The vital side of Shariah Compliance in Islamic Banking


As far as conventional banking is concerned, it is obvious that it accepts deposits on the basis of interest and lends the deposits and equity on the basis of interest. Therefore, the customers of the conventional banking know very much about the nature of the transaction i.e. on the basis of interest.
On the contrary, it must be understood that in Islamic banking, the case is not as same as conventional banking. Islamic banking is absolutely different from conventional banking and the philosophy, concept and mechanism of the transactions are entirely different from its conventional counterpart.
As mentioned above that in conventional banking, the interest based lending and interest based deposits are prevailed but in Islamic banking, there are many modes are used according to the needs of the customers. In Islamic banking, the partnership based modes, sale based modes, rental based modes and Qard based modes are used. Therefore, there is very much important that the customer must have awareness of the modes and the process of the transaction as the transaction may be executed in absolute Shariah compliant manner.
It is generally observed that most of the customers do not take interest in the certain mode and process of the transaction and show their interest only in obtaining financing from Islamic banks. On the other hand, the concerned officials of Islamic banks wants to extend financing to the customers as early as possible and do not take interest to inform and guide the customer regarding nature of the transaction. Due to this reason, the customers even do not read the agreements and relevant documents as well. This behavior, from both sides, is not right according to Shariah as this behavior leads to Gharar (Uncertainty) in transaction which is Haram (Prohibited) according to Islamic posture because Gharar brings issues in the transaction which may lead to unlawful activity and disputes.
When the customer does not absolutely understand the nature of the transaction, it may bring issues. One issue is that the customer may do any non Shariah compliant activity which may lead the transaction void and this activity may give result in the charity of the profit of Islamic bank. The second issue is that the ignorance may lead to dispute between the two parties regarding any certain matter in the transaction.
Keeping in view the scenario, it is the immense responsibility of Islamic banks to give awareness about the certain mode and process flow of the transaction to the certain customers and guide how to execute the transaction in the Shariah compliant manner. This behavior would lead to make awareness among the customers of Islamic banks that how Islamic banking is different from conventional banking.
In case of acceptance of deposits, the Islamic banks offer Qard and Mudaraba based modes for opening of deposits. Generally, the current account is based upon Qard and Saving and Term Deposit accounts are based upon Mudaraba. It is the immense responsibility of Islamic banks to keep aware customers about the profit and loss distribution mechanism as the customer may understand the clear difference between Islamic and conventional banking and the customer may find no ambiguity regarding the profit and loss distribution of Islamic banking. In case the customer would provide no information of mechanism orprovide wrong information about the profit distribution and profit rate etc., the dispute may arise from the customer at the time of profit distribution due to lack of awareness. Likewise deposit products, at the time of financing, the customers must be informed about sale, rental and partnership based modes in the proper manner and first inform the reason of offering the certain mode to the customer. In case of sale based modes like Murabaha, Salam and Istisna etc., the customer must be informed about the necessary steps in the transaction as how the goods would be purchased and how the goods would be sold. In case of rental based modes, the customer must be informed about how the bank would purchase the asset and how the asset would be provided to the customer on rental basis and how the customer would become owner of the asset at the end of the rental period. In case of Musharaka based modes, the customer must be informed about the relationship of partnership and the process and completion of different types of partnership between the bank and the customer.
In the execution of transactions, the concerned officials of Islamic banks must guide the customers during the transactionsand must watch the activities of the customers to ensure Shariah compliance at every step. This is not only important that the Islamic banking officials must know the nature and process of execution of transaction for the strict Shariah compliance but it is also very much essential factor that the customer must also know the nature and process of execution of transaction because the bank and the customer both involve in the certain transaction and if both the parties would understand the case, the transaction would be executed according to Shariah.
The conclusion of the above mentioned discussion is that even though the Islamic banks offer Shariah compliant modes to their customers, this point is very much important also that Islamic banks must give proper awareness to the customers about these products and services as if there is no clarity between the two parties regarding the certain transaction, it would be prohibited as interest is prohibited.

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