Optimum Allocation of Resources: Another important objective of Islamic banking is the optimum allocation of scarce resources. The foundation of the Islamic banking system is that it promotes the investment of financial resources into those projects that are considered to be the most profitable and beneficial to the economy.
profit sharing agreements are only small percentage of their activities. Since then Islamic Banks have steadily been growing. There are thirty-one Islamic Financial Institutions and “interest-free mode of financing” which are practical and more than 48 countries as well as more than 300 Islamic Banks are working on these non-interest modes and interest-free methods all over the globe. The international Islamic Financial Institutions are providing a wide range of services in accordance with the basic principles of Shari’ah. The products are Mudaraba, Murabaha, Musharaka, Ijarah, Istisna and Salam. Conventional banks operate under the concept of lender-borrower relationship where interest is considered as the rental income on capital. The depositors are assumed to be capital providers. Profits of the banks are distributed at the discretion of the bank managements. But the Islamic Banks follow the concept of Mudaraba (profit sharing) based on investor entrepreneur relationship. Here Islamic Banks consider depositors as entrepreneurs. The profits generated through this relationship are divided between the two parties as per agreed ratio. Further, researchers divide Islamic Bank customers into three broader categories (a) religiously motivated customers (b) high profit motivated customers (c) customers who are religiously motivated but also expect returns at least similar to conventional banks. Customers of second and third categories generally dominate in terms of numbers in any Islamic bank. They expect returns on deposits similar to conventional banks. In the money market, the main objective is to meet short-term liquidity requirements. The market facilitates banks with deficit in cash to borrow from the banks having surplus money. Islamic money market conducts a similar function of meeting the
5 ISLAMIC BANKING, COM, SMVDU
Thesis On Islamic Banking And Finance Free Essays
Shawki Islami Shehta viewing the concept from the prospective of an Islamic Economy and the prospective role to be played by an Islamic bank therein opines: