Islamic Banking

The act of generating income through lending is completely prohibited in Islam, and is thus called Riba. Practicing Riba means placing most of the “Lending” risk upon the lendee. This means that if the Lendee was unable to pay back, the Lender has leverage over him, and no one has leverage upon anyone but the Almighty Allah. As mentioned in the Holy Quran, “Those who charge riba are in the same position as those controlled by the devil's influence. This is because they claim that riba is the same as commerce. However, God permits commerce, and prohibits riba. Thus, whoever heeds this commandment from his Lord, and refrains from riba, he may keep his past earnings, and his judgement rests with God. As for those who persist in riba, they incur Hell, wherein they abide forever (Quran 2:275)”

As you can see lending caused the economic situation in the world, and this is partially due to the fact that when risk is placed upon the lendee (who is already in need of the money) it stress the financial situation in the economy. The lendee is then required to borrow more money to cover the previous loan. So on and so forth, the whole thing collapses leaving banks with so much money and power, but no one to benefit from the money since the population is poor. As mentioned in the Holy Quran “And for practising riba, which was forbidden, and for consuming the people's money illicitly. We have prepared for the disbelievers among them painful retribution. (Quran 4:161)”

Profit and loss sharing is unique to only Islamic banks, as they don’t use Riba, nor is the interest a fixed rate. PLS usually includes 2 parties. 1) The bank and the borrower, 2) and the bank and the depositors who finance the borrower. The main difference between PLS and conventional banks is that the interest to depositors is not a fixed rate in PLS, thus the risk is more spread out. If the borrower is gaining profits through his business, a percentage of the profits go to the depositors. A few examples of PSL products that Islamic banks use now are “Bai il salam” in some situations also Musharakah.

Islamic banking is vital and should be promoted in the UAE as it is an Islamic country. The principals in Islamic banking is more than Murabaha, Takaful, Bai al salam or even Musharakah. Its about faith, trust and respect with one another. Why charge a man who is in need of money more money for him to pay you back. Islamic banking should take its roots deep within the Islamic world, and the rest of the world. For with it, the financial crisis would have never have happened.