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Home » What is the concept of Islamic banking?

What is the concept of Islamic banking?

Islamic banking is a financial system that operates in accordance with the principles of Shariah, the Islamic law. It aims to adhere to ethical and moral standards while providing financial services. One of the fundamental principles of Islamic banking is the avoidance of prohibited activities, including Interest/Riba, Gharar (uncertainty), and involvement in businesses deemed haram (forbidden) such as alcohol and gambling.

Unlike conventional banking, which relies heavily on interest-based transactions, Islamic banking offers alternative mechanisms to facilitate transactions without interest, such as profit-sharing arrangements, leasing agreements, and joint ventures. This approach ensures that financial activities are conducted in a manner that promotes fairness and social justice, as prescribed by Shariah.

Furthermore, Islamic banking emphasizes risk-sharing between the bank and its clients, fostering a closer relationship and mutual benefit. It encourages investment in ventures that contribute positively to society and the economy while discouraging speculative practices. By adhering to these principles, Islamic banking seeks to create a more equitable and sustainable financial system that aligns with the values of its stakeholders.

(Response: The concept of Islamic banking revolves around conducting financial activities in accordance with Shariah principles, avoiding prohibited practices such as interest, uncertainty, and involvement in forbidden businesses. It emphasizes ethical conduct, risk-sharing, and promoting socially beneficial investments.)