History of Islamic Banking

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Student's name Course Professor Date History of Islamic Banking Introduction Islamic banking is defined as the banking activities or system that is guided by Islamic Sharia (Islamic set of values and rules).According to the holy Quran any interest charges on money borrowed and lend to a person is prohibited (Kuran 66). Hence, Islamic Banks do not charge interest on loans offered to the clients. Any business that charge interest on its services is considered to be Haraam; an Islamic term meaning forbidden. In short, Islamic bank operate just the same as conventional banks only that they have to follow Sharia rules strictly in their operations (Chapra 231). By the year 2009, there were over 250 mutual funds organizations and 300 banks complying with Sharia laws worldwide. The number of assets controlled by Sharia banks grew by 17.6% between the year 2009 and 2014.These banks targets to grow by 19.7% by 2018. Origin of Islamic Banking Islamic banking gained momentum and spread between the years 1960 and 1970 although, the concept had been used since the Islam was born. The concept is traced back in the prophet’s time when he carried a partnership business on behalf of his wife. The partnership business is known as Mudarbah in Islamic business community (Nomani and Rahnema 799). Many scholars have found out that Islamic finance concept have been into practice all through the Middle Ages and no interest was charged on loans back then. There are several economic techniques and concepts that have been used in the Islamic capitalism market for a long period. For example Bills of exchange are known as mufwada, capital is known as al-mal, capital accumulation is referred as namal-al-mal. The term Waqf is used to refer to trusts, promissory note, or cheques while Riba means interest rates (Rosly 137).

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