Fundamental Differences and Distinctions Between Interest-Based and Interest-Free Banking: A Shariah and Research-Based Analysis

سودی اور غیر سودی بینکاری کے مابین بنیادی فروق امتیازات: ایک شرعی و تحقیقی تجزیہ

Abstract

The Prohibition of taking and giving usury is confirmed by the Holy Qur'an and the hadiths of the Prophet, while usurious transactions are practiced in modern forms in usurious banks and financial institutions. On the contrary the struggle to establish interest-free banking system has been implemented as an alternative to the interest-bearing banking system in view of the dire need and an obligation. The non-interest banking system is based on halal Shariah contracts such as Murabahah, Ijarah, Musharka, Salam, Istisna, Shirkat and Mudarabat.The Holy Quran has declared trading (i.e. buying and selling) as an alternative to usury, and the above-mentioned contracts are types of trading  so it is correct to make these contracts and transactions an alternative to usurious banking system with their correct Shariah rules. Basically the banking system consists of two parts: Asset part and liability part. In the asset part, the private and commercial needs of the people are met in financial terms of daily life, Now the interest banks fulfill these needs of the people by giving them usurious loans And non-interest-bearing banks fulfill the needs of people by using Bi' Murabaha, Ijara and Musharaka, which are contradictory, the proof of these contracts is from the Qur'an and Sunnah. While in the liability segment banks collect money from people, now interest banks use the money collected by people for further interest-bearing business and interest-bearing loans to the people who have deposited these amounts in the bank at a special rate. Paying interest after a specified period of time such as various bank accounts, savings accounts and fixed deposits etc. In them, the same trading method is adopted. Non-interest-bearing banks do business on the basis of participation and mudarabah from people's funds in the liability section. The system of non-interest-bearing banks is carried out under the supervision of Shariah advisors, so Musharakah and Mudarabah contracts are executed according to Shariah principles. A study of usurious banking and non-usurious banking systems clearly shows that there are stark differences between these two banking systems. Sometimes, looking at the end and the result, it is said that these two systems are the same, although this may not be true because the means of reaching the end and the result are different.