Islamic banking Essay Example | Topics and Well Written Essays - 750 words

Islamic banking - Essay Example The laws governing Islamic banking aim at protecting the interests of the public (El, Tiby 3). This paper will discuss why Islamic banks are becoming popular to the extent that they can extend their services to most parts of the world. The paper will also discuss how Islamic banking can be the solution to the economic problems that emanate from the financial crisis. Over the past few years, Islamic banking has become a popular form of banking; as a result, Islamic banks have expanded their activities to most parts of the world. A crucial factor that has led to the significant spread of Islamic banking is because the banks do not charge interest. Islamic banks oppose the charging of interests on loans since some investments financed by loans may not perform well. Islamic banking tends to prohibit only the forms of finance where there are interests charged. As a result, the relationship between borrowers and banks is guided by the risks and returns that the two entities share. Islamic banking holds that since profit is not guaranteed, there is no need to charge interests. This notion has led to the spread of the ideals of Islamic banking in most parts of the world (Aziz & Gintzburger 270). It is worth noting that another factor that has contributed to the expansion of Islamic banking is the use of lease-based transactions, commonly referred as Ijarah. This form of transaction in Islamic banking is becoming popular, especially in the United States financial market. Ijarah refers to a form of leasing whereby there is the acquisition of the asset by the bank, after which the bank leases the customer the asset. This means that the customer will finally be the owner of the asset, either through the purchase of the asset at an agreed price or through leasing the asset (Aziz & Gintzburger 271). The spread of Islamic banking also emanates from the Murabaha service offered by the bank. This can be regarded as the most popular form of Islamic financing.