Macro

UNIVERSITY OF BALAMAND

Islamic Banking

Hiba Sbaity

Submitted to Dr. Paul Beaumont

Islamic Economics

Timur Kuran(page 155) mentioned that since the 1970’s many steps have been taken in order to put Islamic Economics into practice. Several Islamic countries now contain Islamic enterprises, Islamic banks, Islamic investment companies, publishers and redistribution systems that formed vibrant subeconomies.

Sayyid Abdul Al’a Maudadi , the Pakistani ideologist said that this new economic term that is the Islamic economics was used as a vehicle for replacing western economic approaches with an Islamic ones. Timur Kuran(page156) mentioned that this term (Islamic Economy) was launched in the 1940’s by the Indian Muslims.

The Islamic Economy differs from the secular Economy by three fundamental characteristics:

1. The prohibition of the interest; “Quran bans all forms of interest”, the Islamic economists justified the ban by a common argument that ‘’it is unjust to earn money without assuming risk’’. (Afzal ur rahman, 1980, chapra, 1992)(Page 157). The banking must be based on profit and risk sharing, each of the parties must hold share of the risk in the financial contract. In Islamic banking based on profit and loss sharing the contracting options available to financial intermediaries are more restricted as they are in non Islamic economics such as USA. Chapter 3 in Iqbal and Mirakhor gave more explanation on why the concept of Riba (interest) was prohibited in Islam. It is prohibited by God to pay or receive more than the principle on the money lent as loan. “God emphasized engaging in trade and commerce rather than earning through riba” (page 55).

2. Zakat, which is an ancient redistributing system; It is the tax paid by the wealthy Muslims to the poor people in the society, it is a must. Zakat would be an effective instrument to fight poverty and inequality than the modern state because Muslims can directly pay taxes to an Islamic government...