ABSTRACT

Why Islamic Banking?

                          In this contemporary world the name “Bank” leads the every little mind in to the trap of interest. Whether they play vital role in the development of each country’s economy, but in conclusion or in the filtration its (interest) will be a devil of common people and to the whole society. For instance when Christians got the power to rule Europe, who bought the interest based banking and introduced, around ten centuries (1000 years) they demoted and defused the base of interest from their culture. Islam verily prohibits coming close to the interest, and says eating, writing, saving, and protecting interest in the society, should go out of the religion or make a battle with him to defeat the devil deed.

                                Here Islamic laws gave the role of Islamic banking and everything and got the popularity in the Arab world with a few couple of leaders ,it played in the main markets of Makah and medina from there to everywhere of the Arab world and then into our coastal areas. Because Islam verily asks each individual, what to do? What not to do? With that a new culture shaped and come into the favor of people and behavior. There each individual got his right as he had and the real just in the trade and every where they invest their wealth because Islamic law had the clear view of everything. That provide just to all .the lion part of the every trade are based on the profit and loss not in the interest as the today’s bank do so by imposing interest on everything even in the loan also, if anyone had taken a loan from the bank during his risk may led him to and in rope as we seen now a days.

In economy banks “banking function” is almost same in the both interested based banks and Islamic banks. In interest based banks they accept investment by offering fixed interest for a fixed value, but in the Islamic banks they will be based on the profit and loss.

Key notes:-

·        Islamic banking: hope of this era.

·        Islamic banking gives message of equality and social just.

·        Islamic banking: - challenges and remedies

Introduction

Islamic banking is a banking system in accordance with the Shariat. In Islam, money has no intrinsic value – money, therefore, cannot be sold at a profit and is permitted to be used as per shariat only. The Islamic Law or Shariat prohibits paying any fee for renting of money (called riba) for specific periods of time. It also prohibits any sort of investment in businesses that are considered harram or against the principles of Islam. These are the principles have been derived from the Quran and have been in practice since then.

Sharia prohibits riba, or usury, defined as interest paid on all loans of money (although some Muslims dispute whether there is a consensus that interest is equivalent to riba). Investment in businesses that provide goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also haraam  ("sinful and prohibited").

These prohibitions have been applied historically in varying degrees in Muslim countries/communities to prevent un-Islamic practices. In the late 20th century, as part of the revival of Islamic identity, a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community.

The concept of Islamic banking has often been criticized by both purists as well as modern conventional bankers. It is stated that the instruments in Islamic banking are essentially the same as the ones in traditional banking and have the same purpose with merely different terminology. It is often stated that in today’s time of profit maximization there is a thin line between riba and profit. The modern Islamic Banks have found ways to work around the conventional instruments and include them in Islamic banking instruments. One such example is an instrument called mudarabah, which is essentially nothing else but a mortgage and the banker ends up earning an interest in the form of mortgage interest rate on it. There are arguments that Islamic Banking was based on high ethical principles which no longer remain the same. A World Bank paper states that conventional and Islamic banking methods are very similar to each other. Another criticism is that the Islamic bankers find their way around the system and “manage” to get a shariat compliance certificate from a scholar to invest in.

However, Islamic banking across the globe is at a comparatively nascent stage and there are plenty of interpretations given by scholars worldwide with regard to various Islamic finance instruments. One cannot completely stick to the purist approach, as the Islamic finance system is centuries old and the modern Islamic Banking system is a recent evolution. The Islamic finance system has to evolve with time without violating the fundamentals of Islamic Finance system as per the shariat.

Why Islamic banking

Now a day’s world economy is in the hand of capitalism which sprays the unjust and exploitation. Whatever it may be the growth that brought b the present economy are memorable. But when calculations takes place on profit and lose created by the economy that shows the lose are much higher than the profit. Atrocities and unrighteous created by the modern banking system opened the eyes of world. From interest system based economy to free interest economy of profits and lose and to create sustainable economy through a development and to raise the living rate of common people instead if increasing corpaties. It can be only done or implemented by the Islamic economy.

Islam prohibits every parts of interest or usury. Not only Islam but also some other religions like Jews, Christianity, Buddhism, and Hinduism ,and some philosophers like socratariees, cunfusios, plato, aristottle were against usury or interest. Interest became honorable from last 2 centuries, and explained that all religion prohibits usury and promotes interest which is not relevant or considerable.

The calamities made by the interest can be calculated with socio-economic conditions. The growth brings with it are dream not reality. To divide the economy and righteous planned attempts were happened. And it came into true, and then economy had the liberty to control over it. Every religion and social principle longs for the prosperity of human and just. They are centralized into human but the behavior of capitalism throws away these principles. It had view that luxuries life or comfortable life is only to one had ability to implement economic activities. Wealth and luxury became equal.  During production it gives important to the wants of corpaties instead needs of common people. and it sis centralized into money.

Specialties of Islamic banking

·        Islamic money transaction considers possibilities of profit and loses. Balance will share into the investors whether it is positive or negative.

Production and demand for the good decides the income for investors not as fixed whether it is profitable or lose. Economic cooperation can be with the Govt or with the individual but should be on the basis of profit and lose.  

·        Islamic banking is only a simple part of Islamic economy. Its goal is to release the society from the transaction on the basis of interest. That opens way to the victory of Islamic economy. Loan without interest (Qard hasan) also in the basis of profit and lose.

·        Islamic economy is created on the basis of moral principle. Not only the change from interest system into participated system but from the system of money and comfort into social indebtedness and righteous also its part morality should become the scale of economic relations. And Islam put forward some questions in both producer and society they are “what are the goals in spending money?, what kind help or aid that a individual or society or the man kind gets from the production?

·        Islamic banking promotes increasing of production service for the development than giving preference to economic profit. Money doesn’t produce money. In modern banking they promote or show their interest for giving loans only one who had relation with them before or having high luxurious way of life. But in Islamic economy it is just opposite it considers only skill, possibility of project, and honesty. Consideration of this human value, behavior, just in supply, provides equilibrium; spread of wealth and social development is their goals.

·        Islamic economy discourages inflation; it is caused by the credit creation. Unsatisfation between money supply spread of wealth and economy makes failure our present economy. But in Islamic economy these three moves very equally. Its first goal is to fix value for the money and can’t be changed. Because these change cause to inflation. It effected normal people very highly , if it were fixed no more inflation will find.

These five specialties make Islamic economy unique and magnificent. Main goal of Islamic economy is not only rising of interest from the society and from the whole world but also to implement profit-lose system of sharing , morality, social prosperity etc were its goals.         

Islam verily prohibits every single part of interest which would touch in it.

What is 'Riba' (Interest?)

Riba is a concept in Islam that refers broadly to the concept of, growth, increasing or exceeding. It has also been roughly translated as illegal, exploitative gains made in business or trade, under Islamic law.

Riba is a concept in Islamic banking that refers to charged interest. It has also been referred to as usury, or the charging of unreasonably high interest rates. There is also another form of riba, according to most Islamic jurists, which refers to the simultaneous exchange of goods of unequal quantities or qualities. Though, here, we will be referring to the practice of charged interest.

It is forbidden under Sharia Law (Islamic religious law) because it is thought to be exploitative. Though Muslims agree that riba is prohibited, there is much debate over what constitutes riba, whether it is against Sharia law, or only discouraged, and whether or not it should be punished by people or by Allah. Depending on the interpretation, riba may only refer to excessive interest; however to others, the whole concept of interest is riba, and thus is unlawful. For example, even though there is a wide spectrum of interpretation on the point at which interest becomes exploitative, many modern scholars believe that interest should be allowed up to the value of inflation, to compensate lenders for the time value of their money, without creating excessive profit. Nevertheless, riba was largely taken as law, and formed the basis of the Islamic banking industry.

The Muslim world has struggled with riba for quite some time, religiously, morally and legally, and eventually economic pressures did allow for a loosening of religious and legal regulation, at least for a period. In his book, Jihad: The Trail of Political Islam, Giles Kepel wrote that "since modern economies function on the basis of interest rates and insurance as preconditions for productive investment, many Islamic jurists racked their brains to find ways of resorting to them without appearing to bend the rules laid down by the Koran," and "the problem loomed ever larger as more and more Muslim states entered the world economy in the 1960s." This loosening of economic policy lasted until the 1970s, when a "total ban on lending with interest was reactivated."

Riba is prohibited under Sharia law for a couple of reasons. It is meant to ensure equity in exchange. It is meant to ensure that people can protect their wealth, by making unjust and unequal exchanges illegal. Islam aims to promote charity and helping others through kindness. To remove sentiments of selfishness and self-centeredness, which can create social antipathy, distrust and resentment? By making riba illegal, Sharia law creates opportunities and contexts in which people are encouraged to act charitably-loaning money without interest.

Economic equilibrium, social just; message of Islamic banking

Economic development are related to the correct use of natural resource and availability of wealth resource, development set its goal as increasing rate of living, eradication of poverty, hungry, diseases. Limitation of resource availability taught maximization of available resources and so on attempt to lessen the cost of production were led to new invention of nano technology. And limitation of material resources led the technology to use wealth resources for the development. It led to giving primary position for capital, for their collection and saving banking started.

Then economic development became a goal for every countries and a concept rose that for the social and economic development collecting and saving capital banking system is compulsory, In this process some other changes were seen some are skewed concept about efficiency which rose and it is used as the scale for production for factor especially for the production of capital.
Secondly market takes a role in launching of products and product supply. Once its benefits were high and limitation of material resources were solved it led to reaching of micro technologies in to people.

After years society has divided into poor and wealthier .market takes its role to increase the gap between the both poor and wealthier, poverty and wealth were increased in every country. Demerits of market system and exploitation of bank affected one part of the society. Goal of economic development thrown into waste baskets.     

To hide these exploitations they brought many theories which will raise the level of poor's. they argued market fulfilled every needs of the society so the method for equal supply is perfect behind this a fact that “one who have wealth have the position in market if not ,no”. these all led to the growth of capitalism and imperialism then they try to convince the people that capitalism and imperialism is medium for the growth but it was on the life of people. Third party countries compelled to bring just in the society and to reach the fruits of the economy to bring humanity and economic development in people but they tried through the tools of modern economy which are market and banking system and without any doubt the role of market in growing poverty and economic inequality is well known, so poor people borrowed money for interest that made them into it Dept of  Dept income of  banks reduced only into the interest from the poor not from the capital .
Then socialism rose to bring equality but loopholes of socialism became failure during the activism Islamic economy which provides some principles away from the today's economy they are:-

·        All human are equal, Oneness of god makes its possible. God never partitioned life of a person as different. In front of him every human needs and deeds are considerable. Every deeds are interrelated and co-operated anyone doesn't have any priority or preference.

·        As humans are equal resource are deserve for the entire individual , none doesn't have any special rights right on them.

·        Just and equity are key elements of economic did it had quite meaning:-

Ø Natural resources and human resources should be supplied between the people with just economic agreement both side want equal consideration in interest system borrowed person should give extra money for them. 

Ø  in a Interest based economy, amount of national product depend on the profit of money lender no basic needs are producers but efficiency of wealthier is produced.

·        in the view of Islam good resources are virtue for all human Prophet thought the humanity that's good resources are things which makes prosperity for human but interest basic economy fill the greed of wealth

·        Main goal of Islamic economy are supplied with it just and human possibility proliferation of interest or usury that brings the centralization of money

·        It ensures that supply of wealth resources are in just and equity.

·        Islamic economy also empower the cooperation between capital and inertia and eradicates the inequality of sharing between capital and the job

·        Islamic economy keep changes in the fundamental of investment priority so it will change the complete factor of gross domestic product  GDP. production will be on the basis of Health and need of the people but in the capitalist economy they are trying to turn the capital into the sector which give more profit, never give value for humanity

·        Ownership of wealth is provided to all instead of giving to a specific race:
a. giving priority for the needs of the society not for the wants of wealthier in production process
b. through zakat, donation ( swadaka), vaqaf wealth are redistributed for the poor and poor

·         Islam encourages proliferation of interest. Capital and other wealthy needs are solved through the Islamic economy. Traditional bank makes huge risk on borrowed person by its mass rate of interest. Small scale trader’s commercials, farmers can't bare the interest of bank. It is memorized by the suicide of farmers in India.

·        Islamic banking synthesis the both production and supply. They are one not two it ensures just in economy which considers humanity with agreement of production and supply.

Islamic banking; challenges and remedies

As a result of inflation, today world is in the control of unemployment and inequality created by the capitalist economy. every country are trying to increase capital for overcoming the issue with Hike production and consuming it will fulfill only by the investor who invest his balance in the country. There bank functions as a mediator for the easy transaction.

When the two economy Islamic and capitalist economy put together for comparing the outstanding performance of Islamic Bank can be seen. Islamic Bank have 2 situation which are entirely different from one is in the Islamic state or situation other in the today situation. in Islamic situation currency was believable one to calculate the wealth but now currency value  you are decreasing or in inflation.

There no doubt that sustainability or continuing of this economy will threat to society and led to its products, inequality in wealth and corruption. Whatever it may be the failure of interest system give Expectations for the Islamic banking.

Issues on present Islamic banks

Islamic bank invests  the investment of people on mudrabah (profit-lose agreement) and musharakha (sharing). murabaha may led to interest so it kept away by the two.
Islamic Bank provide more income than other systems, it is increased by their providing of high capital. Its major funds are used by small scale sectors. Govt provides loan with subsidy in interest to those sector. As compared to Islamic Bank they may have to pay large amount of profit into the bank so it causes the challenge for Islamic economical Bank it is found in murabaha. Then people may ask what is the difference between the both economies? Because they have to pay as equal in both banks.

banks are used for economic needs of present days these banks were not established in the era of Prophet but Islamic Bank are which kept away interest and prohibitions of Sharia or limitation and to bring just and equality. A concept that Islamic Bank can only run only in Islamic situation is not relevant, but the risk is that every part of the economy he is in the control of capitalism there is no doubt if Muslims completely sets away from the interest and present economy and show interest for Islamic banks the Desire will blossom and it will be built for the Muslims and for the sake of the society.

Currency and interest

interest system is supported by cheat and brutal money system currency is the important one as exchanging medium for the scale of wealth  so exchanging with currency which will have deflation will be unjust it will create dubiety it falsely effects the investment it may led in to fall of growth . Sustainability of value is indispensable.
Value of currency is decided by the value of GDP  when National products are fixed and providing of money is doubled value of become half eg: if one borrowed 10 rupees then value came to half should pay 20 rupees. At first glance it is interest but in other hand it can't be interest.