The way and need to improve upon treasury department in islamic banks Essay

The way and need to improve upon treasury department in islamic banks - Essay Example If we comprehend both definitions into fewer words, a bank may be called a financial institution which deals in money. ISLAMIC BANKS: Islam has laid down certain principles and rules in every aspect of human life. These principles have had a great impact on the living standards and behaviors of Muslims all over the world. This also distinguishes the life style of Muslims from other nations. Islam has also laid down certain rules and regulations for the management and performance of financial activities in the society. They may be, to some extent, repugnant to the financial standards generally observed all over the world. ‘Islamic Banking is defined as a banking business the objectives and functions of which do not involve and include any element repugnant to the teachings of Islam’ (Interpretation). The rules framed for Shariah banking are strictly in accordance with the teachings of Holy Quran and Sunnah of Prophet (Peace Be upon Him). These banking rules sometimes affi rm the rules of modern banking system while on the other times they contradict these rules. One of the main guideline given by Islamic banking system is the prohibition of ‘Interest’ or ‘Ribah’. ... However, Islam does not prohibit trading or other businesses conducted for the purpose of making. Moreover, investment in any such business is also permitted by Islam. So, one of the main aspect of Islamic banking system emerges from these guidelines. Islamic banks do not generate profits by way of charging interest on the loans given to its customers. The main source of income for them is the investment in the business. These businesses use these investments for achieving their goals and making profits. The bank is a stakeholder of such businesses and thus has a share in the profits of these businesses. These profits are then divided by the bank among the depositors. The main feature of the Islamic banking system is the compliance with the rules and regulations of Shariah. However, the interpretation of Shariah may be different in different parts of the world. However, this problem is overcome by constituting a body called Shariah Supervisory Board. The body consists of Ulemah who a re well-versed in Islamic law and may make recommendations to the banks for compliance with Shariah rules. The board also defines the status of products and transactions in the eye of Islamic law. The sources of funds for a bank working in compliance with Shariah are more or less same as that of other banks. The main source of funding is the amount deposited by the depositors and the customers of the bank. The deposits can have any of the following forms; demand deposit, time deposit or saving deposit. Another major source of funding is the paid-up capital of the bank. Such capital is paid by the shareholders or in other words owners of the banks. Bank reserves and retained earnings are also a major category of the bank’s funds. According to S.Mishkin, 70% of the total bank funds