The culture of loan defaults in the country, which has become widespread, can be significantly curbed through the proper application of Islamic banking. Specifically, it can help prevent fund diversion and money laundering. Islamic banking is operated on the basis of moral principles.
In conventional banking, money is treated as a commodity, whereas in Islamic banking, money is considered a medium of exchange.
Additionally, Islamic banking emphasises the welfare of society and refrains from investing in sectors that are harmful to society. To ensure the system is properly supervised, Islamic banking operates under a Shariah Board, which works to maintain customer trust.
The fairness in profit and loss sharing between the bank and the customer, as established by the Islamic banking system, is drawing not only Muslims but also non-Muslims toward this banking method. In conventional banking, when we deposit money, the bank pays a fixed interest rate regardless of the bank's profit or loss.
The key difference in Islamic banking is the exchange mechanism between the bank and the customer. If the bank makes a profit, the customer receives a share of that profit on their deposit. However, if the bank incurs a loss, the customer receives no profit. These aspects form the fundamental distinction between Islamic and conventional banking.
In the Mudaraba System, one party provides capital, and the other party uses their expertise and labor to run the business. The party providing the capital is known as Sahib-al-Mal, and the party running the business is called Mudarib. In case of a profit, it is shared between both parties. However, in the case of a loss, the capital provider bears the loss, and the business operator does not receive any remuneration for their labor and expertise. If the Mudarib incurs a loss due to negligence, rule violation, or breach of contract, the Mudarib bears the responsibility.
In Murabaha, after purchasing a product, the bank adds a specific profit margin to the purchase price before selling it. Musharaka is another Islamic banking investment method that operates through joint ventures between two or more partners. Here, all partners share the profit and loss of the business based on a contract, and they are equally liable for repaying any debts incurred by the business.
As I mentioned earlier, the popularity of Islamic banking is steadily increasing. The trust and confidence it has established have led to growing public engagement with this banking system, and it is expected to continue to grow in the future. I believe that, following the directives of Bangladesh Bank, Islamic banking operations will expand and gain even more popularity, especially among conventional banks that have Islamic branches or windows.
To further boost the economy, Islamic banks can develop plans to support new entrepreneurs and create job opportunities. By increasing investments in the agricultural sector, Islamic banks can play a more effective role. A major driver of the country's economic growth is remittances, and Islamic banks can take initiatives to support manpower export. Furthermore, these banks can contribute to social and economic development through activities such as tree planting campaigns, sanitation programs, eye camps, education expansion, and mass literacy campaigns.
Islamic banking emerged primarily to meet people’s needs. Its role in poverty alleviation and socio-economic development has already been widely recognized. By investing in education and technology, Islamic banks are contributing to the country's socio-economic development. These banks are also investing in entrepreneurship, leading to the creation of numerous entrepreneurs and generating employment opportunities. Small-scale entrepreneurs, even with limited capital, are playing a vital role in strengthening the foundation of our country's economy. Moreover, Islamic banking plays a significant role in channeling the hard-earned remittances of expatriates through the banking system. Overall, by reducing unemployment and promoting self-employment, Islamic banking is making a revolutionary contribution to building a prosperous, poverty-free Bangladesh.
Source : Bangladesh Pratidin
BDST: 1508 HRS, OCT 03, 2024
MSK
