Why should you take Islamic loan instead of interest based loan?
Islamic loan is a type of loan being provided by Islamic bankswhich do not follow the commercial banks rules and regulations. It is basically held as an interest free account. Since profiting via interest on one’s money is strictly prohibited in Islam. And it is obligatory to Muslims to make sure their money is far from dealings of interest rates by using the services of Islamic loan. Besides the interest part, one more thing which Islamic system makes sure about is where your money is invested. The money kept in such a bank account are not invested in businesses which deal in goods and services not allowed in Islam. According to Sharia Laws, money can be used for your benefits in an exchange of goods and you cannot take interest other than your actual income. Islamic Account is best suited for people who are not will to take interest on their savings or allow their money to be invested in businesses that are prohibited by using the Islamic loan offers. So most of the banks particularly Mashreq bank of Dubai along with commercial banking services also deal with the Islamic services and make sure the transactions your money will be used for are according to Islamic laws and does not involve prohibited activities. Since, investment on prohibited products is not allowed. You might wonder how one might benefit both the bank and the account holder through an Islamic loan system. So there is a profit / loss sharing rule between the investor and the bank. Now how does this works, is that there is no fixed interest rate that would be give on specified time period on the Islamic account. But the amount of profit gained from the money invested from your account will be shared between the service provider (bank) and you (the client or customer). If the profit is high, then higher rates will be transferred to you if the investment fails to profit and makes a loss, then the amount will bored by both – the bank and you. That is the beauty – It is a two way road. A partnership rather than a customer based transaction. The argument on interest rate is very strong and Islamic law strictly neglect this system. And to deal with this, most Islamic advisory board member came to conclusion to put an upper limit to the percentage of a company’s interest income. Since, almost every company has to make a profit from interest but now most of them are working on Islamic loan system. So, the members decided to deal with only companies who profit in the certain limit of interest. And avoid business with the ones who surpass this limit. This approach makes sense in some aspects though. It is important to note that not every Sharia compliant bank follows this particular attitude towards interest. And if they do, they are obligated to inform this to the Islamic account holder through Islamic loan system. If some amount of money is invested in a property that is to be mortgaged to an applicant then the Sharia compliant savings account owner has an entitlement to the property. To profit from this investment the bank charges rents from the leased property owner for the lease until the total payment is completed. And it is legal in accord to Ijara. Islamic current account holders also are required to pay zakat once in a while. This zakat is deducted when and only when it is necessary and the customer who want to take Islamic loan is obligated to. Due to its focus on tangible assets and business regarding the transactions, sharia compliant account and banking not only benefited Muslim countries but also made a great impression on Western society as well through interest free Islamic loan system. Most of the developed countries in the Middle East region and also in west are examples of adopting this banking. And according to reports Dubai real estate has made real improvement ever since the integration of Islamic Financing regarding the home loans through Islamic loan. Majority of people in Dubai now opt in towards opening Sharia Compliant account and make sure their money is in better and transparent use for transactions.