What Is Islamic Banking?

Islamic Bank (al-Bank al-Islami) A collective name for financial and credit institutions established in the country by modern Arab and Islamic countries in accordance with the principle of prohibiting interest in the Qur'an. Also known as the "Islamic Banking Movement." It is a new financial system established by Islamic countries in the third world to gain economic and financial independence in the international community, mobilize domestic economic forces, promote the growth of the national financial industry, and develop national economic and cultural education. . According to the Qur'an and Sharia law, interest is illegal income and must be prohibited. Therefore, the credit of such banks does not include interest, that is, interest is not charged on loans, and interest is not paid on deposits. Its source of funds mainly depends on customer deposits and government interest-free loans.

Islamic Bank

The financial credit activities of Islamic banks generally adopt 4 methods: (1) Participation in the shareholding system. When a bank provides a loan to a borrower's development project, it invests in the form of shares, and the two parties distribute the profits according to the agreement. (2) Profit and loss sharing system. The bank forms a partnership with customers (that is, depositors and borrowers), and both parties share the operating losses or participate in the distribution of profits in accordance with the agreement. (3) The fare increase system. When banks finance trade, they earn income from elevated prices. When a customer applies for a loan to purchase a certain kind of goods, the two parties reach an agreement and the bank pays for the purchase. When the loan is due to be repaid, the bank charges a higher price than the original item, and the difference is the bank's income. (4) Fee system. All remittances, letters of credit, medium and long-term loans, foreign trade loans, etc. are charged by the bank at a rate of 2 to 4% on the amount and term, which are used to pay the bank's management fees and the difference in inflation. In order to encourage the expansion of deposits, depositors can participate in profit sharing, receive deposit bonuses and currency preservation funds according to the bank's operating conditions and the amount of deposits, and give preferential treatment in applying for loans and using checks.

Islamic banks appeared in the late 1950s. Earliest in

Islamic banks do not operate according to the traditional commercial banking model, but operate according to the teachings of the Qur'an. They are different from traditional commercial banks in terms of daily management, interest payments, business areas, risk control, and relationship with lenders.

According to statistics from the Bank of Indonesia, the UK Trade and Investment Agency, and the like, the average annual growth rate of the global Islamic banking industry has exceeded 10% in the past 10 years, and the current total turnover has reached 700 billion to 1 trillion US dollars, which has become an important part of global assets. . More than 300 institutions in more than 75 countries have participated in the development of this industry.

From the perspective of country distribution, Islamic banks are mainly distributed in the Middle East and Southeast Asia (mainly Indonesia and Malaysia), and have also developed in Europe in recent years. In Southeast Asia and the Gulf region, 20% of bank customers have spontaneously selected Islamic financial products with similar risk returns as conventional financial products. The development of Islamic finance in Europe is reflected in the increase in the number of Islamic banks in the UK and the increase in related investment management activities, and the issuance of Islamic bonds by the German government. For example, 22 banks in the UK provide Islamic account services and about 20 large law firms provide legal services related to Islamic finance, making the UK an Islamic financial center in Europe. Among the major international banks, HSBC has been involved in the Islamic banking industry and has set up a special department responsible for its operations and management.

Islamic banking in Indonesia. According to relevant data from the Indonesian central bank, the average annual growth rate of the Islamic banking industry in Indonesia has reached 34% in the past five years. As of June 2010, the turnover of the entire industry reached US $ 7.4 billion, accounting for 2.7% of the national banking industry. In the development of Islamic finance, in addition to enhancing relevant cooperation with the United Kingdom, Indonesia has also developed strategic cooperative relations with international organizations including the Asia-Pacific Rural Agricultural Organization (APRAC) and the Asia-Middle East Dialogue (AMED). Muliaman, deputy governor of the Bank of Indonesia, said in June 2010 that Islamic banks provide alternative financial tools for economic development and provide customers with Islamic products in line with Islamic teachings. In the future, the Bank of Indonesia will develop Islamic banks into support An important industry for economic and social development.

As the country with the largest Muslim population in the world, Indonesia has the basic conditions and huge potential for the development of Islamic banking. At present, the Indonesian government is committed to establishing partnerships with global financial institutions to lay the foundation for the country to become an Islamic financial center in Asia and the world. ^[1]