Table of ContentsIntroductionIslamic BankingModel of Islamic BankingMudarabahMusharakahCommercial Banks in Muslim CountriesIslamic Banks in the 20th CenturyIntroductionIslamic banking is banking activities based on Islam or Sharia law. It follows Islamic rules on transactions. Islamic banking is based on Islamic law, also called Sharia law, and guided by Islamic economies. Islamic banking is based on two key factors: religion and profit. The organization must internalize the teachings of Islam. This will involve moral elements under the Imaan (Faith and Belief) factor. in commercial operations. If one places importance on moral factors alone, it is possible that the bank could incur losses and be forced to cease operations. Islamic banks therefore also attach dimensions and importance to their activities. Sharia prohibits Riba. Investing in businesses that provide goods or services contrary to Islamic principles is Haram. This ban is enforced in many Muslim countries to prevent un-Islamic banking. By applying these Islamic principles, we can avoid Allah's wrath. The bank should strictly follow Sharia law and raise the standard of living of those who try to do so in an Islamic way. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an original essay The concept of free Islamic banking is also becoming very popular in non-Islamic countries. Interest-free banking operates with the rule that the lender must have a share of the profits or losses. The lender and the borrower are like partners and this plays a major role in characterizing the social order. Islamic banking was introduced in July 1979 into the banking and financial system of Pakistan. The government of Pakistan decided that only the Islamic system could guarantee a better standard of living. To facilitate the introduction of interest-free banking services, some necessary rules were introduced in the June 1980 Banking Acts of Pakistan. Different companies start their operations based on an interest-free system. Islamic Banking In the late 20th century, a number of Islamic banks were established to implement Islamic principles. Their number and size increased such that in 2009 there were more than 300 banks and 250 mutual funds worldwide based on Islamic laws, and there were approximately billions of dollars in 2014. Islamic law is derived from the following four sources. The Holy Quran The Sunnah of the Holy Prophet (PBUH) IjmaQiyas The Holy QuranThe Quran is one of the main sources of Islamic law. It includes many commandments, rules and principles governing the behavior and relationships of individuals in society. Most of its principles are general in nature although some of them are well defined. The words of the Quran are final and no one can change the text. The Sunnah The Sunnah, the secondary source of Islamic law, is equally important. The Sunnah is the path or way of the Prophet Muhammad (PBUH). The Sunnah consists of the words, deeds and words, actions or even silence of the Prophet Muhammad (PBUH). “Take whatever the Messenger gives you and abstain from whatever he forbids you” (Al-Hashr) In order to understand the teaching of the Quran, understanding the Quran and understanding the Sunnah are obligatory. Ijma Ijma means the agreement of the mujtihad of the Ummah on a matter requiring the exercise of ijtihad. For example: The institution of khilafat is established on the basis of ijmaamong Islamic jurists. Qiyas is the process by which Mujtihad extends Sharia law where there is no such Sharia orientation (similarity). cases) A ​​thorough analysis is necessary. For example: regarding wine, jurists have concluded and generalized that everything that causes unconsciousness is prohibited by Islam: "Any loan that brings a profit (to the lender) is Riba". Quran (Surah-Al-Bakarah) “O those who believe; fear Allah and abandon what remains of riba if you are believers. But if you do not, be warnedAllah was and his Messenger. If you repent even now, you are entitled to repayment of your principal; you will not do harm and you will not be wronged. "Mudarabah Islamic Banking Model Mudarabah is a special type of partnership in which one partner provides the capital to the other (Mudarib) to invest in a business venture. According to Mufti Taqi Usmani, a mudarabah agreement differs from the musharakah of three main ways. Investment in musharakah comes from all partners while in mudaraba, investment is the sole responsibility of rabb-ul-maal. In musharakah, all partners can participate in the management of the. the company and can work for it, while in mudarabah the rabb-ul-maal has no right to participate in the management which is carried out by the mudaribonly. In musharakah, all partners share the loss up to the ratio. of their investment while in mudarabah the loss, even if only suffered by the rabb-ul-maal only, because the mudarib does not invest anythingMusharakahMusharakah is the type of Shirkat-ul-Amwal which literally means sharing. In the business context, it refers to a share of the profits and losses of a joint venture. Musharakah has far-reaching implications for Islamic banking and finance in the modern context and is an excellent alternative to interest-based economics. In a musharakah, the party investing the capital shares profits and losses equally, which is different from an interest-based system where the upside is limited while the downside is almost non-existent. These two references clearly show that profit leading to Riba is haram and that, unlike Sharia, Islamic banking transactions are transactions without Riba. It guarantees mutual benefit, covering and spreading the risks of both counterparties. Islamic banks provide no assistance and strictly discourage the production of goods and services contrary to Islamic values. Ideally, Islamic banks should have their own benchmark system to determine their profits. Since industries in their initial phase of development; it uses the references available for the banking sector. It is expected that once it reaches a significant level, it will have its own benchmark. However, the use of a benchmark interest rate to determine the benefit of any authorized transaction does not render the transactions invalid or detrimental. It is the nature or mechanism of transactions that determines their validity. Islamic banks serve the same purpose as conventional banks, provided they operate in accordance with Sharia rules known as Fiqh-al-Muamalat. Islamic banking activities should be carried out in accordance with Sharia law and its practical application through the development of the Islamic economy. Many of the principles on which Islamic banking is based are commonly accepted across the world, across countries rather than decades. These principles are not new but their original state has undoubtedly been modified across countries. The main 1976..