Islamic banking is a banking activity which follows principle of Sharia law and its practical application through the development of Islamic economics. It is also termed as Sharia Compliant Finance. Islamic bank prohibits ‘Interest based Banking’ but permits ‘Profit sharing based Banking’. The concept is based on a verse of the Holy Quran that says ―Allah has allowed only legitimate trade and prohibits interest which states as Allah is against interest as it is believed to lead to exploitation and unproductive income.
Working of Islamic Banking
Islamic banking works on few laws which derive from Sharia Law practices as
1. If customer deposits money in bank, bank should guarantee the money should return to customer.
2. Customer can withdraw the money anytime.
3. Bank can charge you a fee for looking after customer money and may pay hibah(gift)to customer if it deems fit.
Islamic banking module divided into four type of principle which derived from Holy Quran.
1. Mudharabah (Profit Sharing)
2. Bai’ Bithaman Anjil- BBA (Deferred Payment Sale)
3. Murabahah (Cost Plus)
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