Professional Documents
Culture Documents
BANKING
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What is Islamic Bank
Riba technically refers to the premium that must be paid by the borrower to the
lender along with the principle amount as a condition for the loan. In this case
riba obviously means interest.
Islam made a clear distinction between trade and riba . Tarding is encouraged
but riba is prohibited.
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Principles of Islamic finance
(cont.)
Prohibition of Gharar ( Uncertainty, Risk or speculation)
Under this prohibition any transaction entered into should be free
from uncertainty, risk and speculation. Contracting parties should
have perfect knowledge of the counter values.
* Ignorance of the goods or price.
* or false description of the goods.
* Selling of goods that the seller is not in a position
to deliver.
Murabahah
In an Islamic mortgage transaction, instead of loaning the buyer
money to purchase the iteam, the bank might buy the iteam itself
from the seller, and re-sell it to the buyer at a profit.
Ejara
It is similar to
Musharaka
The bank and borrower from a partnership entity, both
providing capital at an agreed percentage to purchase the
property.