An assignment on:

BANKING OPERATION BFN 224

WRITE ON THE ROLES OF ISLAMIC BANKING, THE DUTIES,

FUNCTIONS.

BY

ABRIFOR BLESSING

MAT NO: 14159

SUBMITTED TO

THE DEPARTMENT OF BANKING AND FINANCE, SCHOOL OF

BUSINESS STUDIES, EDO STATE POLYTECHNIC, USEN.

LECTURER: DR. O. S. EDOBOR

JUNE, 2023

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INTRODUCTION

Islamic banking is a system of banking or financing that is compliant with Sharia (Islamic
law). Two fundamental principles of Islamic banking are the sharing of profit and loss and the
prohibition of the collection and payment of interest by lenders and investors.

Islamic banking is based on the belief that money is a medium of exchange and should not be
used to make money. This means that Islamic banks cannot charge interest on loans, as this
would be considered usury. Instead, Islamic banks use profit-sharing and loss-sharing
arrangements to generate income.

There are a number of different Islamic banking products and services available,
including:

 Murabaha: This is a type of sale in which the bank buys an asset on behalf of the
customer and then sells it to the customer at a profit.

 Ijarah: This is a type of leasing arrangement in which the bank leases an asset to the
customer for a specified period of time.

 Musharakah: This is a type of joint venture in which the bank invests alongside the
customer in a business venture.

 Wadiah: This is a type of safekeeping arrangement in which the bank holds the

customer's money on trust.

Islamic banking is a growing industry, and there are now Islamic banks operating in over 70
countries around the world. The industry is expected to continue to grow in the coming years,
as more and more people become interested in ethical and sustainable financial products.

HERE ARE SOME OF THE BENEFITS OF ISLAMIC BANKING:

 It is based on ethical principles. Islamic banking is based on the principles of fairness,

justice, and transparency. This makes it a more ethical way to manage money.

 It is more stable. Islamic banking is not as susceptible to the same financial crises as

conventional banking. This is because Islamic banks are not allowed to engage in
risky financial activities, such as speculation.

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  It is more profitable. Islamic banks have been shown to be more profitable than
conventional banks. This is because Islamic banks are able to generate income from
profit-sharing and loss-sharing arrangements.

THE ROLES OF ISLAMIC BANKING, THE DUTIES, FUNCTIONS.

ROLES

 To provide financial services that are compliant with Sharia (Islamic law). This means
that Islamic banks cannot charge interest on loans, as this would be considered usury.
Instead, Islamic banks use profit-sharing and loss-sharing arrangements to generate
income.

 To promote ethical and sustainable financial products. Islamic banking is based on the

principles of fairness, justice, and transparency. This makes it a more ethical way to
manage money.

 To promote financial inclusion and social justice. Islamic banking can help to provide
financial services to people who would otherwise be excluded from the formal
financial system. This can help to reduce poverty and inequality.

DUTIES

 Accepting deposits from customers.

 Providing loans to customers.

 Investing in businesses.

 Offering financial advisory services.

FUNCTIONS

 Providing liquidity to the economy.

 Facilitating trade and commerce.

 Promoting economic development.

HERE ARE SOME OF THE CHALLENGES OF ISLAMIC BANKING:

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  It is not well-understood. Islamic banking is a relatively new concept, and it is not yet
well-understood by many people. This can make it difficult for Islamic banks to
attract customers.

 It is not available everywhere. There are still a limited number of Islamic banks

operating in the world. This means that Islamic banking is not yet available to
everyone.

 It can be complex. Islamic banking products and services can be complex, which can
make it difficult for customers to understand them.

CONCLUSION

In conclusion, Islamic banking operates on the basis of Shariah principles and serves as an
alternative to conventional banking systems. Its roles, duties, and functions are guided by
ethical and moral considerations, promoting fairness, transparency, and risk-sharing. From
compliance with Shariah principles to asset-based financing, ethical investment practices,
trade financing, and social responsibility, Islamic banking offers distinct services that cater to
the needs of individuals and institutions seeking financial solutions in line with Islamic
values.

REFERENCE

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1. Siddiqui, M. N. (2016). Islamic Banking and Finance: Fundamentals and
Contemporary Issues. Routledge.

2. Obaidullah, M. (Ed.). (2018). Islamic Banking and Finance: Principles, Instruments &
Operations. Bloomsbury Publishing.

3. Iqbal, Z., & Mirakhor, A. (2007). An Introduction to Islamic Finance: Theory and
Practice. John Wiley & Sons.

4. El-Gamal, M. A. (2006). Islamic Finance: Law, Economics, and Practice. Cambridge

University Press.

5. Khan, T., & Ahmed, H. (2001). Risk Management: An Analysis of Issues in Islamic
Financial Industry. Islamic Research and Training Institute (IRTI).