Is Islamic banking only for Muslims? Yes, Islamic banking is defined by Islamic principles and uses values and guidelines that are in line with the tenets of the faith. Still, its application is not limited to Muslims alone.
There is no prohibition for customers of different faiths to bank with Islamic financial institutions. In fact, Islamic banking has several advantages over the conventional marketplace.
Let us take you through this alternative method so you can see how it could benefit every customer. Here are 5 reasons why Islamic banking makes sense for everyone.
1) A stable financial system
Islamic finance has evolved as a component of the global economy and is competitive and resilient to an extent that it won’t be an exaggeration to say it’s stabler than its conventional counterparts. The system links physical assets to the real economy and channels funds properly and ensures genuine underlying trades and related activities accompany business transactions.
The supervisory Shariah framework also strengthens the entire ecosystem. Islamic financial institutions adopt a slower and insightful decision-making process when it comes to investments. They perform intensive audits and analyses and avoid companies with risky financial practices and operations. The Shariah law demands appropriate due diligence and calls for a high standard of disclosure and transparency. The banks have to lay out their terms and conditions in an honest and clear manner in order to qualify.
Also, Islamic transactions do not tolerate ambiguity based on future events. This avoids potential conflicts, as it prohibits interest (riba), gambling (maisir) and dubious ambiguity (gharar).
Islamic finance promotes the reduction of risk through the prohibition of interest contracts. It removes a major source of instability from the equation — the conventional interest-based debt. It also reduces the risks associated with excessive financial leveraging and speculative activities. Preserving financial stability spares the economy the disruptive effects of a financial crisis.
2) Works towards sustainable and inclusive development
Become a part of a more inclusive financial system which centres around transparency, fairness and sustainability, and leads to economic growth, low poverty, and shared wealth. The Islamic financial ecosystem balances profitability with service to the broader community.
Islamic institutions give financial support to productive enterprises. This increases output and generates jobs in the market. The system redistributes wealth and opportunity, promotes financial sector development and improves the access for financial tools to the poor and small businesses.
To date, a broad range of sub-sectors have adopted Islamic finance. Micro-financing eradicates poverty by supporting small entrepreneurs. Public infrastructure financing comprises of dams, ports, airports, railways and highways. The system incorporates a diverse nature of players and accelerates the economy for the long haul.
3) Stringent quality control frameworks in place
Malaysia’s Islamic Banking Act and the Shariah Governance framework sets strict standards which Islamic banks must adhere to. They confirm that their infrastructure is adequate and their products are in compliance with the Shariah.
In addition, Islamic financial institutions have their own Shariah committees. This ensures that they conduct their affairs in line with the Islamic principles. Majority of the committee members are scholars who have knowledge and expertise in Islamic jurisprudence. Some may also be experts from relevant backgrounds such as finance and law.
The Shariah committee advises the board and management of the bank and its subsidiaries, sets the requirements for products and services, and offers inputs on Shariah matters. These quality control measures serve to safeguard the Islamic finance business.
4) A wide range of products and services to cater to individual banking needs
It’s a fact that Islamic finance encapsulates the bigger economy, but just like conventional banking it also caters to individual financial requirements. You can seek financing for a property and vehicle or save and invest for short and long terms through Islamic banks.
The Islamic financial marketplace has developed a wide range of Shariah-compliant products and services. Islamic banks offer alternatives in the form of structured and investment-linked banking products including personal banking and financing, investment solutions and Islamic wealth management.
Islamic banks have also embraced technology to further consumer convenience with their adoption of e-banking and mobile banking platforms.
5) An equal relationship structure between bank and customer
When you choose Islamic banking, you become a business partner. The bank and you share the profit and loss and the risk involved in a proportional manner. The bank does not act as a creditor.
As such, Islamic banking presents a multifaceted investor-entrepreneur relationship whose transactions provide an important layer of protection. This is more comprehensive than the conventional banking system that offers a straightforward creditor-debtor relationship.
DISCLAIMER: The opinions expressed in this article are the author’s own and do not necessarily reflect the views of BBazaar.
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