Sample Essay
“The prohibition of charging interest forces Islamic Banks to either ‘sell’ tangible goods or take equity positions in the businesses they finance. Hence they assume more risk than do conventional banks. Venardos emphasizes, to a fault, how Islamic banks provide conventional banking services, yet he does not delve into some of the services they provide that are similar to those provided by conventional mutual funds. A substantial part of Islamic banking involves partnerships formed in the course of financing that are more reminiscent of developing a portfolio of equity positions like those of mutual funds”. (‘Islamic banking in Southeast Asia’, 2008)
Traditionally however the concept of Islamic banking was rather simple where the products and services were trade based along with the businesses where investments were being made. The profits and losses from the investments made in business were shared by the investors with profits coming in the form of dividends and losses being shared by both the customers and the bank The concept of interest free financial services is present in Islamic banking where by insurance and leasing of assets are provided to the customers without the any interest. In leasing the Islamic bank buys the car or an asset for the customer and allows the customer to make use of the asset. The customer is liable to pay the total cost of the asset over a period of years with no additional payables in the form of interests. “When it comes to mortgages or car loans, typically the bank buys the home or car for the customer, who in turn leases the items back from the bank. ‘We buy property on behalf of the customer and they pay us back in monthly installments over a maximum of 25 years,’ said Emile Abu-Shakra, a spokesman for Lloyds TSB inLondon. ‘The bank and buyer enjoy a kind of partnership.’” (Emling, 2005)
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