Basic Principles of Islamic Banking Essay Sample

Wakalah ( Agency ) occurs when a individual appoints a representative to set about minutess on his/their behalf. similar to a power of lawyer. It is an understanding between the Bank and an agent whereby the agent invests it harmonizing to specific conditions in return for a certain fee ( a ball amount of money or a per centum of the sum invested ) . The agent is obliged to return the invested sum in instance of default. carelessness or misdemeanor of any of the footings and conditions of the Wakalah.

Qardul Hassan ( Benevolent Loan ) is a loan extended on a goodwill footing. and the debitor is merely required to refund the sum borrowed. However. the debitor may. at his or her discretion. pay an excess sum beyond the chief sum of the loan ( without assuring it ) as a item of grasp to the creditor. In the instance that the debitor does non pay an excess sum to the creditor. this dealing is a true interest-free loan.

Ijarah is an understanding whereby the Bank ( lease giver ) purchases or concepts an plus for rental harmonizing to the customer’s petition ( leaseholder ) . based on his promise to rent the plus for a specific period and monetary value. Ijarah could stop by reassigning the ownership of the plus to the leaseholder and there must be usufruct. Usufruct is a legal term depicting a state of affairs wherein a individual or company has a impermanent right to utilize and derive income from person else’s belongings ( provided that it isn’t damaged ) .

Hibah ( Gift ) is a nominal given voluntarily by a debitor to a creditor in return for a loan. Hibah normally arises in pattern when Islamic Bankss voluntarily pay their clients involvement on nest eggs history balances. stand foring a part of the net income made by utilizing those nest eggs account balances in other activities.

Takaful ( Islamic Insurance ) is an alternate signifier of screen that a Muslim can avail himself against the hazard of loss due to bad lucks. Takaful is based on the thought that what is unsure with regard to an person may discontinue to be unsure with regard to a really big figure of similar persons. In short. it means sharing of hazard. It is frailty versa to concept of conventional insurance whereas conventional insurance involves the elements of uncertainness ( Al-gharar ) in the contract of insurance. chancing ( Al-maisir ) as the effects of the presence of uncertainness and involvement ( Al-riba ) in the investing activities of the conventional insurance companies which contravene the regulations of Shariah. It is by and large accepted by Muslim Jurists that the operation of conventional insurance does non conform to the regulations and demands of Shariah.