Zaiban wrote:
E.g:- in conventional banking...for example u want Rs. 1 million to start a business ... the bank gives u Rs. 1 million and u have to pay them 20% interest annually...whether u make a profit or not..
in Islamic banking... u want money to start a business.....the bank will come in as an investor and share a percentage of your profits... when you can pay of the bank's capital.. u can stop paying them a % of your profits...
this is just one structure...
alternately lets say u want to buy a house.....
conventionally gives u a loan and u pay an interest.... until u pay off capital.... even if the house doesn't exist.... get damaged... destroyed etc...
in islamic banking system....the bank jointly buys a house with u... and u pay them a rental in proportion to their ownership of the house.... if house gets destroyed ....both parties lose...
thereby if u see something common in the islamic system is tht it shares the burden of losses and shares success of profits... thus not bogging down the customer to pay interest no matter wut the economic situation in his business or house is....
in conventional u don't need an asset or any kind of economic development to take place... u just pay me my interest like shylock wants it... no matter wut happens??? which system is fairer and just... make ur own decision....
The way u put this, Islamic banking cares about the customer.. So it has an advantage when ppl's emotions are attached to it.
But lets think deeply how a financial system works, they lend money for a time period and what they get in return is what u pay in that period as interest. That cuts their costs of operating the bank. Wages for employees, expenses of maintaining the building, vehicles, etc.. will also have to be borne by the bank.
Than they take deposits of your money upon agreeable rate per year. That's what you get in return for your investment. Banks invest your money in other instruments that attract more interest than they pay you (may be riskier) in order for them to pay you, your promised interest.
But if Islamic banking is all about sharing the profits or take your burden out, then if an entrepreneur's quest goes wrong, the banks losses everything. And if bank does a lot of investments like this, the bank itself may have a clear path of bankruptcy.
Needless to say, the bank may take up projects after careful inspection and even supervision would go to make sure the profitability of the business its vested interested in but who can say things might not go wrong? Who can say things that happen to CIFL, Vanik cannot happen to any other entity. The ppl inside can lead the entities to the ground or heaven.. Its all in the ppl who manage the entity..
Yes in conventional banking, you are expected to pay back every penny u owned them regardless of your state of business, u gotta pay.. And Islamic system bears the loss. But both systems can go wrong..
My opinion is that Islamic view is in good faith but doesn't it hinder the sustainability of the bank? For example, if some projects go wrong, it can negatively effect and these effects can even be irreversible. Yes it happen to both systems but the former has more law enforcement where the ppl who default payments can get sued, asked to pay up by whatever means. And these actions might fear others who purposely take loans an default while the latter wipes it off as a loss.
In conclusion, Islamic system is in good faith but I have a doubt in long term sustainability. Sustainability is what we all want regardless of the race, ethnicity, religion, et..... Especially with Islamic banking, the bank needs to stay with the ppl.. What if the bank's situation worse due to the reasons we discussed?