Home » A Detailed Guide to Islamic Banks, Their Values, and Practice

A Detailed Guide to Islamic Banks, Their Values, and Practice

by Uneeb Khan

Islam pays special attention to economic development. One most important indicators of the Islamic economy is achieving economic development. It is done by the absence of usury in the verses of the Quran and many hadiths. This basic principle emphasizes that the economic system should be free of usury. Currently, most of the monetary transactions in the world are done by banks.

From this point of view. The administration of Personal Insurance and the administration of economic affairs of countries. They all need the existence of banks. The idea of ​​Islamic banking was first proposed in the 1950s.

The first Islamic investment bank was formed in the 1960s. It was formed in Malaysia and Egypt, and in 1974, the Islamic Bank of Dubai emerged. This article is descriptive and analytical and examines Islamic banking.

To examine the root of the word bank. We must know that this word is not independent. It has taken meaning from several different languages ​​over the past years. But in the simplest of terms. A bank is an economic and financial group for which duties have been defined. In recent years, new duties have been added.

Various duties of banks:

· Conduct financial operations

· Equipping and distributing credits

· Perform credit operations

· Collection of documentary claims and dividends of customers

· Transfer of funds

· Payment of debts of customers who have deposited in the bank

· Safekeeping of depositors. Deposits and stocks and securities, as well as valuables related to them

· Buying and selling currencies

· Carrying out the duty of guardianship for customers. Representing the purchases and sales of depositors

To check the work of the banks, there is an institution called the Central Bank. The central bank defines its responsibility by controlling all banking networks and affiliated and approved banks. Managing monetary stability policies in the country and making all licensed banks work.

It handles providing service and coordinating with the economy. In “Islamic banking”, the functions are the same as in all banks. The difference is that all actions in these banks must be based on the laws of Islamic jurisprudence. A great scientist Shahid Sadr first presented the theory of Islamic banking.

Perhaps the most important principle and basis of “Salami banking” is the absence of usury. In Islam, we call usury the interest of money. Because in Islamic jurisprudence, receiving extra money from the borrower is considered usury. It is forbidden, and it was on this basis that in 1362. In 1362 the Islamic Council created a law titled Banking operations without usury.

Personal Insurance

This law has been implemented since 1363. The beginning of Islamic banking activity goes back to 1974 because this year, the price of oil suddenly began to rise after the rise in oil prices. Islamic Banking became popular among Islamic countries. Such as Pakistan, Iran, and other Southeast Asian countries.

Contracts and Agreements in Islamic Banking

In the “Islamic banking” system. Various contracts and agreements are followed for the survival of the bank. The most important and widely used of which are the following:

· Qarzul-Hasna

· Mudarabah (profit sharing)

· Deposit

· Partnership (joint investment)

· Murabahah (a contract based on the cost price)

· Permission to get (leasing)

How is Islamic Banking Halal?

Maybe you are asking, how can activities in this type of bank have a halal background? For the activities in “Islamic banking” to be halal. The bank, as a lawyer, receives money from the depositor. Then the depositor, under the power of attorney contract, delivers his capital to the bank.

So that the bank can activate it in the economy and in various matters, either he uses the abovementioned contracts to achieve a halal and defined profit. The bank, as a lawyer, deducts its profit from this transaction. Afterward, the bank delivers the rest of the capital to the investor or the customer. In Islamic jurisprudence, only riba or money interest is forbidden.

But the rest of the capital income is not forbidden. According to Islamic teachings, using capital in the implementation. Also, its use in a project that creates a job is highly important and has even been praised.


In Pakistan, Islamic Banks and the basis of the contract between the investor and the bank. Is based on the principle that instead of requesting and determining the profit.

The risk of profit and loss from both parties, especially the bank, is considered. This view has caused more investment in the real sectors of the economy on Islamic Banks in Pakistan.

This view makes it different from conventional banking, where profits are paid through usury. Islamic Banks are a way to help the individual rather than benefitting from them. That is why a loan is provided without any interest in return in Islamic Banks, making it a halal form of banking.

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