The areas of operations of Islamic banks can be broadly classified as under,
1- Non- Fund based transactions:
For all practical purposes, the Islamic banks transact all non-fund based business and provide almost the entire range of services like conventional banks. It is, however, obvious that these services are provided against appropriate fee and charges and that Islamic banks do not involve themselves in activities like gambling, trading of prohibited items like wine and hoarding, etc.
2- Investment activities:
The Islamic banks mobilize savings, investments and other financial resources and also participate in providing equity to entries like joint stock companies working under the Islamic system and also provide finance for trade, industry and agriculture. The modes of financing being presently used broadly include:
a- Murabahah- Financing on const basis.
b- Bai-Salam- Deterred payment sales.
c- Musharakah- A partnership.
d- Leasing
e- Mudarabah- Venture capital or project finace.
2- Social activites:
Providing Qard Hasan basically to deserving persons for non-commercial activities like marriage, education, etc. or for small business requirements. In such cases only the principal is payable, provided the borrower is in a position to repay.
3- Collection and deduction of zakat from shareholders, investors, and depositors as also the administration of zakat fund and distribution from this fund to the poor and needy as per the guidelines provided by the Holy Qur'an.
It is important to appreciate that most of the modes of financing being practiced as a replacement of interest do not contribute fully in achieving the socio-economic objectives as envisaged by Islam. Further, these modes of financing, in some cases, seem to guarantee a fixed predetermined return and no risk is practically shared by the financier with the entrepreneur. It is, therefore, oblivious that these types of financing modes are not in conformity with the requirements of Shariah.
To replace interest, there are essentially only two modes of financing under the Islamic banking system, namely, Qard- Hasan and financing on profit and loss sharing basis.
1- Non- Fund based transactions:
For all practical purposes, the Islamic banks transact all non-fund based business and provide almost the entire range of services like conventional banks. It is, however, obvious that these services are provided against appropriate fee and charges and that Islamic banks do not involve themselves in activities like gambling, trading of prohibited items like wine and hoarding, etc.
2- Investment activities:
The Islamic banks mobilize savings, investments and other financial resources and also participate in providing equity to entries like joint stock companies working under the Islamic system and also provide finance for trade, industry and agriculture. The modes of financing being presently used broadly include:
a- Murabahah- Financing on const basis.
b- Bai-Salam- Deterred payment sales.
c- Musharakah- A partnership.
d- Leasing
e- Mudarabah- Venture capital or project finace.
2- Social activites:
Providing Qard Hasan basically to deserving persons for non-commercial activities like marriage, education, etc. or for small business requirements. In such cases only the principal is payable, provided the borrower is in a position to repay.
3- Collection and deduction of zakat from shareholders, investors, and depositors as also the administration of zakat fund and distribution from this fund to the poor and needy as per the guidelines provided by the Holy Qur'an.
It is important to appreciate that most of the modes of financing being practiced as a replacement of interest do not contribute fully in achieving the socio-economic objectives as envisaged by Islam. Further, these modes of financing, in some cases, seem to guarantee a fixed predetermined return and no risk is practically shared by the financier with the entrepreneur. It is, therefore, oblivious that these types of financing modes are not in conformity with the requirements of Shariah.
To replace interest, there are essentially only two modes of financing under the Islamic banking system, namely, Qard- Hasan and financing on profit and loss sharing basis.