Interesting Principles Of Islamic Banking

Posted on October 19, 2009
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In recent times, the international interest in Islamic Banking has been significantly rising all over the world, probably also because of the current financial crisis. No wonder, as up to now too many cultural boundaries had been erected, so that everything but the real values of this financial system had been discovered by Western Countries.

Now that capitalism is suffering, many international financial institutes, brokers and companies are approaching Islamic investments, that could represent a real surprise in terms of opportunities for the future.

The most general rule which Islamic Banking is founded on is perhaps the one concerning the responsibility in financial operations, that is to be shared between/among the parts. This means that until the end of a determined operation every part involved is going to take on its shoulders a part of responsibility, that is in proportion with one’s corresponding share.

Islamic financing
Let’s take a practical example: Hibah (free gift), is a very usual practice by means of which a person or a bank grants a loan and fixes together with the debtor the terms and conditions of refund, that can take place in several steps or just in a single instalment. What’s new? You would answer: Nothing, up to now! But, and here comes the surprising discrepancy with capitalism, there are no interests to be redeemed! Yes, it’s true, as interests are viewed as usury and consequently not taken into consideration by Islamic Banking. As a result, a creditor can be offered a free gift, (Hibah) which is selected by the debtor and can be of any kind. Not rarely can happen that the debtor is unable to offer his/her gift at the right time: he can delay Hibah or inform that he/she is experiencing some difficulties about it. No problem, he/she does not suffer any legal proceedings from the creditor, as nobody can be sure of receiving Hibah.

Furthermore, Islamic Banking rejects every form of financial action that it considers morally and socially prejudicial on the basis of its clear code of rules.

Another clear concept in the “basic tissue” of Islamic Banking is wisdom: but how does this psychological theme find a place in a financial system, where we have been always getting used to worry just about the highest result by means of the minimum effort? Not in the case of Islamic Banking: here it comes to wisely administrating one’s property, which also means not to gather too much. Indeed, money must circulate with a certain balance, i.e. charity is a fundamental obligation for Muslims, who, according to the Ku’ran, are to give something periodically to the needy. Really, Islam aspires to the benefit of the population by carrying out the Zakat (”charity to the poor”) process. Nevertheless it is allowed to own one’s wealth, but one must manage it wisely.

This concept has a double aim: on one hand it targets at guaranteeing the community acceptable levels of life (thus fighting indigence) whereas, on the other hand, it definitely intends to avoid the excessive accumulation of wealth in the hands of a low number of individuals.

Moreover, a number of practical technical examples of Islamic Banking’s rules and their essential difference compared with capitalism will be examined in the following post.

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