Sample Essay

The main principles of Islamic banking pertain to the fact that Mudharabah also known as profit sharing whereby the profits and losses on the investment are shared by the customer and the bank in the ratio of their respective investments. An Islamic bank goes into a joint venture agreement with the customer under the Musharakha which enables the bank provide capital investment in businesses for  in association with its customers though a documented process where the profit and loss sharing done on the basis to the customer at of pro rata.

The Wadiha or safekeeping is the Islamic banking concepts which provides that the bank is responsible for keeping the funds of the customer as an ‘Amanat’ and is responsible for its safekeeping. Murhaba is another principle of Islamic Banking which is provides that the sale is documented with the cost of the product sold is explicitly mentioned along with the mark up put on the sale. This information is provided to the buyer in order to educate them whether the sale is made at profit, or at cost. Even a sale made at loss also has to be documented and shared with the buyer. Islamic banks make use of Murabaha for dealing with micro financing products, property, the import and export related services as well as when providing asset financing to customers.

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