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Islamic finance - Research Paper Example

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Its practical application is done through the development of Islamic economics, and therefore Islamic banking can be referred to as a Sharia-compliant finance. Islamic banks…
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Download file to see previous pages However, there were banking activities that existed before this period although the operations were conducted in Mecca. From the historical perspective, Islamic banking can be categorized into three eras. The first era was in the early year of Islam until the time of Caliph ArRashidin. The second era of Islamic banking extends from the period of Caliphates to the fall of Uthmaniyah Empire. The third period which is the modern era is current Islamic banking. Prophet Muhammad got divine revelations that Mecca was a city of trade. There were a number of economic techniques and concepts that were used in early Islamic banking such as partnership, bills of exchange, cheques, promissory notes among others (Ahmad, 2010).
Islamic banks products exclude the use of Interest which is prohibited in Islam. Rather, the Islamic banks provide an anticipated profit rate for rental rates and savings. According to Islamic Law, money should not be used to create more money. Islamic banks are required to offer services in return for a profit. Instead of the traditional accounts that have interest rates, Islamic banks offer accounts that provide profits or losses. The bank buys property with the customer money, which creates a return to the bank. In case of savings, a customer makes deposits in Al Rayan banks for an expected profit rate. Unlike interest, expected profit rate is not fixed as the profit is made through Sharia compliant investments. There is an element of risk carried in the expected profit rate, but it is usually managed by Al Rayan Bank. Islamic banks Home Purchase Plans are on the basis of leasing and co-ownership, whereby the bank and the customer purchase the property jointly. The monthly payments made by the Customer little by little boost their share in the property. At the maturity of the finance term, the title of the asset is ...Download file to see next pagesRead More
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