Islamic Banking

Q.  Among the following, which type of banking system works on the principles of 'sharia'?
- Published on 16 Feb 17

a. Corporate Banking System
b. Shadow Banking
c. Islamic Banking
d. Payments Bank System

ANSWER: Islamic Banking
Islamic banking is banking or banking activity that is consistent with the principles of sharia (Islamic law) and it is practical application through the development of Islamic economics.

As such, a more correct term for Islamic banking is sharia compliant finance.

Sharia prohibits acceptance of specific interest or fees for loans of money (known as riba, or usury), whether the payment is fixed or floating.

Investment in businesses that provide goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also haraam ("sinful and prohibited").

Although these prohibitions have been applied historically in varying degrees in Muslim countries/communities to prevent un-Islamic practices, only in the late 20th century were several Islamic banks were formed to apply these principles to private or semi-private commercial institutions within the Muslim community.

RBI has proposed the opening of an ‘Islamic window’ in banks to ‘gradually’ introduce Sharia-compliant banking in India.

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