High Interest Islamic Development Bank Loan for BD

[integra]

Self-delete

 

[Al-zakir]

USURY has been prohibited by our religion. Yet, the Arabs will charge us $64 million dollar for just over a $100 million. We are discussing this Bank named Islamic Development Bank.

Eastwatch We must be missing some information from this article. According IDB's website and other info that I gather, they financed based on Shari'ah to 56 member country. Bangladesh is a member country. It doesn't make sense.

Take a look. You may want dig up some more before drawing up final conclusion.

Islamic Development Bank - Wikipedia, the free encyclopedia

http://eco.isu.ac.ir/EDU/New_Folder/dlc1/lectures/general/FAQs.pdf

 

[StingRoy]

I think BD is taking a hard loan instead of a soft loan which could be the reason why they have to pay the interest. Does IsDB have different policies for hard and soft loan?

Quoted from the article: "The government is taking US$140 million hard loan from the Islamic Development Bank (IDB) for building the Padma Bridge, which will make repayment expensive by $64 million, officials said."

 

[Al-zakir]

I think BD is taking a hard loan instead of a soft loan which could be the reason why they have to pay the interest. Does IsDB have different policies for hard and soft loan?

There is no soft or hard loan in Islamic banking. Everything based on principal of business. Islamic Bank doesn't give money(cash) instead Bank buy materials and then sell it to customer for some profit.

 

[TopCat]

ohh..its very much like mutual fund..but then,this model works if someone wishes to deposit money,or invest money,for which we may or may not have better options of mutual fund available.What if someone wishes to take a loan??Any provisions for that???

Well I should not have said mutual funds as you messed up there. If you want to take loan from Islamic Bank then its just a normal procedure as like as any other bank. You submit project proposal, feasibility study and collateral. Bank will look into it and participate as a share holder for a certain period of time. They will take the profit or any loss from that venture. If the business fails, the loan taker does not have to pay back the money.

 

[fallstuff]

Well I should not have said mutual funds as you messed up there. If you want to take loan from Islamic Bank then its just a normal procedure as like as any other bank. You submit project proposal, feasibility study and collateral. Bank will look into it and participate as a share holder for a certain period of time. They will take the profit or any loss from that venture. If the business fails, the loan taker does not have to pay back the money.

You mentioned collateral, whats that for ? Traditionally bank holds collateral to mitigate risk.

Years ago I had a friend who worked for AL Baraka bank in Dhaka. I don't know if that bank is around anymore. What he told me, there is not much diference in approach to profit and risk analysis with traditional banking

 

[TopCat]

You mentioned collateral, whats that for ? Traditionally bank holds collateral to mitigate risk.

Years ago I had a friend who worked for AL Baraka bank in Dhaka. I don't know if that bank is around anymore. What he told me, there is not much diference in approach to profit and risk analysis with traditional banking

In islamic banking it does not called collateral but equity participation of the loan receiver. The terms are sometimes confusing. You are right on the aproach of profit and risk analysis.

 

[Al-zakir]

What he told me, there is not much diference in approach to profit and risk analysis with traditional banking

Although it seem this way but there is a difference.

Say you want to buy a car or build house with borrowed money.

case-1-1
Traditional bank- loan you 10 lak and you pay them back 11 lak in 5 years. 1 lak is fixed interest. You may or may not buy the car or build the hose. You may want to blow the borrowed money in gambling but Bank want it's 11 lac with five years or face the music.

case1-2
Islamic Bank- They will buy the car from dealer or build the house and then sell it to you for some profit. You repay them in 5 years. Buy it or leave it. It's your choice. Pure business.

Case one is interest while case 2 is business. Interest is haram while business is halal.

Case 2-1

Traditional bank
Deposit 10 lac and get back 13 lac after five years. Fix interest. Doesn't matter if bank lose money on investment or not. You will get your 13 lac even if the bank choke it from some one else. you could care less about the source of the money. It's risk free return.

Case 2-2
Islamic bank.
Deposit 10 lac in business scheme. Profit or loss would be based on the performance of the business over the years of investment. Islamic bank doesn't guarantee fixed profit. Investors gain if investment gain, lose if investment lose however good business man invest on many categories so that risk are eliminated. Pure and simple.

I hope this will clear up some confusion.