Throughout the long term, Islamic finance has developed at a quick pace comprehensively and is currently a market worth more than $3.5 trillion. It largely operates in Muslim nations and offers a profitable career there. Now, it has started to expand to the Western world as well to attract investments from the Gulf region or Muslim states in general.
This blog set out to clarify the five benefits that Islamic finance offers to the community. Let’s begin.
According to the World Bank, monetary or financial inclusion is ‘’Financial consideration implies that individuals and businesses have access to useful and affordable financial products and services that address their needs– transactions, payments, savings, credit, and insurance – delivered in a responsible and sustainable way.’ (Worldbank.org, 2017).
The traditional banking framework depends on interest payments at a rate pre-set on the amounts of the deposited cash. Payment and receipt of my interest i.e. Riba are precluded under the Shariah Law, so Muslims keep away from banking. Notwithstanding, through Islamic banking, financial inclusion can be advanced and get a bigger pool of investment funds in the domestic and worldwide economy.
Shariah standards deny any exchanges that help companies or exercises which are prohibited in Islam. For instance, usury (Interest), gambling, speculation, regardless of whether these are legitimate or not in the location of the exchange.
One of the prerequisites of Islamic finance is financial justice. It enables Islamic finance products to work in a way that’s been instructed by Shariah. The Western or traditional financial framework sees making revenue through interest-based transactions and makes the beneficiary subject to any kind of hazard. Islamic finance works on the sharing of profit and loss and risks engaged in an equal way.
Financial justice is an essential prerequisite for the working of Islamic finance items. As opposed to Western or traditional financial systems, Islamic financing is based on the sharing of net profit and loss and the risks associated with a corresponding way between the creditor and the debtor. Consequently, if an agent is anticipating a case on the profits of a project, it is fundamental that he/she ought to likewise convey a relative portion of the loss of that specific project.
In Islamic finance, speculations are drawn nearer with a more slow, shrewd decision-making process, when contrasted with traditional finance. Organizations whose financial practices and projects involve a great amount of risk in them are typically avoided by Islamic financing organizations. By performing detailed audits and research analysis, Islamic finance supports the decrease of risk and makes the space for more prominent and stabilized investments.
Islamic finance organizations surely have profit creation and development as their goals. For which, they decide to put resources into businesses dependent on their potential for development and achievement. Along these lines in the Islamic banking industry, each bank will put resources into promising business opportunities and endeavor to vanquish its rivals, so as to pull in more investments from its investors. This will inevitably bring about an exceptional yield on ventures both for the bank and the investors. This is impossible in an ordinary traditional bank, where investors reclaim returns on their deposits dependent on a pre-set loan interest rate.
CIE, Center for Islamic economics is a renowned institution that offers a diploma in banking and finance and other specialized courses and workshops related to Islamic financial and economic practices. Check out our certification courses in banking on our course list.