Advantages of Islamic Banking

We are all aware that the global finance market is dominated by the convention banking system. However, due to the advantages of Islamic banking, the industry has expanded rapidly over the last decade, growing at the rate of 10 – 12%. Many international and local banks have stepped into the Shariah-compliant financial industry by establishing Islamic units and wings in their existing banking system.

advantages of Islamic banking

Islamic banking, initiated around 40 years ago was first limited to Middle Eastern countries. But over the years, it has become an effective tool for finance development worldwide including non-Muslim countries by becoming a more than $2 trillion market at the global level.

Let’s take a look at the five main advantages of Islamic banking:

Promotes Financial Justice:

Financial justice is the main principle of the Islamic model. Islamic banking creates a balance for the net profit or loss between the lender and the beneficiary rather than throw it all on the entrepreneur. If a project is financed by the Islamic bank, the output of the project will be equally distributed amongst both parties. If the financier is expecting to receive profits for a certain project, he should also agree to carry a share of the loss.

Financial Inclusion:

Muslims refrain from banking through the conventional banking system since it is based on paying/receiving an interest which is strictly prohibited by the Shariah Law. In fact, almost three-quarter of the world’s Muslims remains unbanked. Islamic banking removes these barriers and allows Muslims to benefit from the financial system.

Reduces the Impact of Harmful Products and Practices:

Islamic banking restricts the goods and services that are restricted in Islam such as alcoholic beverages, tobacco, gambling, pornography, etc. irrespective of whether they are legal or not in a given country.

Strengthens Financial Stability:

In Islamic finance, the investments are approached cautiously and the decision-making process is carried out thoroughly unlike the conventional banking system. The companies who appear risky are usually kept away from financial institutes. This is why during the global 2008 financial crisis; the Islamic financial institutes remained untouched. With careful audits and analysis, the Islamic finance institute lessens the occurrence of risk and enhances financial stability.

Ethical and Moral Values:

The ethical and moral values within the Islamic banking system are one of its salient features. This plays an important role in promoting socially desirable investments and better individual/corporate relationship as well as behavior.

Why Islamic Finance?

Islamic banking regardless of the emphasis on its ethics is a suitable option for both – Muslims and non-Muslims. The market demands for Islamic banking are higher than ever and more than 50,000 professionals will be required for the industry in the next five years. You can be one of them too. AIMS Islamic financial institute is performing a key role is producing skilled human resources for Islamic finance professionals, and professionals study Islamic finance courses online from all over the world.

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