The client/depositor will be paid his share of profit by the bank who invests the money in some business.

Like wise, if a client seeks  a loan from the bank , a Islamic Bank will never charge interest for the money it has given. Instead, the bank will ask the client to invest the money in his business and pay the profit from the business to the bank. No interest is involved.

This is the basic concept of Islamic Banking.

Equity Banking

Equity Banking is a great revolution. It has changed the basic concept of modern day banking. The Financial Management System which the world is following today, has totally flopped.  The Banks have gone bankrupted because of their lending policy. The Banks provide loans to their customers keeping the asset of the customer as a collateral security. The customer, just get maximum loan, gives false information and supporting documents that the value of property which he is keeping as a security with the bank is more than the loan amount, where as, the worth of the property is actually half of the loan amount. But, the bank blindly sanction the loan amount and when the time of recovery comes, the bank finds that even after selling the property the bank cannot recover the loan amount. 

But, in Equity Bank, the Bank becomes the partner of its client in his business. The bank can keep the property as security, but, at the same time the bank will be a full fledged partner. It will share both the profit and loss according to the amount invested as a loan. The client will have the option of clearing the loan amount and get released from the partnership deal. But, till then, he have to pay the profits of the business to the bank.

This banking concept is gaining popularity in Islamic Countries and the European and Western countries are now watching the growth of this system keenly.

India is also thinking of adopting this banking system,The Islamic Banking of Qatar is one of the major Islamic Banks in the world from where India can take its advice. The CEO of this Bank is Mr. Seetharaman , a Tamil Brahmin and an expert in financial economy. He has said that India should avail the opportunity and adopt the Banking System of Islam.

In fact, the Islamic Banking System will be a saviour of world from the clutches of Recession.


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