The roles
of Islamic banks include but are not limited to the following:
1. It reduces the dichotomy between financing and the use of funds leading
to integration of real and financial sectors of the economy.
2. The direct linkage between financing and application of funds under
Islamic banking means an end to untied cash as found in interest based
economies. Thus an important cause of the mismatch between aggregate demand and
supply in the economy will be removed.
3. Better business ethics – banks will only entertain economically viable
financing requests
4. Instead of being lenders, Islamic banks will provide financing by coming
in as traders (murabaha), lessors (Ijara) or partners (mudaraba; musharaka)
5. Islamic banks will stay away from financing prohibited activities e.g.
producing alcohol etc.
6. There will be greater transparency in their transactions with clients –
depositors as well as fund-seekers- due to compliance with the avoidance of
gharar (ambiguity) resulting in clear contracts for every transaction
7. Greater economic stability – it is well known in traditional finance
literature that interest based debt finance is an important source of economic
instability when compared with equity finance
8. It reduces poverty by SME financing, rural and agricultural operational
expansion and introducing corporate and individual ZAKAT accounts for social
welfare and less social inequality.
9. Providing Islamic financing facilities including loans to businesses
that are ethical, moral and beneficial to society causing speculative
businesses to starve from financial point of view.
10. Collection of savings and remittances using Islamic modes of finance and
channeling them to profitable and secure businesses, helping in resource
allocation of country.
11. To reduce the rocketing inflation through less artificial money creation
and less funding of speculative businesses.
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