Islamic Banks
Islamic banks differ from the conventional banking systems in very many aspects, especially in their fund mobilization and fund utilization. Islamic banks are not money lending institutions but rather business or investments institutions. The operations of Islamic banks are based on Islamic religious teachings and sharia laws. Any religious affiliations do not guide conventional banking systems.
Islamic banks, unlike conventional banks, are non-interest based. Loans from Islamic banks carry zero interest rates, and this can raise dozen of questions about the source of income for Islamic banks. The sources of funds in Islamic banks include transaction deposits which do not yield any profits whatsoever founded on wadiah concept and investment deposits that can make profits. However, it can risk the loss of capital.
Investments accounts is also another vital source of funds for Islamic banks and the customer get into a binding contract with the bank. The murabahah concepts guide search commitments and create a mutual agreement between the parties involved where they agree to the mark-up.
Islamic banks utilize their funds in different ways to raise profits. However, the methods used to raise profits should be legal and in line with the sharia laws. The sharia laws do not limit the amount of profits made from any trading activity, however, the prices should be friendly and don’t exploit the customers. The methods used by Islamic banks to raise profits from their funds include leasing, manufacturing contracts, deferred sales contracts and other cost financing activities. Different Islamic laws regulate all these.
In conclusion, Islamic banking systems are very different from the conventional banking systems since the principles of the Islamic religion guide the operations of Islamic banks. Any Islamic bank cannot condone any activity that is not acceptable by the Islamic religion, and this makes them different from the conventional banks. Operations of Islamic banks are in line with the sharia laws.
Work Cited
Hassan, M. Kabir & Kayed, Rasem & Oseni, Umar. Introduction to Islamic Banking and Finance: Principles and Practices. Pearson Education Limited, 2013.