Ethical banking Islamic banking (2024)

FAQs

Ethical banking Islamic banking? ›

In terms of normative ethics, Islamic finance thus encompasses an approach that is both consequentialist as well as deontological. There is a duty to observe high ethical standards and a corresponding requirement to take into account the wider impact of the transactions financed.

Islamic banking is consistent with the principles of Sharia. A key factor is that it operates without interest, which is not permitted in Islam, as money by itself is not considered to be a commodity from which you can profit.

Most ethical banks have developed special saving products that seek to promote sustainable development. For example, customers may let the interest on their savings be (partially) transferred to environmental or human rights NGOs, or to a specific environmental project.

If a transaction is done according to the rules of Islamic Shariah it is halal even if the end result of the product may look similar to conventional banking product.

Maysir: Gambling. One of three fundamental prohibitions in Islamic finance (the other two being riba and gharar). The prohibition on maysir is often used as the grounds for criticism of conventional financial practices such as speculation, conventional insurance and derivatives.

The risks are more aligned on the basis of contract types as a result of the special structuring of the contracts in IFIs. The types of risks specific to IFIs include: (a) credit risk (b) market risk (c) liquidity risk (d) operational risk (e) legal & Shari'ah risk and (f) displacement risk.

The ethical banking movement includes: ethical investment, impact investment, socially responsible investment, corporate social responsibility, and is also related to such movements as the fair trade movement, ethical consumerism, and social enterprise.

U.S. Bank is one of four honorees in the banking category and the only U.S.-based bank to be honored for 10 consecutive years. The listed 2024 World's Most Ethical Companies® honorees outperformed a comparable index of global companies by 12.3% from January 2019 to January 2024.

Can non Muslims use Islamic banking? ›

There is no doubt that both Muslims and non-Muslims can use Islamic finance without any distinction. However, Islamic Financial banks still have work to do as competition heats up.

One of the primary differences between conventional banking systems and Islamic banking is that Islamic banking prohibits usury and speculation. Shariah strictly prohibits any form of speculation or gambling, which is referred to as maisir. Shariah also prohibits taking interest on loans.

Instead of taking out an interest loan to buy something, the customer asks the bank to purchase an item and sell to him or her at a higher price on instalment. The bank's profit is determined beforehand and the selling price cannot be increased once the contract is signed.

The Islamic banking system is, at its heart, an ethical system where depositors entrust the bank to invest their savings in partnership, sharing any profits which are generated.

Islamic banking is available through purely Islamic banking institutions, and some non-Islamic banks also offer Islamic banking products. Although Islamic banks and current accounts follow Sharia financial rules, they're open to everybody, regardless of religious belief.

A large number of studies have also discussed customers behavioral attitudes such as knowledge and awareness, religiosity, trust on IB services and intention to use as the likely barriers to the adoption of IB.

Islam has laid down some universal fundamental rights for humanity as a whole, which are to be observed and respected under all circ*mstances. To achieve these rights, Islam provides not only legal safeguards but also a very effective ethical system.

Major characteristics of Islamic ethics include bravery, consideration, experience, fairness, justice, honesty and the pursuit of knowledge. Each ethic is discussed in detail below, along with examples and reference to al-Quran and Sunnah.

Finances morally acceptable projects. Islamic banking is based on a moral system of Islam, which only allows for the financing of assets that are not harmful to society. Islamic banks are not allowed to finance casinos and other activities that are deemed harmful to society and the poor in particular.

According to Islam, there is nothing wrong in fair trade and commerce. In fact, a businessperson who performs his business operations with honesty and in accordance with the commands of Allah (TME) deserves to be rewarded by Allah (TME) in the life hereafter (Akhirah).