Islamic banks or Sharia-compliant finance or Islamic finance are the financial activities that work according to the rules and regulations prescribed by the Sharia or Islamic law. All the rules, regulations and guidelines under which these Islamic banks run is duly conveyed by Qur’an. Two basic principles of Islamic banking are the disallowing of payment and collection of interest both by investors and lenders and sharing of profit and loss. These rules and regulations that govern the financial transactions of Islamic banking system are called fiqh-al-muamalat.
Since collection of interest is prohibited in Islamic law, so how do these Islamic banks make money? These Islamic banks including Islamic bank In Australia make money by Equity participation. According to this system of making money, banks ask the customers to pay certain amount of portion of their profit rather than paying interest. The individual or the business loans the bank. Buyer then gives a portion of their profit in place of interest regularly on the decided time period. If the business fails to make profit, then the bank also fails to get profit. This way these Islamic banks could bear risk in investing in any business. So, they tend to avoid investing in business that is associated with economic bubbles.
Conventional banks also provide financial assistance to public. But the basic difference between a conventional bank and an Islamic bank is that the Islamic banks disallow usury (interest) and speculations (gambling). Speculations and usury are prohibited in Sharia or Islamic law. Sharia also prohibits any investments for substances that are prohibited in Qur’an like pork, gambling, alcohol. In this way, Islamic banking can be considered as ethical form of investing.
There were many debates regarding the change in principles of Islamic banking as it is based on high ethical principles ages old. So, Islamic finance has to evolve with time without actually changing the basic principles of Islamic finance system as per Sharia. New rules and regulations will be formed but the main fundamental of Islamic law will be preserved throughout.
For more information on Islamic bank in Australia, visit the website. https://ijarahfinance.com.au/Islamic-Bank-Australia/
