Islamic banking typically referred to as Islamic finance or shariah-compliant finance which is a kind of finance or banking practice that sticks to shariah rules (Islamic law). Two key elements of Islamic banking are the sharing of profit and loss, and the disallowance of the kinds and payment of interest by banks, financial institutions, and speculators/investors.

The practices of Islamic banking and finance came into existence during the times of the Holy Prophet (SAWW) but the proper formal establishment of current Islamic finance and banking started in the late 20th century. Today, there are more than 500 banks and over 400 mutual funds around the globe that follow Islamic standards. Somewhere in the years between 2000 and 2016, the Islamic bank’s capital inflated from $200 billion to nearly $3.5 trillion last year. This development is to a great extent because of the rising economies of Muslim nations, particularly those that have profited by the rising cost of oil i.e. Gulf region.

Principles of Islamic Finance

Islamic finance firmly adheres to Sharia laws. Modern-day finance depends on various elements that are prohibited in Islam. Islamic finance doesn’t operate on four principles which are acceptable and a major part of conventional financial operations. These four principles are:

1. Paying or charging an interest (Riba)

Islam considers providing loans with interest payments as an exploitative practice that favors the moneylender at the cost of the borrower. As indicated by Sharia law, interest is usury (riba) has been straightforwardly declared haram by Islam.

Prohibition of interest in hadith, “the prophet (PBUH) cursed the receiver, the payer of the interest, the one who records it and the two witnesses of the transaction and said they are all alike (in guilt).” – Sahih Muslim

2. Putting resources into businesses engaged with Haram activities

A few activities, for example, creating and selling liquor or pork, are denied in Islam. These exercises are considered haram or prohibited. In this manner, putting resources into such dealings or activities is similarly illegal.

3. Speculation (Maysir)

Sharia carefully restricts any type of speculation or betting, which is called maysir. Accordingly, Islamic financial institutions can’t be associated with contracts where the goods are owned by uncertainty or ownership relies upon the uncertainty of future events.

4. Risk and uncertainty (Gharar)

The laws of Islamic finance prohibit participating in contracts with inordinate danger as well as uncertainty. The term gharar measures the authenticity of danger or vulnerability in speculations. Gharar is seen with subsidiary agreements and short-selling, which are prohibited in Islamic finance.

Along with the above-mentioned prohibitions, Islamic finance depends on two other significant elements:

Every transaction must be identified with a genuine fundamental financial transaction.

Parties going into the agreements in Islamic finance share profit/loss and dangers related to the transaction. Nobody can profit from the exchange more than the other party.

CIE offers a diploma in banking and finance. To learn more about certification courses in banking, check out CIE’s course offerings.

Benefits of Islamic Banking and Finance

In this blog, we have talked about the importance and benefits of working in Islamic banking and finance. Give it a read:

Importance of Islamic Banking and Finance

Today, Islamic banking and finance are one of the thriving financial sectors of the world. Islamic banking and finance are globally developing moderately since there has been a huge influx of potential investments in the halal sector, infrastructure, and Sukuk bond especially. The significance of Islamic banking becomes very much clear as we review the numbers. At the present time, there are more than 500 Islamic banks and investment firms operating globally contributing $1.72 trillion of the industry’s assets as of 2017. Furthermore, the International Islamic Finance Forum predicts that in the following 2 to 3 years, Islamic banks will hold up to half of all investment funds of the world’s 1.2 billion Muslims. The factors accelerating the growth of Islamic financial markets are directing investment towards the massive growth opportunities in the burgeoning and fulfilling Islamic sectors.

Islamic banking is significant for the sole explanation that demand for such banking services is surging high. From individual customers to two world largest businesses whatsoever the Islamic finance market is tremendously large and strong and has just barely started to the fleet.

The Benefits of Working in Islamic Banking

For those who want to establish a promising career in finance, Islamic banking and finance speak to a remarkably potential-filled specialism. From the security of a job to career growth chances to high monetary rewards, it is a field where those with the basic required aptitudes, capabilities, and responsibility are setting examples and writing their success stories.

Only a portion of the advantages of working in the Islamic Financial industry include:

Given the way that Islamic banking is as yet considered something of a specialism catering to a specific segment of individuals or a niche in the West. Since it is developing and expanding all over the world, there is significantly less rivalry to stress over when hoping to set a career in this field and securing a job in any case.

In spite of the fact that it might keep on being viewed as a specialism catering niche for quite a while, demand for proficient Islamic banking and finance services is quickening at a rate that far outpaces that of conventional western banking systems. Investment firms and banks dealing in this, especially in Pakistan and the Middle East, have a great demand for skilled and qualified Islamic bankers and financial experts.

Learn about Islamic banking with CIE’s banking and finance courses online.

Islamic banking is one of the many modern sectors that are generally ensured to keep developing and expanding out an amazing pace with certainty. Regarding career stability and job security, it is an industry that can ensure a sound and secure career path for life.

As in every aspect of finance, there is tremendous potential for a great handsome income as one keeps climbing the career ladder in an Islamic banking system. The plus point is that there is comparatively less competition for each job post than the conventional banking system.

The plus point of an Islamic banking and financial system is that there is a perception amongst people that Islamic financial institutions are associated with a high moral standard and which is very true. It operates in a system that is religiously and morally right and never deals with risk or uncertainty.

CIE, Centre for Islamic Economics is a platform that offers courses on Islamic banking and finance, Takaful, Islamic trade, Islamic business laws, and other related products of Shariah. Check out our list of banking courses online and enroll yourself.

Why Takaful is Better Than Conventional Insurance

The thought and practice of Takaful aren’t new as it was worked on during the life of the Prophet Muhammad (PBUH). Because of the perplexing idea of business activities and advancing human needs, Takaful is currently completely popularized and is a significant piece of financial business sectors. Since it is significant in our everyday life, we accept that it is important to feature when and how Takaful began and how it originated.

Takaful is seen as helpful insurance, where individuals contribute a specific aggregate of cash to a general pool. The motivation behind this framework isn’t benefits however to maintain the standard of “bear ye each other’s burden.”

What is Takaful?

In the context of Takaful, risk can be described as the probability of undesirable outcome due to

the unforeseen future. Every human activity is prone to the danger of misfortune from unanticipated situations. To reduce this weight to people, what we currently call insurance has existed since 215 BC. This idea has been practiced in different forms for more than 1400 years. It started from the Arabic word Kafalah, which signifies “guaranteeing one another” or “joint guarantee”. Based upon the concept of mutual cooperation and assistance among participants, the idea is in accordance with the standards of compensation and shared obligations among the participants, where the accused pays off the financial liability to the victim or their heirs.

Takaful is ordinarily mentioned as Islamic insurance; this is because of the obvious similarity between the agreement of kafala (guarantee) and that of insurance.

In any case, takaful is established on the helpful standard and on the guideline of partition between the funds and shareholder’s operations, consequently passing the ownership for Takaful (Insurance) funds and activities to the policyholders. Muslim legal scholars reason that insurance in Islam ought to be founded on standards of mutuality and cooperation, including the components of mutual responsibility, common interest, joint indemnity, and unity.

There are now general, health, and life, takaful family care plans available for Muslim communities all over the world.

Takaful vs Conventional Insurance

In present-day business, one of the approaches to diminish the danger of misfortune because of incidents is through insurance. The idea of insurance where assets are pooled to help the poor doesn’t really repudiate Islamic standards.

Three significant contrasts differ in conventional insurance from Takaful:

The key distinction among Takaful and conventional insurance rests in the manner the risk or uncertainty is evaluated and taken care of, just as how the Takaful reserve is overseen. Further contrasts are likewise present in the connection between the administrator (under conventional insurance utilizing the term: guarantor) and the members (under conventional it is the safeguarded or the guaranteed). Takaful business is additionally not the same as the conventional insurance in which the policyholders, instead of the investors, exclusively benefit from the benefits created from the Takaful and investment resources.

The scope of Takaful is growing globally. Learn in-depth about Takaful and its practical applications with CIE as we offer specialized Takaful and investment banking courses. Get started today.