Shari'ah concepts in Islamic banking

• Author: Botis, S.
• Position: Dept. of Finances, Accounting and Economics, Transilvania University of Brasov
• Pages: 139-146

Bulletin of the Transilvania University of Braşov

Series V: Economic Sciences • Vol. 6 (55) No. 2 - 2013

SHARI’AH CONCEPTS

IN ISLAMIC BANKING

Sorina BOTI

1

Abstract: The paper analyses the main Shari’ah concepts in Islamic banking,

a system which oper ates in accorda nce with the Islamic law principles, the

most importa nt being the prohibition against the pa yment or acceptance of

interest charg es (riba), replaced by profit-and-loss-shar ing

arr angements(PLS), Mudhara bah. Also, the paper presents a sur vey of the

historical evolution of the Islamic banking system in Muslim countries, starting

with the first Isla mic bank, ear ly in the 60’s, Mit Ghamr Local Savings Bank

in Egypt. In conclusion, the Islamic banking system is a ra pid growth one. It is

expected that this pr esentation will be helpful in increasing the interest in the

Islamic principles of banking and financing.

Key words: Riba, Islamic Economics, Islamic Banking, Interest.

1. Introduction

Islamic Banking is restricted to

Islamically acceptable transactions, which

exclude those involving alcohol, pork,

gambling-maysir (games of chance

involving money), bayu al-gharar

(speculative trading or trading in risk),

engaging in only ethical investing and

moral purchasing.

Islamic banking is also known as an

interest free banking system, as the Shari’ah

disallows the acceptance of “riba”.

In the Arabic language, „riba”, the literal

meaning of interest, also known as „usury”,

means excess or addition, an effortless

profit, the "premium" that must be paid by

the borrower to the lender along with the

principal amount as a condition for the loan

or for an extension in its maturity, a tool of

oppression and a means to unjustly take

money of other by exploiting their needs

and circumstances.

1 Dept. of Finances, Accounting and Economics, Transilvania University of Braov.

Riba is forbidden in Islamic economic

jurisprudence, under Shari’a Islamic law,

and considered as a major sin, amongst the

Seven Heinous Sins (Believing in gods

other than God; Practicing magic; Murder;

Riba/usury; Unlawfully taking orphans’

money; Running away from the battlefield;

Accusing chaste, believing women) [Al-

Saba al- Mubiqat].

The term riba is used in the Shari‘ah in

two senses. The first is riba al-nasi’ah (riba

in loans, interest charged on money loans),

and the second is riba al-fadl (riba in

excess, interest which is charged in barter

transactions of commodities).

Riba al-fadl involves an exchange of

unequal qualities or quantities of the same

commodity simultaneously, and could

therefore be described as the usury of

surplus. Riba al-nasia, the usury of waiting,

involves the non-simultaneous exchange of

equal qualities and quantities of the same

commodity and does not therefore involve