Islamic banking system and Sharia

Sharia is a set of rules and guidelines governing Islamic societies derived from the teachings of the Qur'an and Hadith. These principles cover a wide range of aspects of life, including social, economic, and political issues. In the banking context, Sharia provides a framework for Islamic financial institutions to offer products and services that conform to Islamic principles. Islamic banking is based on the principles of Sharia, which prohibits charging or paying interest (riba) and engaging in speculative or unethical practices. Instead, Islamic banking uses a profit-sharing model in which the bank and the customer share the profits and losses associated with the investment or financing.

Islamic banking products and services are designed to be Sharia-compliant, which means they are organized and administered according to Islamic principles. For example, instead of offering traditional loans with interest, Islamic banks offer financing solutions based on co-ownership or joint ventures. This may include products such as Murabaha, Musharaka, and Ijara, which are Sharia-compliant and widely used in Islamic banking to ensure they comply with Sharia principles. The SSB (Shariah Supervisory Board) is staffed with Islamic scholars who know Sharia law and provide advice and guidance on the bank's products, operations, and investment decisions.

In general, Sharia provides a framework for Islamic banks to operate in accordance with Islamic principles and values. Islamic banking has grown rapidly in recent years and is now offered by many banks around the world, offering customers an alternative to traditional banking products and services.

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