Essay --

Islamic Banking establishment is banking system that guided by dominions of Islamic laws (Sharia). In Islamic banking system, the most of import feature is prohibited of lodge in (Riba), no matter what type of micturate or source it is. Riba is the fixed increase on the capital, collected against a fixed period. According to Quran, in in all type of transactions, both receipts and payment of interest is prohibited. People who dealings of lending money in three conditions which atomic number 18 addition in the principal amount or capital, increment to the additional amount fixed in advance and the dealing made conditional to the two mentioned clauses are consider dealing of Riba. It is careless(predicate) of its usage whether it is a personal requisite or for a table serviceable purpose or either the borrower is poor or rich. However, mark-up for delayed payments and trade-financing commissions are allowed. The prohibited of Riba is to avoid the unbalanced distribution o f income in society if interest is involved in credit system. Risk sharing is another principle for Islamic banking system. Although interest is prohibited in Islamic banking system, they still whoremonger operate by the concept of profit and loss sharing which is utilizing the finances at risk. When there is no guarantee of return, people will be encouraged to involve in maximize their exertion to contribute relieve into production process. Mudarabah and Musharakah are two types of forms which are most desirable in profit and loss sharing concept. Under these two forms, financier makes the money available as an fit outor instead of as a lender. The funds they invest do not guarantee will bring them income, they might need to share the loss in proportion to his share. Under Mudharabah, that will be two parties involve who are ... ...s creditor and debtor. However, no matter what type of dealing a client with an Islamic bank, their relationship will never be debtor and creditor. For example, under Mudharabah basic, the relationship between a bank and a client is investor and entrepreneur notwithstanding. Moreover, when doing investments in conventional banks for example doing an savings in conventional bank for a certain period, the bank has to guarantee all its deposits when maturity, regardless the bank is loss money in an unexpected seam failure. However, for Islamic bank, if based on al-wadiah principle, Islamic bank will only guarantee deposits for all deposit accounts but if under mudharabah principle, client concord to share the loss if loss exist. Therefore, both Islamic and conventional banks cast off a totally different way in their operation although the service they provide is almost the same.