Islamic banking and finance
Islamic banking and finance are systems of financial management that are based on principles of Islamic law, known as Shariah. Shariah law prohibits certain practices such as charging interest or engaging in speculative investments, and promotes the concept of risk sharing in financial transactions.
In other words, Islamic banking and finance operate without interest-based lending, which is the hallmark of traditional banking. Instead, Islamic banks and financial institutions rely on transactions involving assets and risk-sharing to make profits.
Islamic financial products are designed to avoid interest-based transactions, while promoting entrepreneurship, social responsibility, and wealth redistribution. It is said that the Islamic banking and finance model can help to promote stability and prevent crises by encouraging sustainable investments, based on ethical principles, and risk management.
In Islamic banking and finance, there are certain terms and concepts that you may hear a lot:
1. Shariah: It is the Islamic code of law derived from the Quran and the Hadith (the prophetic traditions). Shariah governs all aspects of Islamic life, including trade, commerce, and finance.
2. Riba: It is the term for interest, which is prohibited under Shariah law. Islamic scholars believe that interest-based lending only benefits the lender and is a form of exploitation against the borrower.
3. Murabaha: It is a type of Islamic financing that involves the purchase of an asset by the lender at a set price and then selling it to the borrower at a higher price, allowing the lender to make profit. This is different from traditional banking, where interest is charged on the loan.
4. Musharakah: It is a form of partnership where two or more parties contribute capital to an enterprise and share in its profits and losses. This concept promotes risk-sharing and encourages entrepreneurship.
5. Zakat: It is the mandatory religious tax paid by Muslims, and is used for charitable purposes. Islamic banking and finance institutions may use part of their profits for charitable giving.
Overall, Islamic banking and finance is an alternative financial system that operates on ethical and moral principles, with a focus on sustainable and responsible investments.
In other words, Islamic banking and finance operate without interest-based lending, which is the hallmark of traditional banking. Instead, Islamic banks and financial institutions rely on transactions involving assets and risk-sharing to make profits.
Islamic financial products are designed to avoid interest-based transactions, while promoting entrepreneurship, social responsibility, and wealth redistribution. It is said that the Islamic banking and finance model can help to promote stability and prevent crises by encouraging sustainable investments, based on ethical principles, and risk management.
In Islamic banking and finance, there are certain terms and concepts that you may hear a lot:
1. Shariah: It is the Islamic code of law derived from the Quran and the Hadith (the prophetic traditions). Shariah governs all aspects of Islamic life, including trade, commerce, and finance.
2. Riba: It is the term for interest, which is prohibited under Shariah law. Islamic scholars believe that interest-based lending only benefits the lender and is a form of exploitation against the borrower.
3. Murabaha: It is a type of Islamic financing that involves the purchase of an asset by the lender at a set price and then selling it to the borrower at a higher price, allowing the lender to make profit. This is different from traditional banking, where interest is charged on the loan.
4. Musharakah: It is a form of partnership where two or more parties contribute capital to an enterprise and share in its profits and losses. This concept promotes risk-sharing and encourages entrepreneurship.
5. Zakat: It is the mandatory religious tax paid by Muslims, and is used for charitable purposes. Islamic banking and finance institutions may use part of their profits for charitable giving.
Overall, Islamic banking and finance is an alternative financial system that operates on ethical and moral principles, with a focus on sustainable and responsible investments.
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