Islamic Banking
Islamic Banking Analysis
Haythem Joudeh
February 22, 2013
Abstract This goal of this research is to find out if Islamic Banking is a better alternative to the Western, Conventional Banking. The information provided will reveal various Islamic Banking principles that would have prevented previous major economic crises and if applied globally today could prevent a major economic collapse. Islamic Banking is banking system based on Shari 'a (Islamic) Law on which it developed its unique characteristics that will be discussed in this paper. Shari 'a Law does not allow the use of Interest (Riba), trading in financial risk, and investing in businesses that are considered unlawful according to the Quraan and Islamic scholars. Shari 'a law in Islamic Banking is meant to promote economic and development through the means of disciplined investing, fair risk sharing, and profit or loss sharing (Warde, 2000). The literature that will be examined in this paper will show that Islamic Banking is a good alternative to the current global banking system, however, it will be near impossible to revamp the existing banking system and replace it with Islamic Banking because it goes against many of the core principles of conventional banking that the global economy is built on which has been around for decades.
Brief History The main goal of Islamic banks was to promote social and economical welfare in society through guiding investors and offering financial assistance to businesses by engaging in profit sharing transactions (Warde, 2000). Islamic banks were thought of as more than just financial intermediaries and more like a partnership with every customer since the investments were based on profit and loss sharing which meant that the banks share the same risk as investors; this in turn made sure that Islamic banks were involved in low risk markets and practiced socially conscious investing that basically eliminated moral hazard problems. “Early seventies saw
Haythem Joudeh
February 22, 2013
Abstract This goal of this research is to find out if Islamic Banking is a better alternative to the Western, Conventional Banking. The information provided will reveal various Islamic Banking principles that would have prevented previous major economic crises and if applied globally today could prevent a major economic collapse. Islamic Banking is banking system based on Shari 'a (Islamic) Law on which it developed its unique characteristics that will be discussed in this paper. Shari 'a Law does not allow the use of Interest (Riba), trading in financial risk, and investing in businesses that are considered unlawful according to the Quraan and Islamic scholars. Shari 'a law in Islamic Banking is meant to promote economic and development through the means of disciplined investing, fair risk sharing, and profit or loss sharing (Warde, 2000). The literature that will be examined in this paper will show that Islamic Banking is a good alternative to the current global banking system, however, it will be near impossible to revamp the existing banking system and replace it with Islamic Banking because it goes against many of the core principles of conventional banking that the global economy is built on which has been around for decades.
Brief History The main goal of Islamic banks was to promote social and economical welfare in society through guiding investors and offering financial assistance to businesses by engaging in profit sharing transactions (Warde, 2000). Islamic banks were thought of as more than just financial intermediaries and more like a partnership with every customer since the investments were based on profit and loss sharing which meant that the banks share the same risk as investors; this in turn made sure that Islamic banks were involved in low risk markets and practiced socially conscious investing that basically eliminated moral hazard problems. “Early seventies saw
References: Abdul Gafoor. (1995). Interest-free commercial banking. APPTEC Publications. Retrieved from http://users.bart.nl/~abdul/chap4.html Blank, J Edward, L. (2011). An Islamic Banking model in Canada. (Unpublished master 's thesis) Retrieved from http://dtpr.lib.athabascau.ca/action/download.php?filename=mba-11/open/edwardlauraProject.pdf Financial Times Solé , J. (2007, September 19). Islamic banking makes headway. IMF Survey Magazine: IMF Research, Retrieved from http://www.imf.org/external/pubs/ft/survey/so/2007/RES0919A.htm The Economist