Question

what are conceptional arguments of islamic banking and finance?

Answer 1

Islamic Banking and Finance mainly emphasizes on "Islamic Faith". Conceptional arguments are pointed out as below:

• Interest for transaction is prohibited in Islamic Banking. Argument behind the concept is that the religion prohibits the payment of taking any sort of interest, usury etc which in order to protect the Muslim's financial welfare. This is called as Riba which means increase over the lent money and whichever was charged excess over the money that has been given over a period of time.
• Shariah (Islamic Religion Law) restrictions are implemented over risk and profit sharing equally on entrepreneur and investor. This is called as Profit and Loss Sharing a.k.a Participatory Banking. This is termed as "Mudarabah" which means sharing the profit and loss among the venture capitalists. Here one party provides the funds whereas the other provides expertise in the field of business to run the operations. Argument behind the concept is that lesser the risk the lesser the liquidity shall faced by the investor and capital provider(Bank or financial institution).
• Musharakh is another law where the joint firm will allow pre-decided profit and loss sharing among the entrepreneurs.Distribution is based on capital and management they bring into the firm. The main motto behind this is to promote stable money where the people will carry on long term investment both by finance as well as in interest over the business.