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THE BASIC CONCEPT OF ISLMIC

BANKING

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What is Islamic Bank

A system of financial activities consistent with Shariah, based on


Islamic Principle which at the core refuses collecting interest,
transactions involving uncertainty and speculation.

It is based on the Islamic economic system.

It is not restricted to muslims only.

Islam forbids Riba (intrest) which includes in the transaction of the


conventional banking.

So Islamic Banking System which is free from Riba has to be establish


for the sake of the ummah.
Shariah law
Peace,, fairness, morality, mercy and forgiveness
Are values which underpin both the entire Islamic way of life.

*The absence of interest-based (riba) transactions;* The avoidance of economic


activities involving oppression (zulm)* The avoidance of economic activities
involving speculation (gharar);* The introduction of an Islamic tax, zakat;*
The discouragement of the production of goods and services which contradict the
Islamic value (haram)
Principles of Islamic finance..
Prohibition of Riba:

Both the charging and receiving of interest is strictly forbidden. This is


commonly known as Riba.

Riba literally means increase, increase, addition, expansion or growth. It is a


typical increase or growth, which has been prohibited by islam.

Riba technically refers to the premium that must be paid by the borrower to the
lender along with the principle amount as a condition for the loan. In this case
riba obviously means interest.

Islam made a clear distinction between trade and riba . Tarding is encouraged
but riba is prohibited.

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Principles of Islamic finance
(cont.)
Prohibition of Gharar ( Uncertainty, Risk or speculation)
Under this prohibition any transaction entered into should be free
from uncertainty, risk and speculation. Contracting parties should
have perfect knowledge of the counter values.
* Ignorance of the goods or price.
* or false description of the goods.
* Selling of goods that the seller is not in a position
to deliver.
Murabahah
In an Islamic mortgage transaction, instead of loaning the buyer
money to purchase the iteam, the bank might buy the iteam itself
from the seller, and re-sell it to the buyer at a profit.

Ejara
It is similar to

Musharaka
The bank and borrower from a partnership entity, both
providing capital at an agreed percentage to purchase the
property.