It is a fairer way of lending as the teachings of Share law say they are not allowed o charge Interest and risks are assessed more rigorously so there Is less chance of people defaulting. Rib (Interest) – Muslims do not believe In galling Interest as It Is unfair/unjust to earn money at someone else’s expense. Gharry (risk) – this needs to be calculated and therefore money is only lent to projects that are promising as the bank has a vested interest in them as it is their money. Linked to the economic crisis as this is why people defaulted on their loans.
The type of lending that takes place is cost plus transaction where the Institutions do charge a fixed, previously agreed fee In two mall ways: 1 . Maharajah – short term and small scale where a fixed cost is added to the total money borrowed and a reason for borrowing must be declared beforehand so this level of risk can be assessed. 2. Muskrat – long term partnership like a mortgage/ business loan where an asset is bought by the bank for the customer and they pay the bank back over time but they both share any losses if the venture Is unsuccessful.
These rules arena necessarily taken directly from the Curran but wrought I]tithed (interpretation) of scholars which create a fatwa (opinion) which is practiced widely by Muslims. Islamic banking and the recession As Islamic institutions were not involved with toxic debts they didn’t get caught u in the economic downturn. They in fact outperformed many mainstream banks during this period. There haven’t been enough assessments on the impacts of the crisis on Islamic banks to gauge the full impact on them but the evidence so far suggests that ethical conduct and risk sharing has shielded the banks from it.
Pollard and Gamers 2007 BIB has become intertwined within Western banking through Windows’. There is tension between economic and development geographers about who should study BIB but ideally both could learn from one another. Aligning and Nair 2013 There has been a 15-20% growth in people using Islamic banking as an alternative to conventional banking methods after the economic crisis as it managed to withstand the worst of the economic meltdown. Although Islamic banks can easily fall into liquidity problems, as in the Gulf if deposits are not made regularly (they can only lend real money)
