Concepts of Islamic bank
Islamic bank is purely based on Islamic law. The most important feature of Islamic bank is prohibition on interest. According to Islamic law, accepting of interest is Haraam (means forbidden). Interest is represented as riba in Arabic language. Quran has a strong words (2: 275-279) against the acceptance of interest on the use of money capital.
Islamic banking does not allow charging of interest for loan. In Islamic banking, instead of giving the money to buyer for buying an item, the bank can directly buy the item from the seller and can resell to buyer with a profit. In case there is an delay in payment of monthly rentals, the bank can accept fine from borrower and can be used for public welfare. This concept is called Murabaha. They can also accept service charge from loan.
In the case of deposits, the bank can give rewards to person who puts their money on bank. It is known as Hibah. But this reward is not guaranteed. The bank has a choice to give this reward. Bank has a responsibility to give the exact amount back to the depositor.
Progress of Islamic bank in India
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Islamic bank has not yet started in India. Many advocates are trying their best to create an Islamic bank in India. Under the legal formalities of RBI it is little bit difficult. Recently Prime Minister Manmohan Singh has asked the RBI to take a look at the demand for creating Islamic banking in India. In Kerala the first Islamic bank is going to start with good assistance from Kerala Government. Now it is running as non-banking finance company (NBFC).
