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s that act as safe deposits of people’s savings without which they will have no place to save and will also face the risk of keeping all money at home. Banks also facilitate lending and people can borrow any amount of money they require in any convenient manner. Banks essentially act as intermediary between depositors who lend money to the band and borrowers to whom the banks lend money. The amount that banks pay to the depositors and the amount that they received from the borrowers are both called interest. Both depositors and borrowers can be individuals, families, organizations, governments and so on. Since at any point of time some depositors withdraw their money, many others do not. This provides the banks opportunity to convert short term deposits, which are their liabilities to long term loans which are their assets. The interests that banks pay to their borrowers are less than the interests that the banks pay to their depositors. This difference serves as income of banks all over the world.
Although banks play a crucial role in the management of money from depositors and lending money to the needy, banks are also indispensable for national and international payments system. Banks also create money. Individuals, organizations or governments do not only need banks as safe custody of their money, but they all also need to circulate their funds like money getting transferred from “buyers to sellers or employers to employees or taxpayers to governments” (Gobat). In this case too banks play a prominent role. They handle payments like issuing personal cheques to making electronic payments of large amounts between banks. The payments system is a “complex network of local, national, and international banks and often involves government central banks and private clearing facilities that match up what banks owe each other” (Gobat). In today’s era of international trade, most payments are administered instantly. An efficiently managed system of payments is
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One of the main instruments in this branch of banking is a letter of credit (L/C). A L/C is “a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount” (Investopedia). The bank is obliged to cover the amount if the buyer is unable to make the payment, on presentation of shipping and other stipulated documents, and under specified conditions.
The principles stated in Islamic finance are very old. Islamic banking rules and regulations are based on the teachings of Islam religion. In Islam, short-selling, gambling, or uncertain money investments for abnormal profit maximisation are strictly prohibited.
This bank was brought into existence by Ahmed El Najjar’s pioneering efforts. The fundamental principal according to which this bank worked was profit sharing on the basis of Shariah’s non-interest based philosophy. It took only 13 years till 1976 for nine more banks like this to open in Egypt.
This may depend on the geographical and demographical position of the system, the social structure that surrounds it, among many other factors (Quresh, Hussain & Rehman 2012). The Islamic community dictates that things must be done differently, so that the culture and traditions of people can be maintained.
Islamic banking has been one of the less popular banking systems in the financial market. It should be noted that even though Moslems accounts for 20% of the total world, the number of Islamic banks in the globe is only a small portion relative to commercial banks.
Through the Islamic financial system there is a facilitation of services such as lending, borrowing and investing on a risk-sharing basis. The Islamic financial system can be called a value-based mechanism and the main target is to ensure “moral and material wellbeing” of the persons as well as the whole community.
, I agree to an entire electronic copy or sections of the Project to being placed on Blackboard, if deemed appropriate, to allow future students the opportunity to see examples of past Projects. I understand that if displayed on Blackboard it would be made available for no
In so doing, the Islamic principles of risk management and profit sharing are explained to help understand how Islamic banking functions without involving interest. It also examines the possibility of applying Islamic banking principles in Western economies to safeguard against
Islamic banking is based on the foundation of Islamic faith; thus, it operates within the limits of Islamic faith. Islamic banking sets forth a number of principles. These principles include the lack of
This essay focuses on the comparison between Islamic banking system and the conventional banking system, that both have completely different processes of functioning based on distinct principles, such as the principles of Shariah Law (Islamic law) and the west laws, that has a more non-conservative approaches.
7 Pages(1750 words)Essay
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