05 February 2011

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Know and Understand Islamic banking System – Kerala Government Planning to start Islamic Banks in Kerala.

Know and Understand Islamic banking System –
Kerala Government Planning to start Islamic Banks in Kerala.

Know and understand Islamic banking.
Easy approach to understand Islamic banking.

What is Islamic banking system?

A banking system which is based on Sharia Muslim law and principles is called as Islamic banking system.

This banking system do not allow to pay interest. Islamic banking system do not allow to invest money in the business which are contrary to Islamic principles and law, the term is harram is used in Islam for this.

Islamic banks currently operate in Muslim community mainly.

The first Islamic bank was started, savings bank based on profit-sharing in the Egyptian
town of Mit Ghamr in 1963.

The first modern commercial Islamic bank, Dubai Islamic Bank, opened its doors in 1975.

The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba (usury).

Islamic or Shariah-compliant banking provides and uses financial services and products that Conform to Islamic religious practices and laws, which, in particular, prohibit the payment and receipt of interest at a fixed or predetermined rate.

In practice, this means that instead Of loans, Islamic banks use profit-and-loss sharing arrangements (PLS); purchase and Resale of goods and services, and the provision of services for fees form the basis of Contracts

In an Islamic bank, the rate of return on a deposit is directly dependent on the quality of the Bank’s investment decisions.
If the bank records losses as a result of bad investments, depositors may lose some (or all) of their deposits.
The contractual agreement between depositors and the Islamic banks does not predetermine any rates of return; it only sets the ratio according to which profits
And losses are distributed between the parties to the deposit contract.

Understand the Islamic banking through example:
Suppose Mr John wants a loan to purchase a car or say house and he goes to Islamic bank, then bank will purchase the car and keep the ownership with the car and give that car to
Mr. John .
The ownership remains with the Bank until Mr. John pays the loan amount to the bank. Same rule is applied to nearly everything just they use different names for transactions.
There are no late fees, penalites etc if john is not able to pay on time.

And finally, Islamic banking is restricted to islamically acceptable deals, which exclude
Those involving alcohol, pork, gambling, sex, movies, etc.

When Islamic bank is smaller it works very well as depositors and management of bank
Can watch, monitor every activity very closely.

But when Islamic bank becomes bigger crosses the state borders it becomes very difficult
To monitor.

Current banking system is good but what happened in USA and fallout of all
Economies is a result of greediness of politicians, bankers, executives.

To over this problem there should be international monitoring bank or body which will watch and detect the frauds, greedyness.laziness of banks.

Islamic Banking system is very popular in West Asia and in predominantly Muslim nations such as Malaysia and Indonesia. Leading international banks such as HSBC and Standard & Charted have exclusive Islamic banking windows.

India and Islamic Banking System –

Few weeks back The Kerala High Court dismissed a petition that said an Islamic bank violates the principle of secularism as laid out in India's constitution.
The petition had been filed by former Law Minister Subramanian Swamy.

Just for the Muslim Votes , Kerala Government has decided to start the Islamic Banking in Kerala. The sanction for the Islamic bank comes three months ahead of elections in Kerala. Muslims constitute 25 per cent of Kerala's vote bank

The Congress has not taken a stand on the issue, while the BJP has voiced its opposition.

The Kerala State Industrial Development Corporation will hold 11 per cent stake in the bank.
The bank plans to raise an initial capital of 500 crore rupees from NRIs and will avoid all interest-linked business activities.
It will provide interest-free loans for those looking to start new businesses and small-scale ventures.
It will also invest in the infrastructure sector.
The activities of the bank will be supervised by a Shariah Supervisory Board which will include Islamic scholars.

Opening Banks on religious grounds is not good for India.
This will again divide India, Hindu and Muslims population will get divided.

The good thing for India is nothing should be based on religion, caste and creed, every Indian should get as per his family status like reservation or anything.

This is the total wrong doing by politicians I will appeal to Muslims do not vote for such people, demand better schools and collages , good roads etc.

If this Bank is based on Islamic system, then do you think they will follow Islamic punishment of Hand cutting, or stone death in matters of such Bank.

This again proves that India is secular nation on the papers only to fool the world.
Where is democracy and equality?

Reality views by sm –
Saturday, February 05, 2011


Amrit February 05, 2011  

Can we have Islamic bank in India? Is it allowed by law...religion based banks? That is utter nonsense. Is not family law enough? We should have changed that long way back.

Sushant Jain February 05, 2011  

completely agree with you...

sm,  February 05, 2011  

sushant jain,,

sm,  February 08, 2011  

sushant jain,,

nikhimenon February 08, 2011  

copletely agree with you.....
india is as secular as pakisthan.....


sm,  February 08, 2011  


Anonymous,  May 05, 2011  

This is a new initiative to secure economic system. Reason why They selected this name here is just because of the principle followed by this bank is Islamic and attract money from NRI.

If not this name...
Can you tell me new meaningful name for such new banking system?
can you tell who will provide fund of 500cr for this?

The intention is to follow the principle of the system banking concepts in Islam - they are using Islamic banking system for good not punishment system. You are trying to manipulate the concept.

If Islamic banking is successfully followed Malaysia - why we cant?

sm,  May 05, 2011  


Ajith July 05, 2011  

@Anonymous : In order to attract NRI you need this name? is it country more important or religion?If a new banking system is coming and it is beneficial to common man it will be accepted by all the people here, it doesnt need the label of a religion. and in this system it is completely followed with Islamic law which a large number of people in kerala cant follow in their life as they dont believe in that. So this can be seen only as a means of Divide and rule..the politicians who make these kind of stupid movements dont know they are cutting the branch where they are sitting.

sm,  July 06, 2011  


Anonymous,  March 27, 2012  

Its Islamic Banking because it uses the Islamic priciples. If non-muslims are so angry about this you need not invest here.You can eat the easy earned money made out of interest making the poor poorer and the rich more rich.We muslims dont like to eat unearned money thats why we try to keep ourselves away from interest. Let the poor farmers suicide out of interest accumulation.Dont forget that you are eating up the money made by the poor as interest.