Islamic Banking Regulations And Reporting Essay

1196 Words Oct 30th, 2014 null Page
Islamic Banking Regulations and Reporting
Unlike its conventional counterpart, Islamic banking laws and reporting revolve around Sharia and other Islamic laws. There are six key principles to Islamic banking. Predetermined loans with interest, also called “riba”, is prohibited. The only loan that is allowed, according to the Sharia, called “ward al Hassan”, which translates to “good loan” (Kesowani, 2012). This means that the lender does not charge interest or additional money from the money lent. This prohibition also includes to any advantage or benefit that the lender could get out of the “ward” (loan). Profit and loss sharing is essential to Islamic finance. The principle states that the lender must share in the profit or losses that come from the enterprise for which the financial capital was lent. The religion of Islam encourages Muslims to invest their money/assets and be partners of organizations and institutions in order to share profits and risks in a business instead of being creditors (Kesowani, 2012). Islamic finance is based on the belief that the person or entity providing capital and the person or entity receiving it, should equally share the risk of business venture, whether those are industries, service companies or basic transactions (Kesowani, 2012). In the banking realm, the depositor, the bank, and the borrower should all share the risks and the benefits of financial business ventures. With interest-based commercial banking system, all the burden and…

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