Islamic banking is a new way of financial intermediation and investment management that has emerged and gained a sizeable share of the market in its home base, the Persian Gulf countries. Islamic banking has popularised itself in Malaysia, Indonesia and the Americas, and a number of Muslim countries have adopted the new system at the state level. Healy Consultants believes that Islamic banking brings forth many advantages and thus provides Islamic banking services. Below are listed the advantages and disadvantages of Islamic banking: |
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| Advantages of Islamic Banking | |||
| 1. | Islamic banking is becoming a very popular amongst international investors. Having committed itself to a text accessable to all and Prophetic precedents available easily, Islamic banking is open to any innovations that are in congruence with its fundamentals. It is not a closed system. It has no regional, ethnic or class affiliations.
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| 2. | In Islam banking, only one kind of loan and that is qard-el-hassan (literally good loan) whereby the lender does not charge any interest or additional amount over the money lent. |
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| 3. | In Wadiah (safekeeping), a bank is deemed as a keeper and trustee of funds. A person deposits funds in the bank and the bank guarantees refund of the entire amount of the deposit, or any part of the outstanding amount, when the depositor demands it. |
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| 4. | Islamic banking is more efficient in that it allocates investable funds on the basis of the expected value productivity of projects rather than on the criterion of the creditworthiness of those who own the projects, which is the case in debt-based finance. |
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| 5. | Islamic banking is less prone to inflation and less vulnerable to speculation, which are currently being fueled by the presence of huge quantities of debt instruments in the market. |
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| 6. | Islam encourages people to invest their money and to become partners in order to share profits and risks in the business instead of becoming creditors. As defined in the Shari'ah, or Islamic law, Islamic finance is based on the belief that the provider of capital and the user of capital should equally share the risk of business ventures, whether those are industries, farms, service companies or simple trade deals. |
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| Disadvantages of Islamic Banking | |||
| 1. | Investments should only support practices or products that are not forbidden or considered unlawful, or haraam, by Islamic law. Trade in alcohol, for example would not be financed by an Islamic bank; a real-estate loan could not be made for the construction of a casino; and the bank could not lend money to other banks at interest. |
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| 2. | Money is only a medium of exchange, a way of defining the value of a thing; it has no value in itself, and therefore should not be allowed to give rise to more money, via fixed interest payments, simply by being put in a bank or lent to someone else. |
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| Contact Us | |||
For more information on Islamic banking, email email@healyconsultants.com or call (+65) 6735 0120. |
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