Advantages /Disadvantages Of Islamic Banking

In past years Islamic finance has been growing rapidly. There are many reasons and benefits why one must choose this Islamic banking. Below are some of the benefits that one will get by choosing the correct banking system.Essentonally Islamic bank follows two kind of banking principles. One is Bai’bithamanAjil and MusharakahMutanaqisahBai’bithamanAjil is basically based on the Murabahah concept and it is also one of the most popular option for most of the home buyers. Whereas MM is basically a partnership between the bank and the client in order to buy the property.

No Compounding Interest as well

Since Islamic banking does not have any interest, it does not have compounding interest in late payments as well. However, the late payment fee for home loans can hover over 1% annually. Which is basically much lower than other home loans with higher charges and compound interest.

There won’t be any interest.

In Islam, earning of interest is prohibited, however you won’t find any of the interest charges in your home loan agreement. Unlike other home loans, Islamic Home financing simply has a fixed profit rate.

Penalty Free

The penalty fee for a property disposal within the mentioned period can be lower than the a conventional loan. However a conventional loans penalty fee for an early settlement has a fixed percentage. Whereas the Islamic banking will charge the bank based on the banks cost of funds. However the fee might differ from one bank to another bank.

What are the drawbacks

There are quite a few disadvantages in Islamic banking and even in Islamic Insurance too. Below are some of the weakness of Islamic finance. Even though this particularly option is sound, the calculation method that each bank uses may differ. Though the actual outcome may not be detrimental to the bank or the person who takes It, Due to certain restrictions in the actual procedure, a level of uncertainty exists for both the bank as well theclient. When it comes to alternation the terms of financing, it can be stressful. Incase if a customer needs to alter the terms of condition, a new sale and buy-back agreement should be made and signed. However a conventional loan will only require the amendments to be stamped which will cost lesser. Visit this link https://www.hejazfs.com.au/wealth-protection/ for more info on Islamic Insurance.

Base Financing Rate

Unlike any other conventional loans which are basically based on BLR, Islamic financing is based on BFR. Which means the bank can adjust based on the ongoing market condition. Which is basically the maximum profit an Islamic financer will earn.