Islamic Banking: Another way to bank

Introduction

Islamic banking is a system based on Islamic Sharia which is known as Islamic Law and guided by it strong following it and as an alternative called as an Islamic economics.  Islamic banking usually works as within the structure of the Islamic religion which is established by the Holy Quran and the Prophet’s Sunna. I was meaning that permissible or halal activities is allowed, which embraces some ethics and set of rules that some of the activities on the conventional banks or finance companies is prohibited in Islam like the additional interest on the loans, gambling or producing wines or weapons. Most Islamic finance operations which are based on two things of risk sharing (partnership) and murabaha (an Islamic alternative to cash loans).

Islamic Banking VS Conventional Banking

At commercial or conventional banks they use the funds deposited by customers to give loans to other customers, while the bank is paying back interest to the depositors’ accounts. The story is different in Islamic banking. They regularly accept customers’ deposits on the basis of mudarbaha or mushakah. They usually pay back the customer funds added profits instead of fixed interest. The borrowed money they use from the depositors used on the financing operations of the bank like Murabaha, Bai el Salam, Credit Card short term financing and many other activities offered by the Islamic bank. The profit on the partnership agreements and mudarabha are decided on the profit or loss sharing ratios on the amount invested before starting the activity.

First Islamic Bank starts in the UAE

The UAE as we know had a lot of different investments during the last years. They started to diversify their investments like entering the manufacturing sector, Tourism, Financial Services and many other sources of the income for our country. We have seen many national and international widely known international banks. Also, we had seen many international financial companies and investment companies like Barclays, AIG and many other firms which based on Dubai and in other Emirates in the UAE. The first Islamic commercial banks started its operations in 1975 which is known as Dubai Islamic Bank. The first when they started their first branch it suffered financially because the strong competition with the existing banks that it is familiar with the country economy. Finally, the Government had supported the new bank and promoted to the people on the media, and by that they attracted many Muslim Emiratis and expatriates and nonmuslims investors that is interested on the variety of Islamic alternatives on the existing products that is offered on the conventional banks that is already established on Dubai at that time. Nowadays, the bank offering many or same products  that is familiar products like credit cards with its different pricing, Murabaha credit facility on cars, personal finance and many other services. Because of the popularity of Islamic banking and Islamic products, many Islamic banks opened during the last years like Abu Dhabi Islamic Bank, Al Hilal Bank, Noor Islamic bank and many Islamic banks in the UAE and other countries in the world