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    Abdullah Nurul Sabri Bin Sulong 2019182261

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    Afiq Adnan
    The document discusses Islamic banking and compares it to conventional banking. It elaborates on the key terms of Islamic bank, Islamic banking business, and Shariah compliant bank. The three main reasons why Islamic banks need to be Shariah compliant are to preserve the five principles of Shariah law, eliminate elements like riba and uncertainty, and ensure Muslims can circulate wealth properly. The four main goals of Islamic banking are economic development, reduction of moral hazard, offering financial services adhering to Shariah, and being more conducive to poverty alleviation. The four main comparisons between Islamic and conventional banks are their contracting parties, prohibited elements, oversight committees, and basis of profit-sharing vs interest.

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    Abdullah Nurul Sabri Bin Sulong 2019182261

    Uploaded by

    Afiq Adnan
    30 views2 pages
    The document discusses Islamic banking and compares it to conventional banking. It elaborates on the key terms of Islamic bank, Islamic banking business, and Shariah compliant bank. The three main reasons why Islamic banks need to be Shariah compliant are to preserve the five principles of Shariah law, eliminate elements like riba and uncertainty, and ensure Muslims can circulate wealth properly. The four main goals of Islamic banking are economic development, reduction of moral hazard, offering financial services adhering to Shariah, and being more conducive to poverty alleviation. The four main comparisons between Islamic and conventional banks are their contracting parties, prohibited elements, oversight committees, and basis of profit-sharing vs interest.

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    The document discusses Islamic banking and compares it to conventional banking. It elaborates on the key terms of Islamic bank, Islamic banking business, and Shariah compliant bank. The three main reasons why Islamic banks need to be Shariah compliant are to preserve the five principles of Shariah law, eliminate elements like riba and uncertainty, and ensure Muslims can circulate wealth properly. The four main goals of Islamic banking are economic development, reduction of moral hazard, offering financial services adhering to Shariah, and being more conducive to poverty alleviation. The four main comparisons between Islamic and conventional banks are their contracting parties, prohibited elements, oversight committees, and basis of profit-sharing vs interest.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    30 views2 pages

    Abdullah Nurul Sabri Bin Sulong 2019182261

    Uploaded by

    Afiq Adnan
    The document discusses Islamic banking and compares it to conventional banking. It elaborates on the key terms of Islamic bank, Islamic banking business, and Shariah compliant bank. The three main reasons why Islamic banks need to be Shariah compliant are to preserve the five principles of Shariah law, eliminate elements like riba and uncertainty, and ensure Muslims can circulate wealth properly. The four main goals of Islamic banking are economic development, reduction of moral hazard, offering financial services adhering to Shariah, and being more conducive to poverty alleviation. The four main comparisons between Islamic and conventional banks are their contracting parties, prohibited elements, oversight committees, and basis of profit-sharing vs interest.

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    Abdullah Nurul Sabri Bin Sulong 2019182261

    1. Elaborate the term Islamic Bank, Islamic Banking Business and Shariah Compliant Bank

    Islamic banking refers to a system of banking that complies with Islamic law also
    known as Shariah law. The underlying principles that govern Islamic banking are mutual risk
    and profit sharing between parties, the assurance of fairness for all and that transactions are
    based on an underlying business activity or asset. The transaction must avoid prohibited
    elements such as riba, gharar and maysir.
    Islamic banking business, also known as non-interest banking, is a system based on
    the principles of Islamic and guided by Islamic economics. They are also regulated under
    Islamic Banking Act 1983. Islamic banks make a profit through equity participation which
    requires a borrower to give the bank a share in their profits rather than paying interest
    (Investopedia, 29 April 2009).
    Islamic banking exists to further the socio-economic goals of Islam. Accordingly,
    Shariacompliant finance (halal, which means permitted) consists of profit banking in which
    the financial institution shares in the profit and loss of the enterprise it underwrites. The
    contract must be halal transaction without any element of prohibition.

    2. Explain three (3) reasons why the Islamic Bank need to be Shariah Compliant

    Firstly, to preserve 5 of Maqasid Shariah which is faith, life, intellect, lineage and
    wealth. This is to ensure that community of Muslim does not faced any hardship in doing
    any transaction. Example, Muslim must grow up their wealth by doing shariah investment
    and keep it in safe by saving in Islamic banking.
    Secondly, to eliminate the elements in conventional banking like riba and
    uncertainty. Islamic bank should offered the Islamic product to the Muslim to comply with
    the Shariah Law. For example, product of Islamic banking is Mudharabah which is the
    contract based on the profit loss sharing.
    Thirdly, to ensure that all the Muslim will be able to get the right way to invest and
    saving and can circulate their wealth. It is because the main objectives is to help other
    people who are in need and to make sure that all the Muslim can live comfortably same as
    others.
    3. Explain four (4) goals of Islamic Banking

    The main goals of Islamic Banking is for the economic development. Cihák and Hesse
    (2008), based on “z-scores” analysis, proved that Islamic financial system is financially
    stronger and less risky. It is argued that the possessors of investment accounts in Islamic
    banking system don't have fixed value securities, which means that investment depositors
    automatically share the risk in the loss profit sharing contract.(Čihák, Martin and Heiko
    Hesse, 2008)
    Secondly, reduction of moral hazard. Islamic banks have a great advantage from the
    characteristics mentioned above, especially from unethical investments, Al-Gharar
    (excessive uncertainty) and Al-Darar (harmful in contracts) In addition, the willingness to
    raise deposits and attract more depositors to launch “Cultural Programs” to instruct their
    employees on the religious dimensions of their activity. (Goaied, Mohamed and Seifallah
    Sassi (2010)
    Thirdly, offer financial services to the customer. Islamic bank should be the priority
    for the Muslim to get the financial services rather than conventional banks. It is because the
    thrust is towards financing on risk sharing and only focus on halal activities. Islamic bank also
    focus on offering banking transaction adhering to Shariah principle and avoiding
    conventional interest based banking transaction.
    Lastly, more conducive to poverty alleviation. In conventional banks only riches will
    have most access to financial market. In contrast, Islamic finance provides funds on the basis
    of sharing profit and loss principle, which gives importance on profitability and rate to
    return.

    4. Discuss four (4) comparisons between Islamic Banks and Conventional Banks.
    Firstly, in Islamic bank the term of contracting parties is seller and buyer because
    they have the underlying asset. In conventional, the term they are using is borrower and
    lender.
    Secondly, in conventional banking the prohibited elements is included in their
    transaction such as usury, uncertainty and gambling. And Islamic banking does not accept
    any transaction that involved above element because the contract will change to null and
    void.
    Thirdly, Islamic bank has Shariah committee that will supervise the bank and advise
    if there are any arising issue about Shariah matter and guide how to solve that problem.
    Conventional banking does not have shariah committee which is that bank is prohibited for
    muslim to involve.
    Lastly, Islamic bank is based on sharing lost profit while the conventional bank is
    based on interest which can suppress the customer to pay more to the bank.

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