And so it grows ...
Knowledge, that is.
It seems to me that no sooner have I started a newish theme than others join in or I find something to add.
To follow up yesterday's post, I'm indebted to a couple of local bloggers who've added to my store of knowledge about sharia
(is) so unique about Islamic banking is that it adheres to the principles of profit-loss sharing and the prohibition of interest. Unlike conventional banks that exclusively rely on debt financing like credits, Islamic banks are specialized in equity financing like mudharabah
(profit-loss sharing) or musharakah
(joint venture).Or perhaps I should say, Islamic banks are supposed to specialize in equity financing.In reality, the composition of Islamic bank's assets does not differ much from that of conventional banks: most Islamic banks' assets are not mudharabah or musharakah, but rather murabahah
(debt or mark-up financing) which is in essence similar to bank's credits that earn interest.MarekIn Sharia banking the interest is actually there,
but it's just organised a bit differently. For instance a Sharia version of buying a car on credit would be organised
a banks buys the car, adds a profit margin to the price, re-sells it to the bank client
then the client pays the bank on
an instalment basis. There is also a Sharia leasing version (called Ijara) and commodity murabaha (replaces traditional inter-bank deposits). Overall, everything is based on real property rather than electronic money.
Sharia banks are actually getting quite popular in UK. It's more of a global trend now as I think in US there are also more and more Sharia compliant banking services. I think the disappointing results of Indonesian Sharia banking units are more
a matter of the quick and dirty establishment of a new business unit rather than some wrong idea of Sharia banking; this is why Bank Muamalat is actually doing fine with its sharia banking as their business model is already well established.
Thanks guys. I think I understand.
Presumably, if sharia banks don't charge interest, they don't pay it either. And I suppose that means that the customer still gets to pay for the bank's oncosts through regular or exceptional bank charges and admin fees.
So, if I want to put a sum of money aside for the proverbial rainy day, without it losing its notional value through inflation, depreciation, devaluation and whatever, (i.e. its purchasing power remains the same), is there an acceptable sharia