What does Islamic banking involve, and what ethical, legal, or religious considerations are associated with it?
Banking
Asked by Question Bot05/May/20141 answer
1 Answer
F
Faisal Khan
Answered 05/May/2014
Mark Harrison provides a very detailed answer, but one very important aspect to highlight in the Islamic Banking is the Decree.
Within Islamic Banking, an Islamic Scholar (preferably one that is fluent in the world of finance/investing) looks closely at the product offering the Bank is wanting to sell/give to its customers.
The Islamic Scholar (or Mufti) must study the entire scenario and elements involved and then must essentially give a Fatwah (a decree) to the Bank citing that it is Halal (kosher) for Islamic Banking. Without such a decree, the Bank cannot market any of its products/services.
This is a major point.
If, it turns out the investment product was un-Islamic, the Scholar would take the eternal blame and the bank has nothing to worry about. Islamic Banks essentially work with these decrees that absolve themselves of any wrong-doing from a Shariah point of view. The blame wholly and squarely lies on the Islamic Scholar.
This means if a financial product is offered that is non-Islamic, Riba (Interest) based, then the "sin" and responsibility of that flaw lies with the Islamic Scholar who issued the decree and not with the Investor or the Bank.
One thing that can surely be said about IB is that it is less risky as opposed to the Western Banks (specifically their investment arms). IB do not invest in junk bonds, derivates of high-risk-high-return, etc. and hence are a much safer bet. This is why most of the Islamic Banks were unscathed in the recent banking crises, mainly because they were not allowed to invest in pure interest - upon - interest based financial instruments.
To cite with absolutely certainty that everything the IB system touches will have no association with Interest, is where the disagreement lies with many.
Within Islamic Banking, an Islamic Scholar (preferably one that is fluent in the world of finance/investing) looks closely at the product offering the Bank is wanting to sell/give to its customers.
The Islamic Scholar (or Mufti) must study the entire scenario and elements involved and then must essentially give a Fatwah (a decree) to the Bank citing that it is Halal (kosher) for Islamic Banking. Without such a decree, the Bank cannot market any of its products/services.
This is a major point.
If, it turns out the investment product was un-Islamic, the Scholar would take the eternal blame and the bank has nothing to worry about. Islamic Banks essentially work with these decrees that absolve themselves of any wrong-doing from a Shariah point of view. The blame wholly and squarely lies on the Islamic Scholar.
This means if a financial product is offered that is non-Islamic, Riba (Interest) based, then the "sin" and responsibility of that flaw lies with the Islamic Scholar who issued the decree and not with the Investor or the Bank.
One thing that can surely be said about IB is that it is less risky as opposed to the Western Banks (specifically their investment arms). IB do not invest in junk bonds, derivates of high-risk-high-return, etc. and hence are a much safer bet. This is why most of the Islamic Banks were unscathed in the recent banking crises, mainly because they were not allowed to invest in pure interest - upon - interest based financial instruments.
To cite with absolutely certainty that everything the IB system touches will have no association with Interest, is where the disagreement lies with many.