Essay --

Muslim Banking system is banking system that maneuver by principles of Muslim laws (Sharia). In Islamic banking system, the most important possess is prohibited of interest (Riba), no matter what type of form or source it is. Riba is the mulish increase on the capital, collected against a fixed period. According to Quran, in all type of transactions, both receipts and payment of interest is prohibited. People who dealing of lending money in iii conditions which are addition in the principal amount or capital, maturation to the additional amount fixed in advance and the dealing make conditional to the deuce mentioned clauses are consider dealing of Riba. It is disregarding of its recitation whether it is a personal need or for a useful calculate 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 of income in society if interest is touch in c redit system. Risk sharing is another principle for Islamic banking system. Although interest is prohibited in Islamic banking system, they still can hold out by the concept of turn a profit and loss sharing which is utilizing the funds at risk. When there is no underwrite of return, people will be advance to involve in maximize their exertion to contribute justify into action 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 funds in stock(predicate) as an investor instead of as a lender. The funds they invest do not guarantee will bring them income, they might need to overlap the loss in proportion to his carry on. Under Mudharabah, that will be two parties involve who are ... ...s creditor and debitor. However, no matter what type of dealing a leaf node with an Islamic bank, their relationship will never be debtor and creditor. For example, under Mudharabah ba sic, the relationship between a bank and a client is investor and entrepreneur only. Moreover, when doing investments in stodgy 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 business 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 have to share the loss if loss exist. Therefore, both Islamic and conventional banks have a totally different way in their operation although the service they proffer is almost the same.